00:05 Thank you for joining us today for Udemy Fourth Quarter and Fiscal 2021 Call. I would now turn the call over to Taylor Joel.

00:21 Thank you. With me today are Gregg Coccari, Udemy’s CEO; and Sarah Blanchard, Udemy’s CFO. Before we begin, during this call, we may make forward-looking statements within the meaning of federal security laws. These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated. 00:46 For a complete discussion of risks associated with these forward-looking statements, we encourage you to refer to our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. 00:59 Our forward-looking statements are based upon information currently available to us. We caution you not to place undue reliance on forward-looking statements, and we do not undertake and expressly disclaim any duty or obligation to update or alter our forward-looking statements, except as required by applicable law. 01:17 In addition, during this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with the U.S. Generally Accepted Accounting Principles referred to by the Securities and Exchange Commission as non-GAAP financial measures. 01:35 We believe that these non-GAAP financial measures assist the management and investors in evaluating our performance and comparing period-to-period results of operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules to our earnings release. 01:52 A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release. These reconciliations, together with additional supplemental information, are available at the Investor Relations section of our website. A replay of today's call will also be posted on the website. 02:10 I will now turn the call over to Gregg.

02:14 Thank you, for joining us. We're very pleased with our performance in the quarter, which came in ahead of guidance. We experienced continued extraordinary growth in momentum business, which grew 81% year-over-year contributing to our overall top line growth up 25% versus 2020. 02:36 In the quarter, more than 32 million unique visitors per month visited our consumer marketplace, and we reached over 10,500 Udemy business customers. As we look to 2022, we see the tailwinds of up skill and reskill driving Udemy businesses strong ARR, which was 239 million exiting the fourth quarter. 03:00 In Q4, our consumer business returned to growth, and we believe it has stabilized at roughly 1.3x pre-pandemic revenue levels. Global traffic remained strong and we continue to see more than 5,000 new courses published each month. 03:18 Our consumer marketplace is the engine that provides high quality content for Udemy business and helps generate the leads driving its growth and success. Our marketplace allows us to maintain our affordability and accessibility and it's where tens of millions of learners help us identify the fresh high quality, relevant content that is a true differentiator for us. 03:41 With content in more than 75 languages, our consumer marketplace enables us to expand the reach of Udemy Business to now include 13 language packages, most recently in Polish and Korean. 03:54 In addition, we built a tools and playbooks that we believe our Udemy Business customers need to attract, retain, and engage their employees. Driving phenomenal ROI and an impressive learner net promoter score up 61. 04:11 Our ability to provide broad deep array of high quality content to enterprises, on a truly global scale is driven by our consumer marketplace, and it's what puts Udemy Business in a league of its own when it comes…

15:30 Thank you, Gregg. The phenomenal growth of Udemy Business, the progress and consumer subscriptions, personalization, and immersive learning capabilities, our strategic partnerships in Africa, Korea, and China, it was quite a quarter for us. 15:46 Q4 revenue of 138 million was up 25% year-over-year and up 6% sequentially. Udemy Business revenue was 58 million, up 81% from the prior year, an exceptional growth rate at this scale. Our consumer business delivered 80 million, up 3% from the prior year. 16:07 The consumer segment has stabilized and is on a path to future growth as we return to the new normal. We've seen significant traffic growth in certain geographies, which have a lower price point, would also learn [indiscernible], allowing us to maintain our focus on unit economics. 16:23 While we are really excited about the growth in these regions, it is harder to predict mix and retention as [indiscernible] differs by country. For that reason, we are expecting consumer revenue in the first half of the year to be flat to slightly down versus the first half of 2021 and we are continuing to prioritize consumer subscriptions, which will provide increased visibility over time. 16:48 For the remainder of this discussion, all financial metrics are non-GAAP, unless explicitly stated otherwise. Q4 gross profit was 75 million, up 38% year-over-year, driven by the strong results in Udemy business. 17:05 Gross margin was 54.6% of revenue, approximately 500 basis points higher in Q4 of 2020. The mix shift toward Udemy Business combined with a softer December drove the increase in gross margin. 17:20 As a reminder, we see gross margin suppression when we have spikes in GMV as instructor costs are recorded immediately, but revenues recognized over a four-month period. For fiscal year 2021, gross profit was 285 million, up 29%…

26:24 Thank you. [Operator Instructions] Our first question comes from Rob Oliver, Baird. Your line is open.

26:39 Great. Thank you guys very much. Good afternoon. Can you hear me okay?

26:44 Yes, I’m clear.

26:46 Great. Great. Thanks. Appreciate it. Sorry, a little background noise here. Gregg one for you and then I had a follow-up for you, Sarah. So, Gregg, clearly, you guys are firing on all cylinders here on the Udemy for Business, the UB business, some really strong logos on new lands, really great logos on expansions. I'm curious you guys mentioned, sort of the curation of some of the courses around UB, and I'm wondering if you could just help us understand on those expansions because NRR is like stabilizing nicely now? 27:20 On those expansion deals you're seeing for UB, is it still predominantly IT or are you seeing more of an HR driven by, a little bit more color around those deals would be great? And then I had a quick follow-up for Sarah?

27:34 Yes Rob. It's actually very broad based. So, we come in both sides of the house. We come into HR side and we're selling successfully in there and we come into the tech side. And so it's very broad based both sides of the company. And so the expansions are impact teams, but they're also much broader than that. 27:54 Our content tends to be very broad. We have all kinds of learning content and leadership content and communication content. So it works for almost every person into the corporation. So, it's a broad based expansion.

28:08 Okay, great. That's great to hear. And then Sarah, one for you. Just on the consumer business and I don't want to distract from the obvious here, which is the UB business is getting really, really strong and going to be the majority of your revenue this year, but on the consumer side, some caution, I think in the guidance, I wanted to just drill down on the personal plan, the subscription, you mentioned that's going to be an increasing focus in an uncertain environment. Just from my own navigation and being a customer with you guys, I was not offered the virtual plan, but then all of a sudden now I am being offered. So, just wondering if you guys are expanding out the personal plan and any early reason traction and whether that $29 price point is – it feels right and any update there would be great? Thank you guys very much.

28:53 Awesome, Rob. I would say you're a lucky Udemy learner because not many people are seeing the personal plan yet. We are still in testing mode as we spoke about. So, we [plan in beta] [ph] mode for the first half of the year. Our investments are not just in the subscription platform, which we built-out from a pricing and packaging perspective, but we're doing testing there and so you saw one price, but there's different prices we're testing. 29:20 But really what we're focused on is the learning outcomes building and learning paths and really making it a very compelling subscription offering. We see successful subscription offerings in the market. We have great content, and so just rounding out that offering so that it's the subscription we want to roll up to the masses is what we're focused on, and we don't expect the rollout to be until the second half.

29:49 Got it. Very helpful. Thank you guys very much.

29:54 Thank you. Our next question comes from Terry Tillman of Truist. Your line is open.

30:00 Hey guys. This is [indiscernible] on here for Terry. Thanks so much for taking the question. I think last quarter, you mentioned that you'd incorporate some new machine learning capabilities to enhance functionality around conversion retention in the consumer business, I was just wondering if you're seeing any traction there, kind of help stabilize this business?

30:20 Yes. So, we've invested a lot in AI and machine learning, it's something that we’re doing that across our business. So, we use it in our pricing engine. We use it in matching and recommendations and we're using it in numerous places. So, we're actually seeing some wins there though. In their matching and recommendations, we actually did have a nice limit in the fourth quarter. We saw the ability to increase conversion rates by, just doing a better match on the types of courses people we're looking for.

30:53 Okay, That's great to hear. And then just as a follow-up, I think last quarter you mentioned that the go to market team was at about 400 people, I’m just wondering if that increased sequentially and then just – like a broader level, how's is the overall hiring environment for Udemy and what should we think about the headcount being as you exit 2022? Thanks so much.

31:13 Yes, the go to market team, that's going to market plus customer successes with the 400 number. We've grown our go to market team about 50% last year. And our plans are to grow again about 50%, maybe a little bit more than that. 31:29 We are finding, it is a difficult hiring environment, but we ended up doing very well. We're the kind of company that people like to work for. We’re a mission based company, we're doing well in the marketplace. We've a very nice culture. So, we've been hiring, actually I think December was our biggest hiring month in the history of Udemy Business.

31:52 Yeah, Joe just to give you a little overall color on that. We were able to hire 50 people in Udemy Business in December, which was well above what we were expecting, especially given it's really tough to hire salespeople. In the fourth quarter when their getting [in their accelerators] [ph]. So, we're pleased with what we see. We continue to see a lot of traction in hiring both across Udemy Business and within our R&D teams. So, I think Gregg’s right. I think it's the culture, it’s the mission, I think and the belief in where this company is going that really helps us out.

32:24 Really helpful quantitative color. Appreciate it.

32:29 Thanks for the question Joe.

32:31 Thank you. Our next question comes from Sterling Auty of JP Morgan. Your line is open.

32:37 Hey, this is [Drew] [ph] on for Sterling. You referenced the softer than expected December month, could you provide some more color on what occurred there and any impacts from seasonality that you're seeing currently?

32:51 Yes, the consumer market is volatile and in other words some countries are, the traffic is growing quite rapidly and some of it is going down. And so in December, we just saw a little volatility, it actually came back in January. So January, it stabilized again, But it's a volatile consumer market as they're closing down countries, it's still pandemic related where certain countries are closing down, certain are opening up. 33:20 So we're just having to weather that type of environment, but we are very happy with our traffic. I mean, our overall traffic has remained over 30 million unique visitors. We came into the pandemic in about 16 million to 18 million of unique visitors. So, we've stabilized at a much higher bigger business than we had before. But yet, it is still volatile given that we're going into a year three of the pandemic.

33:49 I think for us to add to that, is we are, as Gregg said, we're very diversified globally. So, we see countries that are going up. We see countries that are stable, countries that declined a bit. A lot of the growth we're seeing are in some of the lower LTV or lower kind of purchasing power countries, but we're able to allocate our spend and we can lean in where we're seeing good conversions, we can pull back where we're seeing the conversion that is good. 34:23 So, we're managing our direct marketing spend accordingly as we continue to sort of work through this.

34:30 Okay, got it. Thank you.

34:33 Thanks.

34:35 Thank you. Next question comes from Stephen Sheldon of William Blair. Your line is open.

34:41 Hey, thanks. Congrats on the strength in the business segment. Curious what the waiver and talent shortage across industries as maybe meant for demand for your enterprise solutions. I guess, what trends have you seen in corporate learning budgets, are they going up and what's their level of urgency to provide upscaling opportunities to existing employees in this environment or maybe they can't hire as much as they'd like externally?

35:11 Yes, we are seeing a very good enterprise business. The market is expanding right now. People [indiscernible] in everybody home, everybody's working from home, a lot of the training within person. So, the digital transformation is decelerating across all the enterprises. And so, it's a very, very good market right now. 35:11 So the budgets are getting bigger and there is a sense of urgency. There's - people are leaving, there is a great resignation. People are worried about retention and worried about employee engagement and so, it's a particularly good time. We think we have a great solution. We think we have a – we're at the right place at the right time with the right solution in the enterprise business, but the market is particularly good.

35:59 Great. Thank you.

36:02 Thank you. Our next question comes from Ryan MacDonald of Needham & Company. Your line is open.

36:08 Hi. Thanks for taking my questions. Gregg, you've talked about quite a bit in the past about international expansion remaining a top priority for Udemy over the next few years here. Given, I'd be curious how you're prioritizing and focusing on which countries to drive incremental investment? And how that maybe differs based on what you're seeing in the consumer side versus what you're seeing in the enterprise side? Thanks.

36:33 Yes, thanks for the question. We've always been the most global [ad tech] [ph] company. More than 70% of our consumer revenue was outside the U.S. And we have a playbook that we look where there's obviously large populations, but it was content is being consumed very high and so now we start working on our playbook, which is, we put somebody into the market and start developing local content and we do local currencies, and then we do local payments, and then we do local marketing and then we bring go to market teams. 37:07 So that's a playbook that we've been running and we're running across the globe and there are various different investments depending on the country, but right now, for example, we're working in Indonesia, we're building our business there. We're investing heavily in there. 37:25 In Asia, we moved into Korea and China through partnerships, so we're expanding in there. And we're working in Sub-Sahara Africa with MultiChoice, with a partner there. So, we're expanding in lot of different directions. And as far as Udemy Business, we are expanding across the globe and it's very broad based. So, we are building our go to market teams, we started in North America. We built out in EMEA next, but we are continuing to build-out that, that we built out [indiscernible] and now we're building our Latin America. So, we are building out a global go to market team.

38:03 That's helpful. Maybe just as a follow-up and this is for, I think Sarah as well. I think you mentioned in your prepared remarks Sarah that you get a slight gross margin benefit on Udemy Business from the mix of sales coming from partnerships there. So, as you think about continued expansion of Udemy Business into new countries, is there a preference or prioritization to try to go to market with partners in UB or go directly being the preferred choice still? Thanks.

38:32 That's a great question. Ryan. It's a very minor very minor benefit in comparison to us really making the right decision for that country, whether we can do it ourselves, and we know we can bring the best, sort of go to market strategy or whether our partner is the best. So, I think that supersedes the small benefit we get in gross margin.

38:56 Super helpful. Thanks again.

38:58 Thank you.

39:01 Thank you. Our next question comes from Brent Thill of Jefferies. Your line is open.

39:07 Hi guys. This is David [indiscernible] on for Brent. Thanks for taking the questions. I'll start with one and have a follow-up and sorry if I'd already missed this, but just curious if you could talk on the consumer side. With what we're seeing, is this a competitive thing at all or is this really just lapping super tough COVID comps and people are going back outside? Just curious if you could talk to – is it a competitive dynamic or rather consumer behavior?

39:34 It's consumer behavior. We're seeing – in certain markets we're seeing the overall traffic for online learning going down. There is certain markets we call them fatigue markets that have been – been on Zoom for two years. And we're seeing that in some markets, but then conversely on other markets, the traffic is growing rapidly. 39:55 So, it is not a competitive issue. It is a total – we have the most traffic of any [indiscernible] website in the world with almost 30 million unique visitors. So, we see more data than anybody else and more global than anybody else. And it’s really, it is absolutely a pandemic issue versus the competitive issue.

40:18 Got it. Thanks for that color. And then as a follow-up on adjusted EBITDA guidance came in below the [street] [ph], I'm curious is that – would that, the Street being too high, or is there areas that you guys are focusing on prioritizing investments? And just curious if you can provide some color on that end?

40:37 Yeah. So, I think you've seen our Udemy Business performance, it continues to exceed our expectations and continues to outperform. And so, we're further accelerating the expansion of our global go-to-market team. We have a unheard of learner NPS of 61 in the space. We’ve got 80% growth at scale and we are not feeling that we're getting anywhere close to the edges of that. 41:03 So, and frankly, the hiring has gone much better than we have expected. So, we're leaning it hard on Udemy Business. And in general, when you think about our business as a whole, you know the enterprise business is growing really fast, it does have a lower EBITDA margin really than the consumer business. And so, I think with the consumer guidance being down a little bit, that's what we're experiencing.

41:30 Great. Thanks guys. Appreciate it.

41:34 Thank you. Our next question comes from Jason Celino of KeyBanc. Your line is open.

41:39 Great. Thanks. Hey Gregg. Hey, Sarah. Can you hear me alright?

41:43 Yes, we can.

41:45 Perfect. So, it's nice to hear the stats on the instructors who are over $0.5 million and $1 million last year, but when we think about attracting the best instructors, how is that position for growth for the upcoming year?

42:02 You broke up. I didn't hear that question.

42:06 So, I wanted to ask about attracting the top instructors to Udemy. It seems like it's a tough hiring environment, but how is it from instructor traction standpoint?

42:22 Yes. So, we're finding that our publishing is at record levels. We're publishing over 5,00 courses a month. We're bringing in top people. In fact, we just brought in two top instructors from a competitor in the last couple of months. And so, we're finding that – because we monetize very well for the instructors, our instructor payments this year are going to be over $200 million that we are having no trouble in all getting instructors we want and getting the [publishments] [ph] that they want. 42:51 In fact this is of the new creator economy. And we are a place where they know they can come and they can make money and [indiscernible]. And so, we work very well with them. So that has not changed at all. It's been very robust.

43:08 Okay. Perfect. And then when we think about the consumer business, the conversion between the monthly average buyers and the top of the funnel. When we crunch it down, it looks like it stabilized a little bit at least for Q4, but with the guidance for 2022, maybe can you speak what is implied directionally for this year?

43:30 Yes. So, I think Jason, I think in the first half, we're not expecting a lot of growth in monthly average buyers. I think in the back half, really what we're looking to do is drive more LTV from our buyers through subscriptions over time and through personalization and retention efforts versus trying to get more back to growth coming from the monthly average buyers.

44:00 Okay, excellent. That's quite helpful. Thank you.

44:03 Thanks, Jason.

44:06 Thank you. Our next question comes from Josh Baer, Morgan Stanley. Your line is open.

44:11 Great. Thanks for the question. And it's great to hear about the progress in Udemy Business and Udemy Pro features specifically benchmark assessments and labs. I'm just wondering what else are you working on around Udemy Pro? What else are enterprises asking for and how does this tie into the EBITDA guidance and some of the investments that you're making?

44:40 Yes, thank you for the question. Udemy Pro, we're building up multiple verticals. So, we started with AWS and web development and we’re building out a Google Cloud and Azure. So, those are things that we're being asked to build from the various verticals in the different companies. 45:00 On the other side, we're being asked for leadership training. And the reason why we bought CorpU was that we are being asked for more leadership training that something that every company needs more of and so – and cohort basis. So, we’re building out a CorpU. We're starting with leadership, we're ramping that up and then we're going to build out other verticals, other verticals and cohort based learning.

45:26 And Josh just from an investment perspective, our investment on R&D side is, is what we were expecting, it's really the sales and marketing in the UB side, that we're accelerating this year because we continue to see that traction and we're taking our expectations for Udemy Business revenue up.

45:45 Okay. That's great. Thank you.

45:47 Thank you.

45:50 Thank you. Our next question comes from Nat Schindler of Bank of America. Your line is open.

45:56 Yes. Hi guys. Thank you for taking my question. So, I just wanted to talk a little bit about Udemy Business and its seasonality, and what you're seeing in kind of your guidance? Remember, this is you basically have been a layering effect and you've been adding – the last two quarters, this quarter about 7.4 million over Q3, Q3 is a little over 8 million and it's kind of been layering up, you've been cycling up from earlier in the year and from last year, but in your guide, and I know you said 70% plus and you didn’t fully break it out. So, that might mean it, but at 70% it means a pretty big step down in that layering. Is there any sort of seasonality that we should be aware of on 1Q or how this business should work on when you win customers and when the revenue flowed through?

46:51 Great question Nat. Yes, there is seasonality in our business. Like many enterprise SaaS companies, we do tend to have our biggest quarter as Q4. We had a great Q4. We had great amount of focus in December, and you do tend to see that the stabilization is going to happen again in Q1 and then you continue to grow throughout the year. So, think nothing yet normal. 47:14 The buying cycle really is in Q4 from any enterprises. We work as hard as we can to even it out throughout the year, but I think that's a secret [indiscernible] that most enterprise SaaS businesses haven't figured out.

47:27 But wouldn't that layering on a lot of new customers in Q4 mean real growth in Q1 because those customers didn’t come in the beginning of October in Q4? They came throughout Q4 and thus they are now a full quarters worth of revenue in Q1?

47:46 Yes. So, we layered out a lot of customers. I think customer size is also something we have a lot of people who are just coming into the team plan on their own. And so that growth rate of the customers can also be attributed to different type customers. I will say our average deal size is growing every quarter that ARR per logo is going up and we do expect that trend to continue.

48:12 Okay. Totally different than on, still asking about Udemy Business, I’m just going on a longer-term basis and kind of more – what's going on strategically. Why have customers left, that have left or cut down their spend on Udemy Business that have cut down the spend? What is it really – what happens? Do they look for competitive offerings sometimes or did they just say they don't need it as much? If this happened?

48:42 So, our retention is much higher on corporations that are over a thousand employees. So, the bigger the corporations, the longer they stay, and the higher the net retention. There’s lots of reasons why people leave. We have a huge small business segment and so – and there's a lot of churn that happens in that. We have a team plan, so we get all these customers that come in, and they're small 5 to 20 seats and there’s more churn going on there, there would be managed accounts have less longer churn. But there's just a very wide variety of reasons. 49:20 Competition is always part of it, but not the biggest part. It’s businesses either are doing well or have decided to do other things. So, it's not – Sarah, what’s your…?

49:33 Yeah. I mean, we'll see some with it, with budget issues. The one thing I do want to mention is, our net dollar retention is 118% across all of our customer segments, but for our larger customers it's well above 120%. So, we tend not to see the larger customers that we're supporting with our customer success teams and aligning with them on what their business goals are in partnering with Udemy. 49:59 We tend not to have much churn there, but once in a while, competition not as often and sometimes just bunch of every reasons.

50:10 Makes sense and just to clarify one last thing, what percentage of the Udemy Business revenue is from customers over a thousand employees versus the smaller customers? In just round figures if you don't want to give out total?

50:26 It's a pretty good portion. I don’t want to give out an exact number, but we have a lot of really large customers more and more. I think you probably heard in our prepared remarks, that we just had our first deal. That’s over $5 million. So, with the amount of ARR coming from and our price size customers is growing faster.

50:53 Makes sense. Thank you.

50:54 Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Gregg Coccari to close the call.

51:02 I just want to thank everybody for their time and asking very nice questions. I appreciate you looking at Udemy. We are very excited about our business. We think we have an extraordinary opportunity in the marketplace, and I hope that you'll be seeing that over the next few quarters.

51:19 Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day. Goodbye.