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 speakers' prepared remarks, there will be a question-and-answer session. [Operator Instructions] And 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 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 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 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 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. 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 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 am 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 eras 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…

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 costs 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…

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 future [job roles] [ph]. I want to wrap up today’s remarks with a Coursera for Business customer example that is drafting a 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 looked 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 the 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. Maggioncalda. [Operator Instructions] We’ve take our first question this afternoon from Stephen Sheldon of William Blair.

Hey thanks. First, just wanted to ask about enterprise trends. As you talked about seeing more caution from business customers there, can you give some more detail about – 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?

Hi, Steve, this is Jeff. We, obviously going into Q4, we're 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, increase 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 [my buy] [ph]. 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, have 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 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 – it sounds like it might be a shift in expenses from, you know, out of OpEx in the core and cost of revenue, but then also maybe a total increase. I guess just can you walk through that one more time just to make sure we understand?

Yes, sure. And we wanted to be very clear about the seasons, Ken, of course. It was a shift in geography primarily from operating expense to cost of sales affecting 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, if we looked at the guidance and strip that out, then you'd be more or less I guess, yep, please.

Yeah. More or less is the answer. [Multiple Speakers] Yes. 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 like fast forward to Q4 2023 earnings where you'll be reviewing 2023. Like 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 advantage we have. 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 gateway, the – sorry, 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] [ph] these industries [indiscernible] 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,…

Thanks, Jeff. And a quick one for Ken on segment margins. I think the strength in consumer segment margins 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. Just one thing I want to add. 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 and career academy. And I would like to be able to say that we have figured out a certain design of degree that really seems to resonate with 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 owners 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'll go next now to Terry Tillman of Truist Securities.

Yes. Hey, good afternoon, gentlemen. Thanks for taking my questions. Hopefully, you all can hear me okay. Yes, 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 them right or 38?

I think the 38 is the amount. Now, we've got to get these things rolled out, but we've had a pretty good track record of getting these things rolled So yes, among the ones that we've announced, we have more than doubled the 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 at an Analyst Day 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 [indiscernible] co-pilot that that Microsoft put out and some of the amazing things that can be done. I mean, not perfectly, but some 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 demands of the content, I mean, clearly, like if the jobs all dried up, people being 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. In a really dynamic labor market, you don't really necessarily know all the time which ones are going to be the most – the jobs with the most upside. So, I think that the diversification and the broadening of the portfolio as 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 up skilling. But I think employers are going to be looking for more than just 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 the 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. They'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 the credentials will be an important part of the employment equation.

Yes. That's great. 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 in consumer is going to take a large step down, is that right? And did you say what that would be?

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

Okay. Well, the one – so I'll end it with this. I'm getting some questions in terms of like the 25 million additional OpEx. I mean partners [are 2-way streets] [ph] like what do you want to 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 shortsighted, but like what could you get out of that? Thank you.

So, the – firstly, we've extended our most important strategic relationship that we're pretty excited about from a job ready as 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 2-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 Celino at KeyBanc.

Hey, thanks for taking my questions. Just two for me. Staying on this EBITDA topic, Ken, you are showing breakeven within rate 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. Should we think that this philosophy holds here still?

Yes, 100%, Jason. It's just – it's how we manage the business, how we managed 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 promise. 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 of hundred basis points. It would be nice if it 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 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. 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. And is this an area that we could expect more announcements?

Yes. This is Jeff. I think this is really important. I went to a [indiscernible] high school, so prostate with educational institutions who do have a 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 is the 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, credentialize learning through our lives is going to be important. And obviously, we're delighted that an institution with the, kind of a steam of Georgetown 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 MacDonald of Needham.

Hi thanks for taking my questions. Jeff, maybe the first one for you. 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 at, sort of as we see that news flow, what you're seeing in terms of a reflection into, sort of pipeline or top of the funnel not only in the consumer segment 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 how that's sort of reflecting into the guidance you're giving for 2023 here? Thanks.

Yes. Thanks, Ryan. 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 then we have this really tight labor market. 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 has got the 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 design degrees that really meet more of the key characteristics of what these lifelong owners are looking for. These adult working learners are looking for helps a lot, too. We launched a boulder degree that has really nice characteristics, sort of performance-based pathways, very reasonable price, about $15,000 and very high quality and in a high-demand domain like data science. So, we think that these, sort of 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, they're well suited for working adults, we feel pretty good about next year's new degree – or this year’s new degree to student numbers.

And Ryan, one other thing, we did include some hints on timing for our forecast and – as we did last year, we provided segment guidance to start the year to help everybody with their models, but as we've talked about degrees, we did forecast roughly 10% growth with modest declines in the first half. So because the degree is 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, yes. Super helpful color there. Ken, I really appreciate it. Maybe just my follow-up, a second question. Jeff, on the Coursera for government opportunity, we're starting to see more and more governments announce initiatives for rescaling and upscaling. And you mentioned you've been traveling quite a bit. Just curious what that demand pipeline is looking like? And we've heard about 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.

Yes. It definitely looks like there's a growing recognition that reskilling is important. It will continue to get more important over time. The 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 are 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 graduate of college degrees. And linking those two things together, Workforce Development with the Ministry of Labor and career elective 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 government 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 Jaluria of RBC.

Wonderful. Thanks for taking my questions guys. Two that I'd like to, if I may. First, going back up to the ChatGPT, OpenAI 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 [ad tech] [ph] 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 outweighed the risk? And then I got a quick follow-up.

Yes. Thanks, Rishi. So, in terms of the way the learning experience happens, the way I see it in very simple – in a very simple view, I sort of say, all right, there was, kind of arrow 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 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. Calculator is just basically follow instructions as 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 is, I really like…

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 Degrees side, glad to see we're seeing an inflection 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 about the, kind of countercyclical forces on degrees don't change relative to what we're seeing today? Thanks.

Sure, Rishi. Happy to do. 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 [indiscernible]. 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, any of my segments as far as the ability to look forward with certainty on a forecast degree is, in fact, the best. And so, we're not relying on every – on any particular trending. That said, as we look forward to 2024 then, some of the programs in the pipeline, we're pretty excited about with the changes that we're seeing, but 2023, no matter what the revenue recognition, nothing is 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.

Alright, 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 Ms. Carey. Ladies and gentlemen, again that does conclude Coursera's fourth quarter and full-year 2022 earnings conference call. I like to thank you so much for joining us and wish you all a great remainder of today. Goodbye.