Yahoo Finance Udemy Inc (UDMY) Q1 2024 Earnings Call Transcript Highlights: Robust Growth Amidst Challenges
Total Revenue: Increased 12% year-over-year to $197 million.
Unity Business Revenue: Grew 24% year-over-year to $180 million.
Annual Recurring Revenue (ARR): $479 million, up 21% from previous year.
Net Dollar Retention Rate (NDR): 104% overall; 111% for large customers.
Gross Margin: 72% for Udemy Business, up 700 basis points year-over-year.
Net Income: Approximately $5 million, representing 3% of revenue.
Adjusted EBITDA: $6.5 million, a 700-basis point improvement year-over-year.
Free Cash Flow: Positive $18 million for the quarter.
Share Repurchase: $55 million spent from a $100 million program, expanded to $150 million.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Udemy Inc (NASDAQ:UDMY) reported a 12% year-over-year increase in total revenue, with business revenue growing by 24% compared to Q1 2023.
The company expanded its global enterprise customer base, adding new or expanded relationships with notable companies such as Pepsi, Flutter Entertainment, and the South African Reserve Bank.
Udemy Inc (NASDAQ:UDMY) launched the Gemini skills pack to enhance generative AI skills development, driving meaningful pipeline generation and validating growing market demand.
The company's gross margin for the Udemy Business segment improved significantly, up 700 basis points from the previous year, primarily due to structural revenue share changes.
Udemy Inc (NASDAQ:UDMY) continues to see strong demand for its comprehensive learning solutions across various sectors and regions, indicating a robust market presence and potential for future growth.
Negative Points
Udemy Inc (NASDAQ:UDMY) experienced challenges with two reseller partners in the APAC region, impacting the business outlook for the year.
The company is undergoing a leadership transition in its Udemy Business segment, which could lead to uncertainties in the short term.
Udemy Inc (NASDAQ:UDMY) reported a slight decline in consumer revenue by 2% year-over-year, reflecting some challenges in the consumer segment.
Net dollar retention rate decreased, indicating slower upsell rates than historical norms, which could impact future revenue growth.
The company faces increased competition, particularly in pricing within the enterprise segment, which could pressure margins and market share.
Q & A Highlights
Q: I just want to make sure I understood the FX commentary. I think last quarter you said it was going to be a 3% drag. And just to make sure I heard that correctly because now you're thinking for the year, it's going to be a 1% drag. And can you talk about what is that that change? A: Hi, Stephen, it's Sara. Thanks for the question. Last time we did previously announce that we expected about three points of headwinds from FX. The updated estimate is 1%, one point, and it really was just an unfortunate error. These things happen it has been remediated and we've put additional checks in place to make sure that that doesn't happen again.
Q: Okay, got it. And so with consumer coming in above expectations or I guess I think you picked up the guidance just a little bit there on the revenue side. I mean, are you effectively bringing down the UB. segment growth, I guess, can you just talk about expectations for UB. A: Yes. Let me walk through our some of the puts and takes of our 2024 outlook. The first thing I want to mention is we remain very excited about the long-term opportunity, which is unchanged. We did narrow our range and the midpoint is still at approximately 10%, but we're taking a prudent approach to the year. We continue to be in a volatile macro-economic environment. As you just heard us talk about, we are going through a leadership change and we're still in the process of addressing those execution issues. That being said, we did bring consumer up. We're now expecting that to be down two to four points as that continues to outperform our expectations which means that UB will dip slightly below 20%. We expect of overall the low point of our growth to be in Q2, Q3 and for revenue to then reaccelerate on the back of all these things I just spoke about such that we're ending the year at about 10% at the midpoint.
Q: Okay. Got it. That's helpful. And just one more for me. I think you talked last quarter about planning to continue investing in the new B to market teams. How is that progressing relative to plan and be great. Just to get any additional color on where you're adding sales resources? A: Yes. So we have been on adding resources up market. So in the strategic accounts, enterprise accounts that is going according to plan. The newer reps are ramping very nicely. So we're going to continue to monitor closely. We invested some additional funds in enablement to make sure that these new reps could come in and hit the ground running.
Q: Ms. Ingrid, that's very much for taking the questions. And maybe just first for Sara, I apologize if I missed this, but what's driving the additional 50, 100 bps in terms of the EBITDA guide. A: But yes, so that we are bringing our expectations for EBITDA up due to the outperformance that we saw in the first quarter. We're being very balanced in our approach, which is continuing to invest in the product and the innovation, the go to market on a ease and enablement that will allow us to capture this growth opportunity in front of us at the same time being really thoughtful about driving that operational efficiency. So just with this balanced approach that we continue to take, we do expect it to be to be able to deliver another 100 basis points or so on the bottom line.
Q: And then just stepping over to you the business. So in understanding the points you made about some macro and a challenged environment. Could you speak a little more specifically in terms of the slowdown in ARR, a little bit lower, I guess revenue retention. Are you seeing attrition pickup or what's what's going on there? And I guess how much is that flowing through to the forecast of lower mutation? The EV revenue should be up? A: Yes. We did expect the first half to be muted from a net new ARR perspective due to some of these execution challenges that we saw. Again, remediation is underway. We're very happy with early signs, but it's going to take some time. We also want to be really thoughtful about bringing a new leader in place, giving that person on time to ramp up. So we are looking and we're in the late stages of finding someone who has been able to scale global businesses from $500 million to $1 billion plus, we expect to have more to share with you soon, but we're just working through some of these short-term challenges. What's really important, again, a long-term opportunity, which is the continued move to skills-based organizations and the growing demand to be able to adapt to and adopt AI capabilities, both for your internal use as well as your product capabilities as an organization that continues to grow.
Q: Thanks for taking my questions. Maybe not to harp too much on UBB, but maybe just as a clarifying question there, as you're looking at maybe what's coming in below expectations or maybe where the lack of performance or execution was? Is it more concerns in terms of top of the funnel development and on generating pipeline or perhaps that progression through the pipeline? Just trying to understand maybe what it wasn't developing as you expected sort of first as we go from fourth quarter earnings call to now through first quarter? A: Yes. So from there were some difference pieces that came into play here. The first thing I'll say is we had identified the issues on back in the last quarter. Some of those were more pronounced as we continue to dig in and put those remediation efforts in place. There were areas of pipeline generation that were doing very well. For instance, the RAE and some of our SDR side of things. But then we had some other areas where certain pieces of our marketing pipeline work going as well as we would have liked, especially in the commercial side. I think that's probably not as surprising given that SMBs have been hit on pretty hard in this environment. On the execution side, there are there were pockets of execution from a sales perspective that were going really, really well. We spoke about a very large TAM, the geographic region that overperformed for the second half of last year. And we saw some pockets where, frankly, there just needed to be more accountability around the sales process. So there were puts and takes across the organization. Greg has done extensive deep. Maybe, Greg, you want to talk a little bit.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
