Coursera - Earnings Call - Q1 2025

Executive Summary

• Coursera delivered a solid Q1 2025: revenue $179.3M (+6% YoY), GAAP gross margin 55%, Adjusted EBITDA $18.7M (10.4% margin), and Free Cash Flow $25.3M.
• Results beat Wall Street consensus: revenue $179.3M vs $175.4M*, EPS $0.12 vs $0.079*; prior two quarters were also modest beats on revenue and EPS* (see Estimates Context). Values retrieved from S&P Global.*
• Full-year 2025 revenue guidance raised/initiated to $720–$730M; Q2 2025 guided to revenue $179–$183M and Adjusted EBITDA $11–$15M.
• Operating model simplified: Degrees incorporated into Consumer; management expects Consumer and Enterprise to grow single digits (weighted to Consumer), while Degrees declines as resources shift to higher-impact opportunities.
• Key catalysts: improving consumer conversion (Coursera Plus, localized promos), content economics driving margin expansion, and product/AI innovations (Coach, AI dubbing, career-based discovery) balanced by caution on enterprise budgets.

What Went Well and What Went Wrong

What Went Well

• Record learner additions and stable consumer trends: 7.1M new registered learners (Q1 record), strong Coursera Plus uptake, localized promotions boosted paid conversion.
• Margin expansion from content economics: non-GAAP gross margin 56% (GAAP 55%); consumer segment margin up 190–220 bps YoY driven by newer content with more favorable revenue shares.
• Cash generation and balance sheet strength: Free Cash Flow $25.3M (+40% YoY), unrestricted cash ~$748M, no debt, creating optionality to invest in product/content/go-to-market.

Management quote: “We delivered first quarter revenue of $179 million… generated over $25 million of free cash flow… and our growth expectations for the full year have improved” — CEO Greg Hart.

What Went Wrong

• Enterprise caution: while Q1 Enterprise grew 7% YoY, management flagged macro-driven uncertainty in corporate spend and guided lower growth pacing vs Consumer.
• Net retention pressure: paid enterprise NRR was 91%, down from 94% YoY (though up sequentially vs Q4 2024’s 87%).
• Degrees to decline: Degrees incorporated into Consumer and expected to drop as near-term investments prioritize broader learner/customer impact, which may concern investors tracking degree growth.

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by and welcome to Coursera's first quarter 2025 earnings call. All participants are in a listen-only mode, and this call is being recorded. Following the prepared remarks, we will hold a question-and-answer session. To ask a question, please click the raise hand button and be prepared to unmute your line when prompted. I would now like to turn the call over to Cam Carey, Head of Investor Relations. Mr. Carey, you may begin.

Cam Carey (Head of Investor Relations)

Hi everyone, thank you for joining us for Coursera's Q1 2025 earnings conference call. Today, I'm joined by Greg Hart, our President and Chief Executive Officer, and Ken Hahn, our Chief Financial Officer. Following their prepared remarks, we will open the call for questions. Our earnings press release was issued after market close. It is available on our Investor Relations website at investor.coursera.com, where this call is being webcast live and where versions of today's supplemental materials, including our new quarterly shareholder letter, can be found. During this call, we will present both GAAP and non-GAAP financial measures. The reconciliation of non-GAAP measures to the most directly comparable GAAP measure can be found in today's earnings press release and supplemental materials. Please note, all growth percentages discussed refer to year-over-year change unless otherwise specified.

Additionally, statements made during this call relating to future results and events are forward-looking statements based on current expectations and beliefs. Actual results and events could differ materially from those expressed or implied in these forward-looking statements due to a number of risks and uncertainties, including those discussed in our earnings press release, shareholder letter, and SEC filings. With that, I'll turn it over to Greg.

Greg Hart (President and CEO)

Thank you, Cam, and good afternoon, everyone. I want to begin by saying how exciting the past few months have been as I've settled into my role. Since joining Coursera in February, I have immersed myself in the business. As part of a listening and learning process, I've prioritized getting to know our team, engaging with our customers and partners, and deeply understanding our operations in order to implement new executional rigor that can begin to accelerate our progress. Fortunately, I'm starting with a strong foundation. Today, I'm pleased to share that Coursera is off to a solid start in 2025. We delivered first quarter revenue of $179 million, up 6% from a year ago. We generated over $25 million of free cash flow, up 40% year-over-year. Our growth expectations for the full year have improved.

We now expect to deliver $725 million of revenue at the midpoint of our range as we lay the groundwork for our next chapter of growth. In addition to our financial progress, we welcome more than 7 million learners this quarter, marking a Q1 record and underscoring the global demand for job-relevant skills and trusted credentials. I'm particularly excited about our innovation efforts, which are focused on building durable capabilities that can reimagine the learning experience and deliver more value for our customers. Over the past two months, I've learned a great deal and want to provide some initial observations. First, it is clear that Coursera attracts a dedicated and talented workforce. The company has a strong culture rooted in innovation and motivated by our mission.

Our team cares deeply about the millions of learners our platform serves and is focused on expanding the impact we create and the outcomes we can unlock by transforming access to education and career opportunities. I am thrilled to be working alongside them. Second, the pace of change is accelerating around the world, expanding our market opportunities while creating new avenues for growth. In January, the World Economic Forum estimated that 59% of the world's workforce will require some form of upskilling or reskilling training by 2030. As the need to develop new skills progresses at an unprecedented rate, individuals require access to education that can help them advance their careers and remain competitive in a global labor market. Businesses across every sector need to develop a more agile workforce that can drive innovation and transform their operations. Higher education must adapt to mounting pressures.

Students desire a more compelling value proposition, and employers demand graduates with job-relevant skills. Demographic and enrollment trends will require universities to expand their revenue streams. Meeting this moment will require a leader with the scale, technology, and ecosystem to reinvent how education is delivered. Coursera is positioned to do just that. We operate on solid footing with a strong, continuously improving set of foundational assets and the capacity to drive durable, long-term growth. Our team has made strong progress delivering new products, capabilities, and experiences across our platform, but I believe we can move at a faster pace. Working with the leadership team, I have started to implement thoughtful changes to our operating model, focused on driving more innovation and engagement throughout our learner experience, more rapid product development cycles, and a data-driven approach to continuous improvement in all aspects of our business.

At the highest level, our mission is to serve learners by providing trusted education that unlocks career mobility. As part of this effort, we have simplified our business model and segment reporting, integrating the consumer and degrees segments as both support consumer learners around the world. The Degrees market opportunity will continue to be an important part of our long-term strategy, but our new model is designed to accomplish three things: simplify our structure, reflect the learner journey at the center of our decision-making, and focus the investments we are making in a unified end-to-end platform experience that spans all product categories. Whether it's a standalone course, a professional certificate, or a college degree, our job is to deliver the right content at the right time to support each learner's personal goals.

By building an integrated learner journey, we ensure that our investments in platform capabilities, marketing, and discovery, and the next breakthrough learning experience provide a consistent experience for the broad audiences that we serve. From helping our consumer learners navigate their careers to supporting our Enterprise customers looking for the best way to upskill their workforces to adapt to a rapidly changing business environment. As we lay the groundwork for our next phase of innovation and growth, we continue to execute on our 2025 plan with strong progress in expanding our ecosystem. Content is the engine of our business and the foundation of that ecosystem. Our catalog now includes nearly 10,000 courses, growing by 37% over the past year.

We are building a faster, more agile content model that preserves the value of our credible, high-quality brands and meets the rapid pace of skills development for real-time learner and business needs. A key offering is our generative AI content and credentials. Our content creators, many of which are the world's leading AI companies, have launched nearly 700 AI courses as they look to meet the growing demand for these skills. So far this year, we are seeing 12 enrollments per minute in AI content, up from one per minute in 2023 and eight per minute in 2024. We also continue to expand our catalog of entry-level professional certificates. This year, we have launched five new certificates from industry partners, including Adobe, DeepLearning.AI, IBM, Johns Hopkins Medicine, and Microsoft, expanding our total catalog to 90 certificates.

These certificates provide our learners with a pathway to entry-level jobs in fields such as software development, cybersecurity, data science, business, and healthcare, while students can increasingly earn college credit for these certificates. More than 30 of our certificates in this catalog have received one or more credit recommendations from ACE in the U.S., ECTS in Europe, and NSQF in India, which are part of our efforts to create more distinct value for learners and customers by enabling pathways to college degree. Later this month, we will publish our 2025 Micro-Credentials Impact Report, drawing insights from more than 2,000 students and employers. A preview of several key findings showcases why we continue to enhance this catalog. 85% of employers are more likely to hire a candidate who has a micro-credential compared to one without.

Ninety-four percent of students want micro-credentials to count towards their degrees, which is up from 55% in 2023. As students are increasingly concerned about whether a traditional degree will equip them with the skills they need to land a job in a competitive labor market, micro-credentials have emerged as a solution that prepares graduates for the modern workplace, augments the expertise of traditional university courses, and gives employers assurance that entry-level hires possess the job-relevant skills needed by their workforce. The breadth and quality of our content engine enables us to serve both upskilling and reskilling value propositions. As a result, our catalog attracts learners from around the world, making Coursera one of the largest and most globally distributed learning platforms. We have attracted over 175 million learners with the U.S., India, Mexico, and Brazil among our largest markets.

This global reach not only drives scale, but creates powerful opportunities for localization, enabling us to tailor content, language, and experiences to meet the needs of learners and labor markets in different regions. Additionally, many working adults access learning in institutional settings. We now serve 1,651 paid Enterprise customers spanning businesses, governments, and campuses. Our customers partner with Coursera not only for content, but a robust set of platform capabilities that can meet the unique needs of each vertical with a shared foundation, driving skills transformation for employees, enabling Government workforce development at scale, and powering academic innovation. Our growing base of learners and Enterprise customers continues to attract leading content creators from world-class universities to industry leaders. These creators are trusted by learners for their academic rigor, industry expertise, and real-world relevance.

As demand for career-aligned education grows, we believe top universities and industry partners will increasingly view Coursera as a strategic platform to extend their reach and impact. Google, one of our strongest partnerships, has created several of the most popular certificates on Coursera. Last year, they launched AI Essentials, a course designed to help learners across roles and industries gain valuable AI skills and hands-on experience with AI tools to boost productivity. It was the most popular course on Coursera in 2024, with over 1 million enrollments to date. In February, Google added a course on Agile Essentials to our catalog, teaching software development methodologies to professionals across industries and teams. Additionally, our relationship with Microsoft, which began in April 2021, continues to deepen.

Over the past three years, we have partnered to launch more than 35 professional certificates and specializations that encompass over 170 courses covering topics ranging from Azure Cloud to Excel and, more recently, AI. Earlier this month, we announced more than 1 million learners have enrolled in Microsoft content, with learners coming from more than 195 countries. We are proud of how our shared commitment with these partners can broaden access to job-relevant skills and technology education, and we look forward to expanding our efforts so that learners everywhere can succeed in an evolving labor market. I believe our next chapter of growth will be defined by innovation, and I am committed to accelerating the role our platform will play in shaping the future of learning.

Coursera's ecosystem is powered by our platform, which benefits from rapidly expanding global reach to scaled access to learning, data-driven insights to inform our content strategy and skill recommendations, and advanced AI and technology tools to enhance discovery, deliver a more personalized and interactive learning experience, and empower instructors to create and augment courses that are engaging and impactful for learners. The team has made strong recent progress building new products and capabilities across our platform. I would like to highlight three examples that demonstrate how we're focused on driving improvements in engagement, retention, and conversion by delivering more valuable experiences for our learners. First, technology continues to rapidly reduce language barriers, opening access to education and career opportunities. As you know, Coursera started rolling out AI-powered text translations in 2023, which have enabled nearly 3 million learners to access more than 5,000 courses across 26 languages.

Last week, we announced the next phase of our translation initiative with the launch of more than 100 AI-dubbed courses in Spanish, French, German, and Brazilian Portuguese. Now, learners can not only read, but hear courses in their native language with natural voice, tone, and lip sync, which offers a remarkably better experience than conventional dubbing. In the initial text-based phase, learners completed translated courses at higher rates and nearly 25% faster compared to those offered only in the original language. With the advancements in audio, we're excited about the possibility of driving stronger engagement and better outcomes. Over the course of Q2 and the rest of this year, we will expand the breadth of courses and range of languages available with AI dubbing as we continue our efforts to bring the world's best education to learners everywhere.

Next is Coursera Coach, which started as a learning assistant but is rapidly expanding in breadth and depth. Coach has become an increasingly core presence across our platform, with expanding features in career guidance and discovery, instructional design, and customer support. In Q4, we piloted Coach Dialogues, which allow instructors to incorporate personalized, interactive learning experiences throughout their courses, acting as an extension of their teaching to help learners think more deeply about course material and concepts. The early signals are promising, showing a significant impact in learner engagement for courses with dialogues. I'm pleased to share that dialogues are generally available as of the first week of April, and we will be closely monitoring performance as we seek to drive broad adoption of this new capability across our catalog. Finally, Coursera's prominence as a global destination for career-motivated learning attracts a broad range of learners.

From our survey data, we know that the majority of learners looking to start or switch their careers do not know what they need to learn or where to begin. Historically, our search and discovery experience has emphasized the breadth of our offerings. We recognized opportunities to better understand our learners' goals, guide them on what roles can be learned fully online, and how high-quality education and credentials can provide a pathway to a more satisfying career. Starting in Q4, we began testing an improved career-based discovery experience that maps our broad selection of credentials to specific job roles and skills.

The new experience, which continues to be rolled out globally, includes improved onboarding, allowing us to better understand learner goals and provide more personalized recommendations, 60 role description pages, which provide credential recommendations across different levels of career progression and expertise, and localized salary and job data for approximately 40 countries. The preliminary results are showing positive impacts in our paid learner conversion. We expect to rapidly expand these early features with a wider selection of roles, a better understanding of learner goals to personalized guidance and recommendations, and a clear learning and career progression from beginner courses to industry certificates and college degree. This is an experience that Coursera is uniquely capable of creating. As I reflect on my first months as CEO, I'm excited about the opportunities ahead and Coursera's role in shaping the future of education.

The foundational elements are all in place: solid financial performance with a strong balance sheet, an expanding ecosystem at the forefront of learning with distinct assets and global scale, and a growing market opportunity to serve both individuals and institutions with an integrated platform. Our efforts to unlock Coursera's next chapter of innovation and growth are well underway. In the coming quarters, our priorities will be centered around three key areas. First and foremost, product innovation is key to our strategy. We are committed to expanding access to the world's best education and career opportunities through focused improvements in our learner experience. This means accelerating product development cycles, leveraging advanced AI and data-driven insights, and continuously enhancing our platform's capabilities. Second, we will continue to accelerate our content engine.

By rapidly growing our catalog of high-quality, job-relevant courses with more leading content creators, we can meet the fast-changing skill requirements of learners looking to transform their careers and companies needing to transform their businesses through their most important asset, their people. Third, we will enhance our go-to-market capabilities. We aim to guide individual learners more effectively through improved discovery, merchandising, and a clear value proposition. Career-based discovery is just the start. This, combined with optimizing our Enterprise channels, enables us to reach and serve our customers efficiently and effectively. While it's still early days, I'm confident in the clear direction we are taking, grounded in strong fundamentals, an important mission, and a highly motivated team. Now, I'll hand it over to Ken to walk us through the financial performance and outlook in more detail. Ken, please go ahead.

Ken Hahn (CFO)

Thank you, Greg, and good afternoon, everyone. We delivered a solid first quarter. As Greg mentioned, our expectations for full-year growth have improved as we begin to implement new operating capabilities and a focused set of initiatives. Please note that for the remainder of this call, as I review our business performance and outlook, I will discuss our non-GAAP financial measures unless otherwise noted. In Q1, we generated total revenue of $179 million, up 6% from a year ago, driven by growth in our consumer and Enterprise segments. Gross profit was $100 million, up 9% year-over-year, with a 56% gross margin, up from 54% in the prior year period. Total operating expense was $87 million, or 49% of revenue, an improvement of four percentage points from the prior year period, reflecting our disciplined approach to managing our cost structure while making investments intended to drive long-term durable growth.

Net income was $20 million, or 11% of revenue, and adjusted EBITDA was $19 million, or 10.4% of revenue. Turning to cash performance and the balance sheet, Q1 was our strongest quarter of cash performance to date. We generated more than $25 million of free cash flow, which included over $4 million in purchases of content assets, treated similarly to other categories of capital expenditures. As Greg highlighted, we will continue to invest in expanding our content engine's capabilities. This includes new partnerships, production arrangements, and formats that can deliver more value for our learners, customers, and content creators, as well as long-term benefits to our business model and economics. Our strong cash performance bolstered our already healthy balance sheet. As of March 31, 2025, we had approximately $748 million of unrestricted cash and cash equivalents with no debt.

We are operating from a position of financial strength, with the flexibility and stability needed to navigate changes in the technology landscape and remain focused on executing on our long-term strategy. As we've discussed in the past, our capital allocation framework emphasizes the strategic optionality provided by our strong financial position, which we believe is particularly valuable given the industry's rapid recent transformation, as well as our desire to grow and establish a leadership position. Now, turning to our operating segments, I want to begin with the segment reporting simplification introduced today, which is aligned with the information Greg, our Chief Operating Decision Maker, or CODM, in accounting parlance, is now using to manage the business. Going forward, our Degrees results will no longer be reported as an independent segment. Degrees is now a product within our Consumer segment.

As a result, we're no longer disclosing the number of Degrees students, as it will not provide a meaningful indication of Consumer segment performance. As a one-time practice to ensure clarity in today's report, we have provided our operating results in both our historic segment reporting structure as well as our new simplified structure. While the change is straightforward and has no impact whatsoever on either our consolidated results or Enterprise segment results, a reclassification table for the past two years is included in the appendix of today's shareholder letter, as well as posted to our IR website in a downloadable spreadsheet for complete clarity and ease of modeling. Additionally, all performance and outlook commentary today includes comprehensive discussions of both our Consumer segment and Degrees product trends, ensuring full visibility into the standalone first quarter results and our 2025 expectations as we transition to the updated reporting structure.

We will discontinue this presentation after this transition quarter. Now, let's discuss the segment results in more detail, starting with consumer. In Q1, combined Consumer segment revenue was $118 million, up 5% from a year ago. This is composed of our historical Consumer product revenue of $102 million and Degrees product revenue of $16 million, both of which grew 5% year-over-year. On a standalone basis, historical Consumer product revenue was driven primarily by solid top-of-funnel activity and receptivity to our Coursera Plus subscription offerings. Degrees product revenue was slightly ahead of expectations due to stronger student persistence in several North American programs, as well as a year-over-year increase in the total number of Degrees students. Moving to gross profit, combined Consumer segment gross profit was $72 million, up 9% from $67 million in the prior year period.

In historical terms, this included standalone Consumer product gross profit of $57 million and Degrees product gross profit of $16 million, up 10% and 5% year-over-year, respectively. Combined Consumer segment gross profit margin was 62%, up 190 basis points from a year ago. In historical terms, consumer gross profit margin was 56%, up 220 basis points from a year ago. It was the primary driver of the combined segment margin expansion, as there is no change to the Degrees gross profit margin of 100% and remains the same year-over-year. The consumer expansion was driven by an improvement in our gross profit margin rate as learners engage with more recently launched content and credentials created under new production arrangements with more favorable revenue share economics. To summarize, our consumer trends remained stable in Q1.

As Greg highlighted earlier, we added more than 7 million new registered learners, bringing our total base to 175 million. Additionally, we saw strong receptivity to our Coursera Plus subscription offerings and marketing campaigns, including localized promotions that benefited our paid conversion rate. Overall, I'm pleased with our continued progress in consumer, the renewed level of prioritization and focus in our execution, and the initiatives underway across content, product, and marketing as we begin to implement our new operating model and seek to drive more significant growth. Moving to our Enterprise segment, which I will remind you is not impacted by the segment reporting change. Enterprise revenue was $62 million, up 7% from a year ago, driven by growth in our Business and Campus verticals. Our first quarter performance was solid, and like most companies, we are closely monitoring budgetary trends amidst the backdrop of an uncertain macro environment.

Segment gross profit was $43 million, up 10% from $39 million in the prior year period. Segment gross profit margin was 70%, up 200 basis points from a year ago. The total number of paid Enterprise customers increased to 1,651, up 12% from a year ago, and our net retention rate for paid Enterprise customers was 91%. Finally, turning to our financial outlook. As you know, our historical practice entering a new year has been to provide some incremental color on the composition and pace of our business, including one-time segment growth rates. Last quarter, Greg and the team assessed our business model and market opportunities and started to refine our operating capabilities in the prioritization of initiatives and investments intended to reignite our growth trajectory. As such, we shared high-level full-year expectations with a commitment to providing a more detailed 2025 outlook soon.

To that end, for Q2, we expect revenue to be in the range of $179 million-$183 million, representing growth of 5%-7% year-over-year. For adjusted EBITDA, we're expecting a range of $11 million-$15 million. For the full year 2025, we now expect revenue to be in the range of $720 million-$730 million, representing growth of approximately 4%-5% year-over-year. From a segment perspective, this reflects single-digit growth in our consumer and Enterprise segments, with more weighting towards the consumer, given, one, the stabilization trends we've been driving in our consumer performance, and two, acknowledging the macroeconomic trends that have unfolded in recent weeks, with less certainty surrounding the corporate spend environment.

Lastly, consistent with last quarter's commentary, we continue to expect our Degrees product to decline as we invest in more productive near-term opportunities that can benefit the broadest number of learners and customers across our platform. Now, moving to EBITDA. As you know, our long-time operating practice as it relates to EBITDA is not focused on the optimization results for any single quarter. Rather, we set an annual EBITDA margin target and work within that framework to invest in our most productive growth opportunities. This practice provides us with the flexibility to make the right long-term decisions quarter to quarter while demonstrating our commitment to operating with discipline and driving scale in our model every year. For 2025, we are targeting an annual adjusted EBITDA margin improvement of 100 basis points to 7%.

As we discussed last quarter, this is a more moderate pace of improvement following several years of aggressive expansion. At the end of the day, our long-term prospects and value will depend most heavily on us growing and succeeding in our large and attractive markets. We remain committed to extending our strong track record of operating with discipline while providing the team with the optionality and capacity throughout this year to implement the new operating capabilities Greg outlined, further differentiate Coursera's leadership position, and bolster our return to higher growth. With that, I'll open the call for questions.

Operator (participant)

As a reminder, if you would like to ask a question, please click on the raise hand button at the bottom of your screen. Once prompted, please unmute your line and ask your question. We will now pause a moment to assemble the queue. Our first call question will come from Bryan Smilek with JPMorgan. Please unmute your line and ask your question.

Brian Spilkevitz (Private Client Advisor)

Great. Thanks for taking the questions. I guess, Greg, to start, can you just help us understand where you're spending the most time in your new role and where you see the most opportunity to drive improved growth? Is it in the Consumer segment, Coursera for Campus, Enterprise, or the mobile app? Thank you.

Greg Hart (President and CEO)

Thanks, Brian. Great question. My top priority is unlocking the next phase of innovation-led growth for Coursera. I spent my first few weeks here deeply understanding all areas of the business and the organization, and then turning to start to implement some thoughtful changes to our operating model and our ways of working with a focus on new capabilities that can help us better serve our learners, our university and industry partners, and then our Enterprise customers as well, so we can drive higher growth. Some of the near-term focus areas: number one, product innovation. I believe that we can accelerate our product development life cycles.

We can do that both by leveraging advanced AI and data-driven insights, but also by focusing on the right spots within the product for innovation, again, tied back to durable capabilities that can better serve our learners, and then make sure that we're continuously enhancing the core foundational capabilities that the platform has. Second area, our content engine. Content, obviously, is the fuel that runs our business. Expanding our content catalog continues to be critical. The need and the interest in learning has never been greater. You see that reflected in the strong growth to 7.1 million new registered learners in the quarter. We believe that need is going to continue to increase over time, and we need to make sure that our catalog can meet that need. We need to become more nimble.

We need to make sure that we're filling in gaps in the catalog, and we need to make sure that we're continuing to evolve not just the breadth and depth of the catalog that we offer, but also the learning experience itself. Finally, our go-to-market. Expanding our go-to-market capabilities, and by that, I mean everything from sort of registration and onboarding, career-based discovery, etc., to guiding individual learners more effectively through that experience, how we merchandise, how we communicate our value proposition, and then how we do all of that across all segments of our business. Not just for consumer learners, but for our Enterprise customers as well.

We'll also continue to make improvements to the Enterprise area, the business specifically for Enterprise admins and the specific needs that our Enterprise customers have. I would say overall, to the last part of your question, Brian, I think you would start to see, just because of the nature of the two businesses, I would expect that we would start to see more signs that translate into sort of business output metrics on the consumer side of the business. I would expect that over time, that would also translate into Enterprise.

Brian Spilkevitz (Private Client Advisor)

Great. Thank you. I just had a quick follow-up, too. I mean, 1Q was such a strong quarter and record quarter in terms of registered learner net adds. Could you just help us understand what drove that performance? You mentioned stabilization across trends. Was that across retention, top-of-funnel, or both?

Greg Hart (President and CEO)

I would say it's a mix of the two. On top-of-funnel, obviously, a good quarter with 7.1 million registered learners. We saw some real success on the marketing front with improvements in our return on ad spend and efficiency there, but also saw some great improvements that we made on the platform itself that are helping to drive a better learner experience. We talked about some of those in the scripted remarks with things like dialogue, translation, AI-driven translations, etc. Conversion and retention will be the two things that we are focused the most on driving improvements in over the course of the coming year.

Brian Spilkevitz (Private Client Advisor)

From a product standpoint, we saw the biggest uplift in our C+ subscription offerings. There was a big focus. We do an annual promo every year around the C+ annual subscriptions, and that was also particularly successful, which drove a lot of nice free cash flow as well as future revenue for the course of this entire year.

Cam Carey (Head of Investor Relations)

Great. Thank you both.

Operator (participant)

Our next question will come from Stephen Sheldon with William Blair. Please unmute your line and ask your question.

Stephen Sheldon (Research Analyst of Technology, Media, and Communications)

Yeah, thanks. Greg, I wanted to follow up on the content front. Now that you've had a few months at Coursera, where do you see the bigger opportunities to expand the content on the platform as we think about subjects, for example, building out more breadth in healthcare or other subjects by the source of content as we think about corporate university partners along with potentially new sources and just by content type? I'm curious how you're thinking about how that content kind of portfolio might look as we might sit here two to three years down the road.

Greg Hart (President and CEO)

Great question, Stephen. Content, as I mentioned earlier, is the engine of our business, and it really powers the flywheel of our ecosystem. Stepping back, you've got the branded content that comes from both our university partners and our industry partners. That content is the reason that learners come to the platform.

As more and more learners come to our platform and engage with the platform, that obviously makes Coursera more and more appealing to our partners in both higher education and in industry as a way to bring their content to a large and increasingly growing audience. This past year, we've expanded our courses, our course catalog, by 37% year-over-year. We now offer nearly 10,000 new courses, and that includes things that are both incredibly topical, like GenAI. We have roughly 700 GenAI courses now with an incredible amount of demand for those courses. Just to provide a little context, as I mentioned in the scripted remarks, we saw demand of so far this year, we're seeing demand of 12 enrollments per minute in GenAI content, up from eight last year and one in 2023.

We also want to keep adding new entry-level certificates because that brings both very career-aligned learning and things that employers are looking for in their prospective candidates. We added five new entry-level certificates in Q1. One of them was from Johns Hopkins. You mentioned healthcare. We added one from Johns Hopkins. I do believe there is opportunity for us to continue to expand in the healthcare space. The total number of certificates we now have is more than 90, and about a third of those have at least one credit recommendation. They are also useful to full-time students, and they help augment the offering that our partners at the university level provide to their student base.

I think what we want to get to with our content offering is one that has both breadth across every different subject and domain area, depth in all of those areas, and is also really nimble. One of the things that we're really trying to do is figure out how do we accelerate our content engine. You've heard us talk on prior calls about Coursera-produced content. Those, I think, will continue to increase our investment in that. We started that investment last year, maybe the tail end of 2023. We will increase that investment this year. A couple of really interesting things about Coursera-produced content. One, obviously, we have better control of that content because we are creating it. Number two, it is favorable for us economically. So it's accretive from a gross margin perspective. Obviously, it's exclusive.

The other thing that we can do with that content is really use it as a test bed for what works to drive more learner engagement. That is one of the things that the team has been doing and will continue to do. The goal of, obviously, all of our content is to make sure we're doing a fantastic job of improving that learner experience. We really look at it in terms of what's the supply that we need to have of content to attract learners to our catalog, what's the learning experience that we provide that converts them from a registered learner to a paid learner and keeps them on the platform for longer, and it drives higher retention.

Stephen Sheldon (Research Analyst of Technology, Media, and Communications)

Got it. Thanks, Greg. That's really helpful. Maybe as a follow-up on the career discovery solution, really interesting what you guys are doing there. As you think about the opportunity, how comprehensive of a solution could Coursera look to build there, especially as you think about the opportunity to actually be a connection point potentially down the road between learners and prospective employers? Is there a bigger monetization opportunity that you may start to pursue at some point?

Greg Hart (President and CEO)

Perhaps down the road. I would say right now, it's still early days. We have 60-odd different roles that are covered by our career-based discovery. We believe there's a massive opportunity to expand that. We continue to ingest more and more third-party data to help build out that underlying sort of career and role and skill graph.

The goal is to enable a learner coming in who may not be sure about exactly what they're trying to learn but has an interest in a given area to better understand what that interest looks like. Say I'm interested in data. Okay, what kind of roles are there out there in the job market that are in the data field? What are the skills that those roles require? What are the courses that I can take on Coursera to help me build those skills and make my resume more appealing to employers in those spaces?

I would say we're still early days on that, but we're showing some good positive signs from a conversion perspective as we do that. We will absolutely increase our investment in that. Over time, I would like us to be viewed as an authoritative source on that. As we do that, that potentially creates opportunity down the road for looking at additional things that we might go after.

Stephen Sheldon (Research Analyst of Technology, Media, and Communications)

Got it. Thank you very much. Appreciate you taking the questions.

Operator (participant)

Our next question will come from Rishi Jaluria with RBC. Please unmute your line and ask your question.

Rishi Jaluria (Managing Director of Software Equity Research)

Oh, wonderful. Hi, Greg. Again, thanks so much for taking my questions. Maybe I want to start with the recategorization of consumer and degrees into one segment. Look, I understand what you're talking about, streamlining the organization, but maybe two pieces there. Number one, I mean, they are fundamentally different businesses. I understand with micro-credentials and pathways, there's maybe a little bit of a blurry line, but you're targeting different people. So maybe help me understand better the logic behind that.

The second piece to that, I mean, the obvious pushback that I think you're going to get from investors is, degrees has been a little bit of a challenge. Business over the past couple of years, is this just a move to hide future weakness in degrees? Maybe just help us understand both of those, and I've got a quick follow-up.

Ken Hahn (CFO)

Hi, Rishi. It's Ken. Thank you for that question and the clarity around it. As you mentioned, as we think about it and as Greg looks about it new in his role, ultimately, degrees is another Consumer product. It's just another consumer, albeit it is the longest in duration and the highest in price and it's sourced differently, but it is one more consumer offering.

As we look at how we operate the business and the changes we're making there as we stay focused on the biggest growth opportunities, we've changed the data that we look at day-to-day that we use to manage it, which ultimately drives the accounting around it. It is, as you mentioned, 9% of revenue. We've tried to be as open as possible, breaking everything out, including the forward look. To your point, Rishi, we do expect the degrees to decline. Before we collapse that reporting to be in sync with the reporting we do internally, we wanted to make sure we're not hiding anything. We wanted to be very clear about it.

For this small portion of the business, which while it's still important for consumer, it's an important product, is a smaller portion, and especially as we move forward and as degrees has, again, we expect it to decline slightly this year. We wanted to make that statement. As consumer and Enterprise, we both expect to grow at significant rates. It will become less relevant to investors, and it's less relevant day-to-day for us as we manage it. Again, important for a consumer, but we think of it as a consumer offering.

As we look at the data that we look at to manage the business, and Greg, not to be too goofy about accounting, who is our CODM or Chief Operating Decision Maker, what he looks at as we look at the health of the business and as we manage the business, it indicates we should collapse it. We think if you want the noise around degrees is not fitting with the focus externally. We have provided historic combinations, and we go out of our way to be transparent around these things. You can look at the historic combination. Again, we have tried to do our best by giving the forward guide, and we are not trying to hide the ball, that is for sure. Hopefully that helps.

Rishi Jaluria (Managing Director of Software Equity Research)

Yeah, no, thanks, Ken. That is super helpful. Maybe I just want to think about now the outlook for the year. Nice to see a raise there. I just want to kind of understand your sets of assumptions behind that guidance, right? Especially just given, I mean, no one knows how this macro picture and everything's going to shake out, but I think it is clear we've seen consumer sentiment start to weaken.

That's obviously a very critical growth driver on your side as a consumer business. Maybe just help us understand, given the global nature of your business, global nature of your learners, and the consumer business, how you're thinking about what's kind of the base case embedded in the guide, especially as it pertains to all these pieces. Thanks.

Ken Hahn (CFO)

Sure, Rishi. I'd break it down between consumer and Enterprise. As we said in the original remarks, we expect both to grow single digits, but consumer more than Enterprise. What we have built into our consumer outlook is some observed improvements that we have seen in our metrics. Greg talks about top-of-funnel conversion retention and ARPU internally as we look and think about the consumer business. We have seen improvements already that we have indicated essentially we have reflected in our forward guide. We will also continue to invest in the business, and we see lots of opportunity there operationally. We have increased our EBITDA outlook by 100 basis points, which is good. We continue to improve the economic model, but not at the rate we have historically.

The reason for that is we wanted to be sure we set aside enough so that we can pursue growth initiatives and new capabilities that will also drive growth. We have built that into the business. We have not assumed that we are going to see any incremental growth from them yet. It is too early. It needs to be proven. We absolutely think we have a lot of opportunity just to operate differently and better. As you know as well, we have seen historically during slower economic times some countercyclicality. It is always hard to read that internally. As you said, everybody is trying to understand that. I would not be surprised if we see some of that as well.

Every downturn is a little bit different. To contrast that, on the Enterprise side, we had a nice Q1. We are still expecting Enterprise to grow, but we expect it to grow at a slower rate. That is not necessarily because of what we are seeing directly right here right now associated with the revenue, but due to some caution around Enterprise spend.

We think in this category, as budgets soften during macro environment uncertainty and businesses pulling back in particular, that there could be some risk of slower growth going forward. We have not seen it necessarily, but we think some amount of caution, which I think everybody is looking for, is fitting. Where we have seen some particularly nice outcomes recently and in the near-term expectancy is around Coursera for Campus as compared to Coursera for Business or Government. Coursera for Campus, we think, should continue to be a bright spot. Overall, it gives us some confidence in the lower single-digit growth we see for Enterprise. That is how we came to our outlook, Rishi.

Rishi Jaluria (Managing Director of Software Equity Research)

Very helpful. Thank you so much.

Operator (participant)

Our next question comes from Josh Baer with Morgan Stanley. Please unmute your line and ask your question.

Josh Baer (Executive Director of Software Equity Research Analyst)

Great. Thanks for the question. For Greg, just wondering, I mean, I'm very bullish on the long-term secular trends around skilling and reskilling, but I'm more uncertain on the timing of when it is going to matter for companies and exposed. I'm wondering your perspective coming into this sector on the timing of that opportunity. When does skilling and reskilling inflect and translate to momentum for you? Really, what will it take to get there?

Greg Hart (President and CEO)

Great question, Josh. I'll give you my thoughts. Number one, I don't have a crystal ball. I wish I did. I think some of the things that Ken actually just mentioned are really pertinent. On the one hand, you've got stats like the report from the World Economic Forum that 59 out of every 100 jobs in the global workforce will need retraining by 2030.

That is a longer-term push that companies will need to figure out how to deal with. How do they upskill and reskill their workforces? Balanced against that, you have the uncertainty in the macroeconomic environment now. You have sort of got near-term uncertainty that obviously is causing corporate leaders to be a little reticent about spending until they have a better sense of what the trends might look like. You have that balance against this longer-term shift that I think all of them absolutely agree on. We mentioned in the scripted remarks the stats about Enterprise leaders and the need for workforce members with AI skills. I think that what you'll see is that you'll see it play out a little bit differently in different sectors for relatively obvious reasons because AI will have different impacts in different sectors at different timelines.

The companies that are more forward-leaning and continue to invest in reskilling will have an advantage. That will be a real competitive advantage because it'll give them a combination of both better operating leverage as they become more efficient and better capabilities to attract and retain consumers. Regardless of the industry that they're in, they can leverage AI to do a lot of things from a customer experience and marketing perspective more effectively than they could with prior tools. The companies that lean into that will be the ones that get the benefit of that. I expect that those will be the ones that will continue to invest in reskilling and upskilling their workforces. We want to make sure that Coursera does a great job of serving those companies.

Of course, the ones that are forced for whatever reason because of the macroeconomic uncertainty to hold off on, we want to make sure that we stay in dialogue with those companies about the value that we can provide to them and the way that some of those reskilling and upskilling might provide benefit to their business that might help them in these uncertain times.

Josh Baer (Executive Director of Software Equity Research Analyst)

Great. Thanks, Greg. I was hoping, Ken, you could just comment on why 100 basis points is the right level of margin expansion. We can see that that's below where it's been. If you could talk through some of the methodology of deciding how much to invest and in what projects and that level of margin expansion is also coming with a lower level of growth this year than in the past, too. Thanks.

Ken Hahn (CFO)

Yeah, sure, Josh. Part of it is just budgeting, I guess I'd say, as we're making a lot of change and kicking off a new year with incremental focus. We wanted to be sure we did not shortchange our opportunity for growth. It's something Greg and I talked a lot about when he came on board and the board was very interested in, even before Greg started, in anticipation of Greg starting, that we made sure there was enough dry powder so that we could pursue changes in the company to reignite growth at levels that we would find more satisfying. What we've done is we've started to identify those opportunities. We're well along the way. We've started to identify the resources required to achieve those.

We'll go through a process where we actually implement that and start to think more about exactly how much revenue, and we'll balance those as we move forward. Essentially, we've baked in the cost to provide that opportunity. We haven't baked in a lot of top line. I don't think that'd be appropriate right now to do so, given that these are new initiatives and given that we have a relatively uncertain environment right now, more so than we've had in some time. Pragmatically speaking, that drives you to a lower if you add more cost, but don't take much benefit top line in your forward forecast, which I think is prudent and the right thing to do. Mechanically, that's the answer it provides you. It was important to us that we did continue to improve it.

I hope that we get the confidence once we see the metrics that these actions take so that we can confidently forecast new top line, but it would be premature to do that. I think of it as a little bit of a transition methodology, if you want to call it that. Important to us to continue to improve the economics of the business model and create the best opportunity for return to growth. We're still early. We're still small. There is a lot of growth opportunity, and we think we'd be shortchanging the investors if we did anything differently.

Josh Baer (Executive Director of Software Equity Research Analyst)

Great. Thank you.

Operator (participant)

Our next call comes from Ryan MacDonald with Needham. Please unmute your line and ask your question.

Ryan MacDonald (Senior Analyst)

All right. Thanks for taking my questions. Greg, as you think about the investments you're making in the business today, a lot of them you talk about product innovation, content generation. It seems like there are sort of benefits to the core consumer business that perhaps if successful, will also benefit sort of the Enterprise segment down the line. Is that the way you're sort of looking at in terms of prioritization in the business? Or are there separate sort of Enterprise-specific investments that you think also help to separately drive growth in that business or drive a reacceleration of growth in that business?

Greg Hart (President and CEO)

Yeah, the way that I think about it is sort of threefold. Number one, the improvements that we make on the content side of the business benefit all learners, whether those are individual learners or Enterprises.

As we make improvements with things like Coursera Coach or Dialogues to the actual learning experience, those benefit individual learners. They also benefit Enterprise customers. We are also, though, making very specific investments in the Enterprise business to improve that experience. Better creation of curated sets of content that meet the specific needs of Enterprises in different verticals and different sectors. For example, if you are an Enterprise and you want to make sure that you give the product management arm of your business all of the skills that they need to continue to improve and understand what's changing within AI and how to leverage that within your particular company, we can provide a curated set of courses that can do that for you. Those types of things, better integrations with corporate systems, LMSs, et cetera.

Also, better admin tools for our Enterprise customers, better reporting and data. We are definitely making specific investments that are only going to benefit our Enterprise business. Generally, my viewpoint is a lot of the improvements that we make to the content side will benefit both consumer and Enterprise. We are certainly also making specific improvements to sort of the lifecycle journey of the consumer side of our business as well from a customer lifecycle management discovery. Actually, the career-based discovery also benefits both because it helps the Enterprises understand the skills that if they have a specific type of workforce, what are the skills that workforce needs to develop, which they are obviously going to have a point of view on. That information is incredibly valuable and helpful. We're going to bring a point of view in terms of how our catalog maps to that.

Ryan MacDonald (Senior Analyst)

Super helpful colour. Thank you. Ken, maybe for you, I recognize that we're on an annual basis showing some nice EBITDA margin expansion, but the sort of implied guidance for second quarter and what's implied for the back half of the year sort of shows some adjusted EBITDA margins, obviously, that are below the annual targets. One, can you talk about when you think adjusted EBITDA margin troughs as we think about fiscal 2025? Two, how are you thinking about payback period on these investments? I understand you're not including any revenue benefit in the implied guidance right now, but how should we think about how quickly some of these investments could actually translate to top line improvements? Thanks.

Ken Hahn (CFO)

Great question, Ryan. Again, I described the methodology as we looked to do those forecasts, and unless you build in top line growth associated with the investments, it creates the exact result you're talking about. I wanted to be very careful we didn't get in front of ourselves, but naturally, mathematically, again, definitionally, that creates a slowing throughout the course of the year. I do think if we're successful with these investments, we will see relatively near-term results. It depends on exactly what we're talking about, of course, but the categories are product innovation, the content engine itself, and the go-to-market. The go-to-market investments, I think we will see more immediate payback, less so on the Enterprise, but much more so on consumer.

There are a number of initiatives around there. Content will also be a mix of near-term and longer-term. We're investing in building increasingly. We've had good success so far. Our Coursera-produced content, which has lots of strategic benefit on top of immediate financial benefit, but we do expect that to continue to deliver. The product innovation will be a mix. Some of that will be longer-term. Some of it should have some immediate payback. The other piece, and that is how we are grouping our priorities around growth. The other part is operationally what we are doing and the metrics where we are investing in infrastructure to be more metrics-driven.

While it is soft, I expect that we are going to see payback from that. We are already seeing payback for that. It is frankly one of the reasons this quarter ended as well as it did for us. I think you will start to see that. I hope we have a real opportunity to increase our growth outlook during the course of the year, but it's not a conservative forecast if you tell people you're going to beat it. If we perform the way I'd expect we're going to perform, we should start to see it sooner rather than later. I would love it if mechanically we didn't have the result we did with implied slower growth at the end of the year. It's not what I expect to see, to be clear.

Ryan MacDonald (Senior Analyst)

Appreciate it, Coursera. Thanks again.

Operator (participant)

Our final question will come from Jeff Silber with BMO. Please unmute your line and ask your question.

Hey, can you hear me? Yep. Hey, this is Ryan for Jeff. I just had a quick question. Just helping us to measure the success of product innovation and the go-to-market initiatives from the outside looking in, just wondering what percentage of your registered learners are paid today, and then what percentage of registered learners do you envision as paid once all these initiatives are flow through? Thank you.

Greg Hart (President and CEO)

I wasn't sure that I followed exactly what all the question was, but I would say that we don't break out necessarily our conversion at that level, but we do expect to see improvements in registered learners to paid learners through a lot of the things that we're focused on. Those are some of the things that we believe that, as Ken mentioned, might translate in the nearer term to benefits in the business, but we don't break out the specifics around conversion on that. Obviously, the size of our learner base at 175 million is a tremendous asset. We have opportunity to convert registered learners both immediately as they register and over time as well. We see both of those things happen.

Understood. Thank you. Just quick follow-up. I was wondering if there's any knock-on impact of the Department of Education enterprise, whether it's budgets or grants coming into scrutiny at some of the higher-end elite education institutions that you partner with.

It's a great question. I would say that this is Greg. I would say that what we're seeing from our partners in higher education is, obviously, a lot of consternation about what's happening and how they respond to that. I would say that in that environment, Coursera is a great partner for them because as their funding from the federal Government comes potentially under threat, we drive revenue for them through the courses that they provide in our revenue-sharing arrangements.

One of the active conversations that we're having with institutions across higher education is, how can we help you create more courses, improve the performance of your courses, and make sure they're as relevant as possible for the massive global audience that we have so that you can bring in revenue from Coursera to potentially help offset to a certain degree some of the funding challenges you might be seeing in the current environment.

Thank you.

Cam Carey (Head of Investor Relations)

That wraps today's Q&A session. A replay of this webcast will be available shortly on our investor relations website. We appreciate you joining us today. Take care.

Operator (participant)

This concludes today's conference call. You may now disconnect.