Udemy - Q4 2022
February 14, 2023
Transcript
Operator (participant)
Good day, welcome to the Udemy fourth quarter and full year 2022 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would like to turn the conference over to Dennis Walsh, Udemy's Vice President of Investor Relations. Please go ahead.
Dennis Walsh (VP of Investor Relations)
Thank you. Welcome to Udemy's fourth quarter and full year 2022 earnings conference call. Joining me today are Udemy's Chairman and Chief Executive Officer, Gregg Coccari, President of Udemy Business and incoming CEO, Greg Brown, and Chief Financial Officer, Sarah Blanchard. During this conference call, we will make forward-looking statements within the meaning of federal securities laws. These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated. For a complete discussion of risks associated with these forward-looking statements, we encourage you to refer to our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. Our forward-looking statements are based upon information currently available to us.
We caution you to not place undue reliance on forward-looking statements, and we do not undertake and expressly disclaim any duty or obligation to update or alter our forward-looking statements, except as required by applicable law. In addition, during this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with U.S. generally accepted accounting principles referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe that these non-GAAP financial measures assist management and investors in evaluating our performance and comparing period-to-period results of operation in a more meaningful and consistent manner, as discussed in greater detail in the supplemental schedules to our earnings release. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release.
These reconciliations, together with additional supplemental information, are available on the investor relations section of our website. A replay of today's call will also be posted on the website. With that, I will now turn the call over to Gregg.
Gregg Coccari (Chairman and CEO)
Thank you, Dennis, and good afternoon to everyone on the call. Udemy completed its first full year as a public company with results that met expectations on the top line and exceeded the high end of our range for adjusted EBITDA margin. I am proud of these results and our overall performance, despite a very challenging macroeconomic environment and unfavorable FX headwinds. As you know, after four years as Udemy CEO, I will retire at the end of the month. This has been an exciting opportunity and the most rewarding role of my career. I am thrilled to pass the baton to Greg Brown, who has served alongside me as President of Udemy Business for the past two years. Greg's deep executive leadership and enterprise sales experience has been an invaluable asset from the start.
He has quickly scaled our enterprise business and built a powerful go-to-market engine that has more than doubled our ARR in two years. Greg is passionate about learning and our mission, and I am confident that he's the best executive to lead Udemy through the next stage of growth. It is a bittersweet moment, however, since we shared with our employees yesterday that we are reducing our global workforce by 10%. We are taking steps to better align our cost structure with our expectations for revenue, demand, and profitability. This decision was extremely difficult since the talented team members that were impacted all contributed to Udemy's success. It is with a heavy heart that we wish our departing colleagues all the best. We are committed to supporting them as they transition to their next opportunity.
Looking ahead, we believe this action positions us well to balance growth and margin expansion in a challenging environment. Going forward, the company is in good hands with Greg Brown and the rest of the Udemy leadership team, as I plan to stay on for a year as an advisor to support a seamless transition. Since this is my last call, I want to send a warm thank you to the analyst and investor community that supported me, Udemy, and our entire team as we took the company public, our customers and learners around the world for choosing Udemy as their learning platform, our instructors for creating the impactful content that sets our company apart, and finally, to my colleagues at Udemy for your hard work in advancing our mission and building this great business. With that, I'll now turn the call over to Udemy's next CEO, Greg Brown.
Greg Brown (President of Udemy Business and Incoming CEO)
Thank you, Gregg. I'm tremendously grateful for your leadership and for entrusting me to run Udemy Business for these past two years. It's been the opportunity of a lifetime, and I'm honored to step into the CEO role. Greg leaves behind an amazing legacy, which I'm excited to build upon. He set Udemy on a clear path for long-term sustainable growth, and his accomplishments allow me to assume the CEO role with the company already positioned as a global leader. Under Gregg's leadership, we grew revenue by nearly 180%. We accelerated the growth of Udemy Business and delivered strong net dollar retention. We built an exceptional leadership team and talented global workforce. We successfully took the company public in 2021. I think we can all agree that Gregg truly earned this retirement. Thank you for your service, mentorship, and guidance, Gregg.
We wish you all the very best. As a final point on the transition, we're fortunate to have a strong leader like Stephanie Stapleton Sudbury take the reins as President of Udemy Business. Stephanie was identified long ago as my successor, and during her time leading our customer success team, she helped shape Udemy Business' product, customer, and go-to-market strategy. She had solid relationships with our largest customers and is directly responsible for consistently driving our best-in-class retention and understands our customers' needs better than anyone. I'm extremely confident in Stephanie's ability to take Udemy Business to the next level. Now, I wanted to take a moment to touch on some of the trends we're seeing in our business and set the stage for 2023. The Udemy Business segment continues to be our main growth engine, and our pipeline for new business is strong.
We're encouraged by the continued strength of that business, which is supported by an accelerating shift from offline to online skill development. Companies everywhere are looking for more efficient and timely ways to reskill and upskill their employees. Udemy provides a solution that enables customers to stay ahead of the pace of change driven by advancements in technology, while also investing in retaining their best talent and increasing productivity. To illustrate this point, a recent study conducted by IDC confirmed that Udemy Business customers experience meaningful business gains while also realizing platform costs and hiring efficiencies. Study participants reported a nearly 5x increase in upskilled employees, approximately 30% higher productivity, and significant hiring and recruiting cost savings. In this environment, we are also benefiting from vendor consolidation that is happening as companies tighten their budgets.
Udemy offers the most comprehensive learning solution, allowing customers to reduce their vendor load and cost. Our broad, high quality, and fresh content is a distinct competitive advantage. As you've heard from us before, our solution also drives higher learning engagement. This improves stickiness as our customers frequently use employee adoption and engagement as key metrics to validate their training and education budgets. To that point, we recently closed a multi-year deal with Capgemini, a global technology services company. Capgemini chose Udemy Business as its learning content partner, primarily to support the launch of their new Capgemini Engineering and Industry Academies. Udemy was selected for the breadth and depth of our content collection and the flexibility with which we could meet their content needs for cutting-edge business and technical skills. Our speed to market and agility, due to the marketplace model, were the key reasons we were chosen.
The partnership and services we offer and our strategic customer success approach were also influential in establishing this scaled enterprise contract and ensuring the successful rollout of Udemy Business at Capgemini. We continue to see a trend of longer contract lengths materializing, particularly with our larger customers. In fact, quarterly revenue for multi-year deals increased 129% year-over-year and now accounts for over 42% of Udemy Business revenue. That being said, we're not immune to the macroeconomic impacts. We did experience some elongated sales cycles as customers are taking more time to closely assess their vendor options and to make budgetary decisions. We first saw this from our smaller customers in Q3, but by the second half of Q4, we started to see the same trend emerge with larger customers.
We expect customers to continue to leverage Udemy, just at a slower pace over the near term. On the consumer side of the business, we continue to attract instructors to our platform who are producing a massive amount of high-quality, fresh content to our marketplace, the best of which is curated into our Udemy Business catalog. More than 80% of our total revenue comes from courses that are accessible on both our marketplace and the Udemy Business catalog. That means the majority of our revenue comes from exclusive content. We now have more than 200,000 courses available on our marketplace, with more than 4,700 new courses added on average each month. The speed in which new content is created for our marketplace provides us with a competitive advantage over others in our space that use a traditional publisher model.
A great example of this is that we now have more than 150 courses available on ChatGPT, which just launched two months ago and has become the fastest-growing search term on both Udemy Business and our marketplace. Of those courses, nearly 20% are non-English, and 11 have been approved and added to the Udemy Business catalog thus far. To date, we've only seen one course published by our competitors. Before I turn the call over to Sarah, I wanted to set the stage for 2023 by sharing our strategic priorities for the year. Although it may be a challenging year, there are many trends that we expect will be favorable for Udemy, including the continued shift from offline to online, increasing digital transformation, greater work-from-home flexibility, and renewed investment in continuous skill development for workforces.
With all that in mind, Udemy's 2023 strategic priorities include, one. Establishing Udemy as the platform of choice for professional learners and increasing skill development through new learning modalities. We plan to continue partnering with our instructors to launch more immersive hands-on learning experiences. We will also leverage AI to create more engaging, personalized learning experiences and help instructors maximize the value and quality of their content on the platform. two. Introducing validation of skills acquisition through badging and professional certification. To support Udemy learners in advancing their careers and to help companies assess existing talent, we are partnering with major technology companies to develop professional badges and certifications as an official endorsement that a learner has demonstrated acquisition of the required skills. three. Accelerating global scale of the business outside of the United States.
We plan to continue investing in strategic partnerships that either extend our marketing reach or the capabilities and reach of our global sales go-to-market. Through relationships with key brands and local market leaders that have reach and scale, we expect to continue driving awareness and adoption of our offering. four, increasing company-wide operational efficiency and progressing toward profitability. We will continue to prioritize efficient investments in our highest growth opportunities as we accelerate our path to becoming a profitable company. We plan to deliver a profitable second half of 2023 and full year 2024 on an adjusted EBITDA basis. As you can see, it's gonna be a busy year for Udemy, and I'm optimistic about the future of this company. The opportunity available to us is massive, well beyond 2023.
I look forward to leading the company as its new CEO, and I'm committed to delivering long-term sustainable growth and building shareholder value over time. Now, I'll turn the call over to Sarah for a financial review and outlook.
Sarah Blanchard (CFO)
Thank you, Greg. We had a solid quarter and end of the year considering the current macro backdrop. Total fourth quarter revenue increased 22% year-over-year to $165 million. For the full year, revenue increased 22% to $629 million, both of which were within our guidance range, including the negative impact of FX. Since nearly 60% of our revenue is from outside of the U.S., the year-over-year increase in total revenue includes a negative impact of four percentage points from changes in FX rates in both Q4 and the full year. We also exceeded the high end of our Q4 and full year 2022 adjusted EBITDA margin guidance ranges as we continue to focus on operational efficiencies and driving toward profitability. Q4 revenue growth was driven by the strength of Udemy Business.
The segment accounted for 50% of total full year revenue for the first time, well ahead of the goal we set at the time of our IPO. That being said, we did experience some elongating sales cycles, pushing some deals into Q1. At the same time, the consumer marketplace remains healthy. Although segment revenue was down year-over-year in Q4, driven by the negative impact of FX, Udemy's marketplace continues to produce a steady source for organic leads and serves as a powerful content creation engine that provides fresh, high quality courses that ultimately feed the Udemy Business content library. As we move down the P&L, note that all financial metrics are non-GAAP unless stated otherwise. I will keep my remarks focused on the fourth quarter results.
Our news release, which can be found in our investor relations website, includes the financial tables with results for the three and 12-month periods ended December 31st, 2022. Q4 gross profit was $94 million, up 29% year-over-year. Gross margin was 57%, a 320 basis point improvement from Q4 of 2021, driven by the continued revenue mix shift to Udemy Business, since content costs as a percent of revenue are lower for that segment. Total operating expense was $119 million or 72% of revenue, compared to 75% in Q4 of last year as we continue to focus on driving company-wide operational efficiency. Within OPEX, sales and marketing expenses were 47% of total revenue, compared to 50% for the same quarter last year.
We typically experience some seasonality during the fourth quarter when we ramp up our marketing investments around Black Friday. Due to the current macroeconomic environment, we reduced spend on consumer marketing this year in order to maintain a reasonable ROI and also shifted the balance of spend toward Udemy Business where we see greater long-term growth potential. R&D expense was 14% of revenue compared to 12% in Q4 of 2021. We're investing in areas that we believe support learner outcomes and increase ROI, such as immersive learning modalities, business skills, AI, and machine learning. Finally, G&A expense was 11% of revenue versus 13% a year ago. On the bottom line, net loss in the quarter was $23 million or -14% of revenue.
Adjusted EBITDA loss was $20 million or -12% of revenue, well ahead of our guidance range of -17% to -15%, driven by our continued focus on efficient expense management. Moving on to key cash flow and balance sheet items. We ended the year with $465 million of unrestricted cash equivalents, and marketable securities. Increasing DSO changes in working capital timing and a one-time payment to settle our instructor withholding tax reserve resulted in -$34 million in free cash flow for Q4. Turning to our results by segment, starting with our enterprise segment or Udemy Business. We grew Q4 revenue to $91 million, or an increase of 57% year-over-year, which includes a -4 percentage point impact from changes in FX rates.
Segment gross profit for the quarter was $60 million or 67% of segment revenue, roughly flat year-over-year. Annual recurring revenue was $372 million at the end of Q4, up 55% year-over-year. We saw a bit of a deceleration in ARR growth, primarily due to the reasons Greg Brown outlined earlier, ended the quarter with nearly 14,000 Udemy Business customers, up 32% from a year ago. We continue to see strong adoption and retention across all geographies, particularly with larger companies, that is being somewhat offset by softness with smaller businesses and elongating sales cycles. In many cases, we are landing with meaningfully higher deal sizes and contract lengths and continue to gain traction with our newer products, Udemy Business Pro and Cohort Learning.
Those trends impacted our customer retention, resulting in Q4 Udemy Business net dollar retention rate of 115% or a 200 basis point decrease from the prior quarter. Net dollar retention for our Udemy Business large customers, or those with at least 1,000 employees, was 123%, which was flat with the prior quarter. Not only are we seeing solid retention of our existing customers, but those larger customers are looking for the most efficient solutions to partner with to achieve their long-term company-wide learning and development goals, which is driving an increase in seat expansion and contract length. Turning to our consumer segment, although Q4 revenue was $75 million or down 4% year-over-year, that includes a -5 percentage point impact from FX.
Taking the FX impact into consideration, it is encouraging to see the continued resilience of our marketplace even in this challenging environment. Segment gross profit was $37 million or 50% of segment revenue, approximately 240 basis points higher than in Q4 2021. The year-over-year expansion in consumer segment gross margin was primarily driven by the timing of revenue recognition relative to instructor payments. Our marketplace continues to be vibrant and healthy. During Q4, our platform saw nearly 35 million monthly average unique global visitors, up 6% year-over-year and more than 1.3 million monthly average buyers purchased a course or subscription, down approximately 2% year-over-year on meaningfully lower consumer marketing spend. I'd like to introduce our outlook for the next quarter and full year 2023.
We are cautiously optimistic about 2023 as we balance the momentum we're seeing in our main growth engine with the macro uncertainty. Many of the positive trends that we experienced at the end of 2022 are expected to continue this year, including the shift from offline to online learning and vendor consolidation. We believe that growth may be somewhat offset, especially in the near term, by smaller corporations reducing their learning and development budgets and companies in all geographies closely evaluating vendors, which may translate into sales cycle elongation across the board. We also expect our consumer segment revenue to decrease slightly year-over-year due to the FX impact and shifting our spend to the Udemy Business growth engine.
For modeling purposes, while we do not plan to provide segment guidance going forward, we wanted to share some high-level insight on our anticipated Udemy Business and consumer segment quarterly patterns with our outlook, so you can better understand how we're thinking about the respective businesses. With all of that in mind, we expect Q1 revenue to be between $168 million and $172 million, with Udemy Business segment revenue as a percentage of total revenue remaining relatively flat with the prior quarter due to our Q4 2022 consumer promotion cycle and revenue recognition. Assuming foreign currency exchange rates remain constant, FX is expected to negatively impact Q1 year-over-year total revenue growth by approximately 6 percentage points.
For Udemy Business, while we expect Q1 year-over-year growth to moderate as compared to Q4, we believe a year-over-year growth rate in the mid-40s is achievable. For the rest of the year, while Udemy Business's growth may slow a bit, we believe that we can sustain mid-30s year-over-year growth each quarter, including the negative impact of FX and continued macroeconomic pressure. By year-end, we anticipate Udemy Business revenue will grow to approximately 60% of total revenue. Turning to consumer, we expect segment revenue to be up slightly in Q1 compared to Q4. However, we anticipate consumer revenue to be down low double-digits year-over-year on a percentage basis in Q1, including the impact of FX.
Similar to last year, we expect consumer revenue to be down sequentially in Q two as a result of our most significant promotions occurring around year-end, which benefits Q1 due to the timing of revenue recognition. We expect growth rates to improve in the back half of the year, due in part to the easing of the impact from FX headwinds. Taking all of that into consideration, for the full year 2023, we expect revenue to be between $700 million and $730 million or 14% year-over-year growth at the midpoint, including an estimated 3 percentage point negative impact from FX. For adjusted EBITDA margin, excluding severance costs, we expect Q1 margin of -10% to -8%.
We expect to deliver adjusted EBITDA margin expansion each quarter on a sequential basis, with the most significant increase from Q1 to Q2, driven by the cost savings associated with the reduction in workforce. As I mentioned earlier, we expect to be profitable on adjusted EBITDA basis for the second half of the year, with Q3 expected to be near breakeven and Q4 to be positive. As a result, we expect full year 2023 margin to be between -4% and -2%. At the midpoint, this implies nearly 500 basis point adjusted EBITDA margin expansion for the full year. Importantly, we remain confident in our ability to deliver full-year profitability on an adjusted EBITDA basis in 2024. As Greg said at the outset, we are cautiously optimistic about 2023 and the opportunity ahead.
The trends we are seeing today, particularly in our Udemy Business segment, are very encouraging for the long term. We will continue to make strategic investments in areas of the business that represent the greatest long-term growth opportunities while committing to continued cost discipline in order to deliver a profitable second half of the year. With that, we'll open up the call for your questions. Moderator?
Operator (participant)
We will now begin the question and answer session. To ask a question, you may press Star, then one on your touchtone phone. If you are using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press Star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Patrick Schulz with Baird. Please go ahead.
Patrick Schulz (VP and Senior Research Associate)
Hey. Yeah, thank you for taking my question. I just wanted to dig a little deeper into the 2023 revenue guidance, as it was a little bit below where many of us had expected. I know there are a lot of moving parts given the current macro, and appreciate the color you guys provided for each segment. Could you just provide a little bit of additional color on how you approach guidance this year? Any commentary would be helpful there.
Greg Brown (President of Udemy Business and Incoming CEO)
Sure, Patrick. Thanks for the question. First, I think it's important that we disaggregate the numbers a bit to provide context because I think it's relevant here. Roughly 2/3 of the approximately $60 million is based on expectations we have for the consumer business. You know, we talked about the fact that we've deliberately reduced spend on the consumer side to accelerate our path to profitability. That's the first point. I think second is on the UB side. You know, this last year in 2022, we exited at roughly 70% revenue growth, which is impressive given the environment. Extremely proud of the team and what we delivered there. We talked about a bit of the elongation in sales cycles as well as some of the softness on the SMB side that we built into the plan for 2023.
With that said, we're still projecting mid-30s growth at an exit of nearly $500 million in ARR, with 60% of our revenue being generated by the Udemy Business side of the house. You know, we're definitely cautiously optimistic for the year, but also feel like what we're gonna deliver is material and significant based on the economic climate we're facing. Sarah, I don't know if there's anything you wanna add.
Sarah Blanchard (CFO)
I think that's right. I think the only thing I would add is, you know, we do anticipate continued pressure from FX throughout the year. You know, more of the same, you know, challenging macro headwinds. Again, as Greg said, you know, UB still, you know, growing at mid-30s at this scale in this environment, you know, we're cautiously optimistic that we can not only deliver that, but if in the back half things ease it up a little bit, you know, we'll be in a good position to take advantage of it.
Patrick Schulz (VP and Senior Research Associate)
Okay. Yeah, appreciate the color there. Just a quick follow-up question, and I know you spent some time during your Analyst Day in the fall discussing the international opportunities with partnerships being an important part to this. Can you just talk about how this has progressed in recent months in light of the macro and maybe what your expectations are for 2023?
Greg Brown (President of Udemy Business and Incoming CEO)
Good question as well, Patrick. You know, investment in international expansion via partnerships as well as organic is one of our top areas of focus and priorities for the year. We continue to be encouraged by the progress we're seeing out of our partnerships via new ventures in Vietnam, Korea, and China. We're not breaking out revenue or guidance at this point for that segment of the business, but I can assure you that the acceleration is impressive, and we're excited about the prospects and potential this year, and we're gonna continue to invest in these areas. Latin America as well, very excited about what we're seeing of our partners in , Mexico, and the region at large. Will also be a continued area of investment.
You know, all said, you know, excited about the prospects and potential, and we've talked a bit about Amazon in the past, and we continue to make really good progress with them as a strategic partner on a global basis. Expect to be able to shed a little bit more light in the announcements to come with respect to how that partnership is evolving.
Patrick Schulz (VP and Senior Research Associate)
Great. Thanks for the question.
Operator (participant)
Our next question comes from Brett Knoblauch with Cantor Fitzgerald. Please go ahead.
Brett Knoblauch (Managing Director and Research Analyst)
Perfect. Hi, guys. Thanks for taking my questions. Gregg, congrats on the retirement. Hope you enjoy it. I guess my question kind of comes to, you know, your Investor Day, you guys came out with the 2024 and 2025 guidance. You know, I was just curious how the recent headcount reductions, I guess, one, was that anticipated at that time? Two, does that impact your guys' expectations for 2024 growth to be called within 23%-25%, and 2025 growth to be above 25%?
Sarah Blanchard (CFO)
Fred, thanks for the question. The first thing I'll say is, you know, at that time, we didn't have visibility into what the second half of Q4 was gonna look like for us. The macro continued to worsen and for the first time, we saw an impact in the slowing of sales cycles in our enterprise business, which we had not been seeing. We also pulled back on our marketing spend as we were seeing the macro continue, which resulted in a slower than expected Black Friday. You know, many consumer businesses saw this. There were a lot of things in the back half of Q4 that we didn't have visibility into. That being said, you know, we're reconfirming our targets for 2024 and 2025, and let me dig into that a little bit so you can understand why.
You know, the first is it's gonna be off of a smaller base, you know, these numbers are a little bit different. Secondly, you know, our mix of UB continues to increase. As it continues to increase, you know, that is the growth engine of this business that is going to continue to deliver, you know, mid-30s growth for a long period to come. We have a large opportunity within our existing base, which we've spoken about for expansion and upsell. So, you know, we're really focused on what we can control. We are committed to 2024 profitability and back half profitability this year. We do expect typical seasonality, and what that means is it may not be that every quarter in 2024 is profitable, but we will be profitable for the year.
Those targets that we laid out, we are still committed to delivering.
Brett Knoblauch (Managing Director and Research Analyst)
Perfect. No, that's extremely helpful. Then maybe on the segment gross margin, can you just walk through the cadence of how you expect that to play out throughout the year? I guess, you know, it's pretty volatile, you know, for the consumer segment quarter to quarter. Should we look at 2023 being similar to 2022? Is there any kind of unique instances in the last year that would cause it to stray from that?
Sarah Blanchard (CFO)
There's two things to think about when it comes to consumer gross margin. The first is the timing of our promotion cycles. When we have the larger promotions like Q4, what happens is you'll see gross margin suppression in that period because we record revenue kind of in the four and a half months following, if you will, but the instructor expenses occur in period. The other thing that happened in 2022 that we won't see in 2023 is we had some relief from mobile marketing fees in the first half of the year, and now those mobile marketing fees we're having to pay across the board. You're not gonna see that dynamic play out in 2023 in the same way it did in 2022.
Brett Knoblauch (Managing Director and Research Analyst)
Understood. Perfect. Thanks for taking my question, guys. Appreciate it.
Sarah Blanchard (CFO)
Thanks.
Operator (participant)
Our next question comes from Ryan MacDonald with Needham. Please go ahead.
Ryan MacDonald (Managing Director and Senior Equity Research Analyst)
Questions, I'll echo my congrats to Gregg Coccari on the retirement. Best of luck in the future. Greg Brown, I'm curious about in the Udemy Business, more customers evaluating the current vendors you're working with. Perhaps you can talk about how you feel like you're positioned to benefit from a consolidation trend there, and, you know, to the extent you have it, you know, what win rates have looked like in those sort of conversations thus far.
Greg Brown (President of Udemy Business and Incoming CEO)
All right. Thanks for the question. Yeah, we continue to see more consolidation and, you know, vendors looking to maximize economies of scale as they, you know, move to working with fewer vendors. We happen to be on the front end of that opportunity in terms of being positioned to take advantage of it. You know, we had, just this last quarter alone, two of our larger Fortune 500 customers add respectively 30,000 seats and 20,000 seats to standardize on our platform as being their preferred provider for learning and development across their organization, both multi-year contracts and both after, as you can imagine, deep assessment as to the needs of their organization and their assessment that the depth and breadth of our platform was best suited to their needs long term. We continue to see that trend emerge.
I believe it does feel like it's accelerating as we move into 2023. We continue to win a disproportionate amount of those opportunities. Specific for our win rates, as we talked a little bit about the elongation and sales cycles and that, you know, that's as a result of the macro that we're all dealing with. Our win rates are holding very, very strong, and we're very encouraged by that. In addition to the NDRR we're seeing, net dollar retention we're seeing in our large customer segment, which is customers over 1,000 employees, remaining very, very strong at 123%. Our enterprise business remains very healthy. We continue to see the acceleration of offline to online and consolidation that you talked about.
You know, look, we're very encouraged and very confident in our ability to continue to win, and win a disproportionate amount of the opportunities we're in on the enterprise side. We just need to navigate, with a lot of, you know, a lot of care, through this downturn, regardless of how long it extends.
Ryan MacDonald (Managing Director and Senior Equity Research Analyst)
That's super helpful. Thanks for the color there. Sarah, maybe one for you. As we think about the accelerative path to positive adjusted EBITDA and some of the cuts you're making, can you talk about, you know, where those cuts are coming or where you're looking to optimize as we think about the P&L and perhaps across the two segments, consumer versus UB? Thanks.
Sarah Blanchard (CFO)
Sure. You know, first, as we've spoken about, you know, we've been shifting spend from consumer to Udemy Business and decreasing our overall spend on marketing a bit. Secondly, you know, we really took a look at the organization and the macro environment. First, you know, on the recruiting side, when you're significantly slower in hiring, you know, you don't need that much capacity. We looked across our go-to-market team at the regions and segments that were impacted most by the macro environment, and that's, you know, we pulled back in those areas. You know, we're really focused for this year on our strategic priorities. From an R&D perspective, you know, areas that we could slow down a little bit or hold off on for now, but just remain focused on the things that matter most.
You know, those investments that are gonna impact our learners, our organizations, our instructors, we protected those. You know, we're focused on the platform and all methods of learning, improving our tools for instructors. Really harnessing that global instructor population that we have and allowing them to continue to build their businesses better and faster, doubling down on leadership development and Cohort Learning is important for us and increased personalization. You know, we took our time, we looked at the business, and the things that are most important for us to deliver, we're very focused on that. We, you know, reduced areas that were gonna be very inefficient to operate in and/or we just didn't need the capacity.
Ryan MacDonald (Managing Director and Senior Equity Research Analyst)
Appreciate the color there. Thanks for taking my questions.
Sarah Blanchard (CFO)
All right.
Operator (participant)
Our next question comes from Stephen Sheldon with William Blair. Please go ahead.
Stephen Sheldon (Partner and Equity Research Analyst)
Hey, thanks. Yeah, wanted to ask, I guess, a two-part question about ChatGPT. Curious what learner engagement has looked like with the 150 courses you have out there right now. Maybe just, I guess, you know, how do you think about the potential impact to your business and the potential to integrate this type of technology into what you're offering? Just curious on those two fronts.
Greg Brown (President of Udemy Business and Incoming CEO)
Thanks for the question, Stephen. Yeah. With respect to ChatGPT and what we're seeing on our platform, you know, as I mentioned, you know, we've got over 150 courses on the platform. 11 of those courses have ratings and reviews and curation been moved into our Udemy Business catalog. A number of those courses have over 100 reviews and over a 4.2 rating, which is our minimum threshold. All of those courses have that rating or above. Anyway, we're seeing very strong uptick and momentum with respect to ChatGPT. As we mentioned, it's, you know, most widely searched term right now on both platforms. We're very encouraged, you know, by the traction and our ability through our marketplace to monetize.
Look, it really is one of the areas that really is at the core, we're fundamentally different from any other business in the category because we are able to react and stay up with the pace of change whenever new advancements hit the marketplace, like in this case, ChatGPT. It really is a testament to, again, the power of the global network that we have, 'cause many of these courses on ChatGPT are not in English, right? They're non-English courses that are on the platform, launched all over the world in international language, tone, and context locally, where those instructors are.
That really does give us a very unique advantage in terms of how we bring this type of content to life and enable our learners within, you know, all different sizes and types of organizations to access this content, you know, and again, enabling them to stay ahead of the pace of change. you know, it's a good, strong illustration of really how different we are and advantages we have as a result of the marketplace. As far as ChatGPT and in terms of how we're thinking about it, vis-a-vis our instructors and the learning experience, you know, we've been now testing for over nine months, you know, in the area of AI deep learning, GPT-3, which is the underpinning platform that supports ChatGPT.
We're very encouraged by some of the testing and the betas that we've been running in terms of our ability to enhance the toolkit and then the capabilities that we can arm our instructors with to enable them to accelerate the pace by which they develop content, increase the level of personalization, which is really exciting, and allow the instructors to create, you know, more engaging content faster, I guess, is the best way to really sum it up. We'll be talking more about this as we move forward. Look, again, we've got 70,000 instructors around the world that we have the ability through this platform to enable them with tools and capabilities that, you know, again, are very unique and that, you know, we've got breadth and depth globally, and we're gonna take advantage of that.
Very encouraged by it. You can expect us to talk more about our investments in deep learning as we move forward.
Stephen Sheldon (Partner and Equity Research Analyst)
Got it. That's really helpful. As a follow-up, just wanted to, I guess, ask if we continue to see weaker macro trends, and I guess especially if unemployment rises from here, which seems likely to happen, what do you think the net impact would be on the consumer segment? I could see it being a little mixed, but just curious if you see some puts and takes as you think about consumer.
Sarah Blanchard (CFO)
Yeah. You know, this is the first downturn that this company's been through, so we don't know for sure. We do think that there is some kind of cyclicality to business as people are looking for ways to upskill and reskill themselves for their next opportunity. You know, we're gonna continue to keep an eye on it, but our expectation is that the consumer business will hold out and stay stable, if not see some benefit due to that.
Stephen Sheldon (Partner and Equity Research Analyst)
Great. Thank you.
Sarah Blanchard (CFO)
Thank you.
Operator (participant)
Our next question comes from Terry Tillman with Truist Securities. Please go ahead.
Connor Passarella (Equity Research Associate)
Oh, great. Thank you. This is Connor Passarella on for Terry. Thanks for taking my questions. Just on the first one, wanted to dig a little deeper into some of the customer dynamics within UB. Just for large customers with more than 1,000 employees, how did that segment feel from a demand perspective versus smaller customers? Maybe how can we think about the growth breakdown between these segments on the mid-30s UB growth guidance for for this year?
Greg Brown (President of Udemy Business and Incoming CEO)
Sure, Connor. You know, coming out of Q4, look, as we entered Q4, and into mid-Q4, we really were not seeing a significant impact in our enterprise business. What we saw in December as we went to the back half of December was some elongation in sales cycles, and that resulted in, you know, some deals pushing into Q1. Organizations were doing candidly, what we were doing, and I think what most organizations were doing, which is assessing, you know, the budgetary concerns that they'd had in Q4, as well as trying to really get clear on what their budget was gonna look like for 2023. Some of those decisions were in a holding pattern.
We are starting to see, some of the, you know, those decisions, you know, free up and some of the, you know, the budgets starting to be allocated in Q1. We're encouraged by, you know, what we're seeing early Q1, but, you know, still a long way to go. As far as buying trends, you know, within that segment, and I talked earlier, you know, about, you know, what we're seeing from a continued momentum offline to online as well as consolidation. We're also seeing that, you know, as I'm engaging with CLOs, you know, what they're telling me and us is that, you know, they're not pulling back on their allocation or budget per employee.
They may have, you know, in some cases reduced their workforce, so maybe not as many employees, but, you know, for most of them, it's as important now, if not more important, to continue to invest in the skilling, be it upskilling or reskilling of their employees to enable them as an organization to reach their strategic imperatives and outcomes as they're navigating the way through this downturn. You know, as much as, you know, we have seen some budgets constrict and go into a bit of a holding pattern, what we're hearing is those budgets for the year on a per employee basis are we're not seeing significant degradation. It does give us confidence in our enterprise business as we move into 2023. I don't know, Sarah, if there's anything you wanted to add to that?
Sarah Blanchard (CFO)
No, I think that was well said. Thank you.
Connor Passarella (Equity Research Associate)
Okay, perfect. Yeah, that's really helpful. Maybe just as a quick follow-up on the new product side. How has the rollout of the learning assessments been going? Maybe if there's any important customer feedback you've had here. I really appreciate the time, guys. Thank you.
Greg Brown (President of Udemy Business and Incoming CEO)
Yeah, you got it. I'm very encouraged. You know, some of these upsells that I mentioned do include our Udemy Pro, you know, immersive learning capability product. So, you know, very encouraged about what we're seeing. Most larger organizations are moving with a sequenced deployment, you know, phased deployment, if you will. Those initial phased deployments, we're seeing very, very good signs and very good uptick adoption and outcomes in line with expectations. You know, very encouraged. Again, you know, the breadth of our platform, you know, really does give us a unique position in the marketplace in that we've got immersive learning capability and our Leadership Academy coupled with, you know, our market-leading on-demand library that it is unique.
You know, we're taking advantage of that, and our customers are surely taking advantage of it as well.
Sarah Blanchard (CFO)
I would just add to that, you know, we've spoken about our customer success team and how we really partner with our customers to help them roll out these new features and capabilities and get their teams engaged and see that adaption so that they're able to get the ROI from the dollars that they're spending with us. You know, there's a lot to be said about having this broad platform, this great content, but very importantly also, we do partner with them to ensure that they're seeing that uptick and that success.
Operator (participant)
Our next question comes from Jason Celino with KeyBanc Capital Markets. Please go ahead.
Jason Celino (Managing Director and Equity Research Analyst)
Great. Thanks for fitting me in. You know, Greg Brown, when we think about the longer sales cycle commentary in enterprise, you know, are you seeing impact more in any one vertical, maybe, say, in tech? You know, curious what you're seeing.
Greg Brown (President of Udemy Business and Incoming CEO)
Question. We have seen it a bit in technology, which is no surprise 'cause that is also where we've seen the bulk of the organizational adjustments that have been announced over the last weeks and months. Yeah, tech is one vertical that we have seen, you know, a little bit of the pause, pull back. Again, starting to see that free up as we move into Q1. Also bear in mind, we don't have high concentration in any one vertical. You know, we've got, you know, if you look at the executive advisory council or boards that we have and the areas by which, you know, we're demonstrating very strong and capability to drive organizational, you know, upskilling and reskilling on a global basis. You know, there's no one concentration in tech.
You know, we do very, very well in financial services, I mentioned earlier. As well as professional services consulting, healthcare, retail, you know, and so on and so forth. Yeah, it does play to our advantage in that, you know, if any one sector does start to see softness is more impacted than other sectors. You know, we do have the ability, you know, to tilt in other directions without really losing a step. Initially, the tech vertical was a vertical that we did see some, you know, some pullback.
Jason Celino (Managing Director and Equity Research Analyst)
Great. Thank you. No, that's helpful. Sarah, you know, getting to EBITDA profitability sooner, you know, seems like the prudent decision now, especially in ed tech. I'm curious, you know, what type of flexibility have you built in, you know, in case some of these top-line business trends maybe potentially, you know, deteriorate further? Thanks.
Sarah Blanchard (CFO)
Yeah, thanks, Jason. I think, you know, the macro environment, Q4, we really did see a pretty significant deceleration and elongating of sales cycles, and we do expect that to continue. At the same time, as Greg said, you know, things do look like they're loosening up a little bit. We feel really good about the balance that we have laid out as far as, you know, confident in our ability to deliver profitability in the second half, even with continued macroeconomic pressure. At the same time, being thoughtful about the ability to also step in and put our foot on the gas should things open up and take advantage of the opportunity. It's a very balanced approach.
We do not expect in our planning right now for anything to improve. It can worsen a little bit and we'll be okay. At the same time, we're still investing in the things that matter, and we know, you know, the steps that we'll take really quickly when things start to loosen up.
Jason Celino (Managing Director and Equity Research Analyst)
Perfect. No, that's very helpful. Thank you.
Sarah Blanchard (CFO)
Thanks, Jason.
Operator (participant)
Again, if you have a question, please press star then one. Our next question comes from Brent Thill, with Jefferies. Please go ahead.
David Lustberg (Equity Research Associate)
Hey, thanks, guys. This is David Lustberg on for Brent Thill. Appreciate you answering some questions. Maybe just thinking about the overall enterprise opportunity. You know, there's a lot of different players out there. It seems like everyone in education tech wants a piece of that pie. Just curious, how do you think about, you know, some of these newer entrants being maybe a little bit more price competitive? Are you seeing any of that? Just curious to get your thought on the competition standpoint.
Greg Brown (President of Udemy Business and Incoming CEO)
Thanks, David. We're not seeing anything new in terms of competition upmarket in our enterprise segment. What you described as far as new entrants that are a bit more price competitive, we're seeing that more downmarket in the SMB side of our business. That's not a surprise. We've seen that for some time now. We expect to continue to see it. You know, we're making this appropriate adjustments if and where it makes sense to enable our teams to compete effectively in the SMB segment. On the enterprise segment, not seeing anybody new materially and don't necessarily expect that to change, you know, in any rapid fashion. That usually happens over time.
There'll be no surprises as we start to, you know, keep our eyes on the landscape and then better understand, you know, based on the customer's needs, you know, whether or not, you know, there's somebody else that's out there that can fulfill those needs as successfully as we can. That's about the best way I can answer it. Nothing material on the enterprise side, seeing it downmarket.
David Lustberg (Equity Research Associate)
Got it. That's helpful. Then maybe for Sarah, I just want to double down on the comment around the FY 2024 guide. I believe you said by reiterating what you said at the Analyst Day. Maybe just provide a little bit more commentary around what gives you confidence that you can get back to that level of growth. Obviously, you know, implies, you know, somewhat of a strong acceleration in growth. I think you pointed out like 2023 revenue is obviously lower, and so you have that impact. Maybe walk through what gives you the confidence that you can get back to that, you know, mid-20% growth in 2024.
Sarah Blanchard (CFO)
Yeah, I think a few things. I think the first thing, Greg mentioned this a little bit, even though we're seeing some elongating sales cycles, our win rate was actually higher in Q4 than it was a year ago in Q4. We continue to see the strength in our business. We continue to see that our offering, which is fundamentally different from anything else that is out there because of our marketplace, because we can keep up with the pace of change, and that pace of change continues to increase. It is a different offering. It is global. We have 14 local languages. We continue to see strength in our net dollar retention at over 123%, or at 123%, for customers with over 1,000 employees. We have an enormous opportunity for expansion and upsell.
We continue to expand and upsell within, and we are increasingly, our growth rates are based on Udemy Business. We've got stability in the consumer business. We think that stability is going to continue. We are very focused on what we can control, and the things that we're investing in are gonna continue to drive increased engagement and retention and improved unit economics, and all that's gonna result in top-line growth. You know, we feel really good about the targets that we put out there.
Greg Brown (President of Udemy Business and Incoming CEO)
I just wanna add one thing. We mentioned this on prior calls, but you know, we still are only 10% penetrated in our enterprise customer base. Our team, as Sarah just mentioned and I mentioned earlier, our win rates are increasing. The trend of consolidation within these larger enterprises gives us a lot of confidence that we've got a lot of runway in our enterprise segment. At the same time, we're adding new enterprise customers every quarter. They give us more opportunity to expand and grow. You know, we very much believe we're, you know, we're on the front end of a massive opportunity on the enterprise side of our business, holistically our business, specific to the question on the enterprise side. We've got the right platform and the right team to go take advantage of it.
Sarah Blanchard (CFO)
The other thing I would add, and we've spoken about this a little bit as well, is, you know, continued traction that we see in Udemy Business Pro and our cohort-based leadership offering. That's additional growth that we can take advantage of within existing customers and new customers.
David Lustberg (Equity Research Associate)
Really helpful. Appreciate the color, guys.
Sarah Blanchard (CFO)
Thank you.
Greg Brown (President of Udemy Business and Incoming CEO)
You got it.
Operator (participant)
Our last question is from Tom Singlehurst with Citi. Please go ahead.
Tom Singlehurst (Managing Director and Head of European Media and Global Education Research)
Yeah. Good evening. It's Tom here from Citi. Thanks for taking the question. Actually, just a couple of quick ones, if that's okay. First one, that weakness in the sort of enterprise pipeline, so the elongation of the sales process. Can you just give us a sense of whether there is a sort of geographic nuance to that? I know some of the other companies exposed to enterprise sort of L&D budgets have singled out the U.K. as a market that's been weaker than the U.S., for example. Any color on that would be great. I've got a follow-up, if that's okay.
Greg Brown (President of Udemy Business and Incoming CEO)
Sure, Tom. Let me make sure that... I wanna answer the question, the two parts of it. To make sure you understand that our pipeline on the enterprise side is actually very strong, right? We feel very good about the pipeline. We felt good about the pipeline in Q4. What we saw was some of these opportunities slide into Q1. We feel very, very good about the strength of our pipeline in Q1, as well as what we're seeing for Q2.
That being said, you know, the decisions that organizations were making in Q4 to hold on buying decisions while they better understood the macro as it related to their business, and carrying that forward a bit into Q1 before they were able to lock their budgets in for 2023, is not unlike anything that, you know, we're doing the same thing. I think, you know, as I've spoken with a lot of CLOs within our larger organizations, that same motion is happening across the landscape. What we're not seeing is we're not seeing anything different than we didn't see in Q4.
To your question around geography and segments, you know, our EMEA business, I know a lot of organizations have talked about softening with respect to the geopolitical, you know, issues that, you know, that EMEA has faced, as well as some macroeconomic conditions. Our EMEA business and our team, I can't say enough about our team over there, and our business continues to remain very strong, vibrant, and healthy in EMEA, as it does in Asia-Pacific and Latin America and around the world. No, we're not seeing any one segment or any one region more negatively impacted than another. You know, I would say our most mature business is North America on the enterprise side.
If anything, you know, we're seeing, you know, a little bit of that slowness and hesitation on the tech side of the enterprise customers, as we talked about earlier in North America. And I think as Sarah just mentioned, we are starting to see real positive signs of some of that loosening up and decisions being made and deals getting done. You know, encouraged by that early move in Q1. All to say, no geographic, you know, call-out, and feel very good about our enterprise business as we move into the year.
Tom Singlehurst (Managing Director and Head of European Media and Global Education Research)
That's great. The second question is around the cash balance and I suppose use of capital. I mean, you guys obviously have, you know, a lot of flexibility there. I presume sort of private multiples are coming down. I'm just interested in whether there's any appetite on your behalf to be more active with regard to M&A and maybe try and take advantage of the current environment to maybe add a little bit of inorganic growth to what you're doing organically?
Greg Brown (President of Udemy Business and Incoming CEO)
Yeah, that's a good question. It's a good question. You know, we do expect there to be further consolidation in the category as well as, you know, we are looking at opportunities to do exactly as you mentioned, you know, potentially layer in some technology or capability that, you know, we believe would give us, you know, leverage. There's a few different areas that we're looking at right now. Not at liberty to go into those specific areas, but without question, you know, we're gonna be opportunistic as we progress throughout the year and expect there to be opportunities for us to do just that. Sarah, I don't know if there's anything you'd like to add.
Sarah Blanchard (CFO)
Yeah, I think that's exactly right. I would say, you know, some of the multiples have come down some. They're maybe not quite where we want them to be yet, but we think that that's gonna continue. You know, we're actively looking at different opportunities that might make sense for us. But we're not quite there yet.
Tom Singlehurst (Managing Director and Head of European Media and Global Education Research)
That's very clear. Thank you.
Sarah Blanchard (CFO)
Thanks, Tom.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back over to Mr. Coccari for any closing remarks.
Gregg Coccari (Chairman and CEO)
I wanna thank everyone for joining today. It's been a pleasure getting to know all of you. We thank you for your continued support of the company. I hope our paths cross again sometime. Have a good afternoon.
Operator (participant)
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.