Coursera, Inc. (NYSE:COUR) Q4 2023 Earnings Call Transcript

Coursera, Inc. (NYSE:COUR) Q4 2023 Earnings Call Transcript February 1, 2024

Coursera, Inc.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by and welcome to Coursera’s Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode and please be advised that this call is being recorded. After the speakers prepared remarks, there will be a question and answer session. [Operator Instructions] I’d like to turn the call over to Cam Carey, Head of Investor Relations. Mr. Carey, you may begin.

Cam Carey: Hi everyone, and thank you for joining our Q4 and full year 2023 earnings conference call. With me today is Jeff Maggioncalda, Coursera’s Chief Executive Officer and Ken Hahn, our Chief Financial Officer. Following their prepared remarks, we will open the call for questions. Our press release, including financial tables, was issued after market closing as posted on our investor relations website, located at investor.coursera.com where this call is being simultaneously webcast and where versions of our prepared remarks and supplemental slides are available. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP measures to their most directly comparable GAAP measure can be found in today’s press release and supplemental presentation, which are distributed and available to the public through our investor relations website.

Please note, all growth percentages refer to year-over-year change unless otherwise specified. Additionally, all statements made during this call relating to future results and events are forward-looking statements based on current expectations and beliefs. These forward-looking statements include, but are not limited to, statements regarding the potential impacts of trends affecting our industry and business, and factors affecting the same, the anticipated benefits and impact of our strategic assets and platform advantages, our ecosystem, platform, content, and partner relationships, our anticipated plans and the anticipated advantages and benefits thereof, our strategy and priorities, our share repurchase program and cash and capital allocation, and our vision, business model mission, opportunities, outlook, financial business and otherwise, and future intentions.

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 press release, SEC filings, and supplemental materials. These forward-looking statements are not guarantees of future performance or plans, and investors should not place undue reliance on them. We assume no obligation to update our forward-looking statements is accepted as required by law. And with that, I’d like to turn it over to Jeff.

Jeff Maggioncalda: Thanks, Cam and welcome everyone. We appreciate you joining us today. I’m pleased to share that our fourth quarter marked a strong finish to a year of continued progress. We welcome 24 million new learners, the most since 2020, growing our global learner base to more than 140 million. We expanded our educator partnerships to over 325 leading universities and companies. We grew revenue 21% over the prior year, with total annual revenue of $636 million, and we achieved this growth with increased leverage, including our first positive adjusted EBITDA quarter, delivering on our commitment to build a platform and business model that scales. I remain encouraged by our momentum and am increasingly confident in our vision for the future of higher education.

So let’s jump in, starting with the long-term trends that are driving our business. The first trend is digital transformation. For many years, the combined forces of technology, globalization, and automation have accelerated the transformation of every institution in our society. Last year, the sweeping rise of Generative AI provided a glimpse into how profoundly this new general-purpose technology could reshape how we live, learn, and work. This year, organizations will begin to make the shift from experimentation to implementation, but leaders are still grappling with how to make this leap. A new report by Boston Consulting Group surveyed over 1,400 C-suite executives in 50 markets, and found that nearly 90% of executives rank AI and Generative AI as one of their top three tech priorities for 2024.

Despite the priority, two-thirds of these execs are either ambivalent or outright dissatisfied with their organization’s progress on AI so far, citing three primary reasons. First, 62% of the execs cited a lack of talent and skills. Second, 47% cited an unclear AI and Generative AI roadmap and investment priorities. And third, 42% cited the absence of a strategy regarding responsible AI. Organizations are facing what I refer to as a Generative AI conundrum. By moving too quickly, they risk ethical data and regulatory pitfalls. But if a company moves too slowly to adopt, the risk of falling behind more agile competitors becomes a real threat. The only way to resolve this Generative AI conundrum is enterprise skilling. And this brings me to the second major trend, which is skills development that BCG report found that only 6% of companies have managed to train more than 25% of their people on Generative AI tools so far.

46% of their workforce on average will need to undergo upskilling in the next three years due to Generative AI. And nearly half of the leaders say that they don’t yet have guidance or restrictions on AI and Generative AI usage at work. As every facet of our society grapples with the need to improve their productivity, agility, and human capital in this new world of Generative AI, we believe that they will require education and training to do this quickly but safely. Like they say in F1, to go fast, you need good breaks. And I’ll add, you also need skilled drivers. This leads me to the third trend driving our business, the transformation of higher education. Our vision for the future of higher education features cross sector collaboration between academic institutions, employers, and government.

This quarter, I’m excited to share an evolving customer use case that showcases many of the compelling capabilities of the platform that we’ve been building, including the speed and scale of collaboration between local higher education and government workforce programs. The increasingly important role of industry micro credentials and the promise of our pathway degrees strategy. In 2020, the New York State Department of Labor partnered with Coursera as part of our free workforce recovery initiative, and later converted to one of our largest Coursera for government customers. Their program provides free access to skills training for unemployed and underemployed citizens across the state. And New York citizens in this program have spent more than one and a half million hours learning on Coursera, completing over two million lessons.

At the heart of the program is our portfolio of entry level professional certificates, which are built by top companies and designed specifically for learners with no college degree or prior work experience. These branded certificates help create access to well paying digital jobs. But increasingly, learners who complete these micro credentials can also earn credit towards a college degree. I’m excited to share that the recent fall term was the first semester of an expanded partnership between Coursera, the New York State Department of Labor, as well as the Empire State University or SUNY Empire. The partnership allows New Yorkers in the government’s state program to transfer eligible credits from courses on Coursera into any of SUNY Empire’s 125 bachelors and associate degree programs.

This includes our growing number of courses, specializations, and industry micro credentials that have received American Council on Education, or ACE, credit recommendations, with learners eligible to receive a range of one to 18 college credits for learning on Coursera. Every time we launch a new certificate, secure another credit recommendation, or forge a new pathway between our open courses and degrees, we increase the value of our offering for the state of New York, SUNY Empire, and for the learners seeking more affordable and flexible and accessible solutions to advance their lives and careers. These kinds of partnerships and pathways require certain strategic assets that are unique to the Coursera platform, including our leading educator partners who created a broad catalog of trusted branded content and credentials, our global reach to individuals and institutions, as well as our data technology and AI advancements that we leverage across the platform.

Now let’s cover some of our recent progress for each of these categories. First, our educator partners. In an era where machines are increasingly capable of producing content at scale without guardrails for quality, integrity, and accuracy, we believe that trusted institutions will play an important role in education. Since the early days of Coursera’s founding, there’s been a proliferation of content across the Internet, but volume and value are not the same thing. Coursera is the trusted stewards of the world’s top university and industry brands, and we believe this powerful combination of foundational knowledge and job-relevant learning is required to serve learners in this fast-changing, skilled landscape. We added more than 25 new educator partners this year, including academic institutions like the London School of Business and University of California Berkeley, as well as a broadening list of industry partners like CVS, Dell, Moderna, Novartis, Pesco, and Unilever.

Expert branded training is important for several reasons. It enables robust, organic, top-of-funnel learner growth. It offers assurance on quality and rigor in an era of misinformation. And most importantly, it provides learners with recognized certificate and degree credentials that help them stand out with employers. Today, I’d like to provide updates on three areas of our catalog starting with our entry-level professional certificates. At the start of the year, we had 28 of these certificate training programs. To date, we’ve announced nearly 50, with partners like Google, IBM, Microsoft, AWS, and others, and we’re not slowing down. In the coming year, we have a pipeline focused on adding new job roles from new industries with new and existing partners.

We believe we’re in the early stages of a long-term trend in higher education, where industry micro-credentials play an increasingly prominent role in how learners acquire their first job or earn credit toward the college degree, in how campuses modernize their curriculum to create employable graduates and how governments like New York deploy job-relevant workforce training at scale, and also in how businesses reskill and redeploy talent in an era where emerging technologies like Generative AI are expected to disrupt and automate a wide variety of job roles. Now onto my second catalog update, the college degree. We announced nearly 20 new degree programs in the past year, including two recent additions. Our first degree from the University of Pittsburgh, this master of data science, includes many of the attributes we’re focused on, including performance-based admissions and affordable pay-as-you-go total tuition of $15,000.

We also announced a master of science in information technology from IIIT Hyderabad in India, designed for learners with little-to-no computer science background looking to start a career in technology. We believe that the college degree needs to be more accessible, affordable, and job-relevant, and we continue to focus on how Coursera and our partners can uniquely address the needs of working adults. This is what we refer to as pathway degrees, where a learner can take open content like a professional certificate and have it count as credit towards a college degree. Our pathway degree strategy relies on three unique features of our business model. One, a consumer segment with global reach and low-cost acquisition. Two, a broad and growing portfolio of professional certificates with credit recommendations.

And three, a broad and growing portfolio of bachelor and master degrees that enable open content to count as credit, admissions, and completion of coursework. In Q4, we launched 15 new pathways into six degree programs on Coursera. As an example, Ball State recently launched Master of Science in Data Science now allows for prior learning credit for eligible learners that complete the Google Data Analytics Entry Level Professional Certificate, a certificate that has cumulative historical enrollments of nearly 2 million learners. A key enabler of this strategy is our Credit Recognition Initiative. Last quarter, I shared that we expanded our regional efforts with European Credit Transfer and Accumulation System, or ECTS, credit recommendations.

To date, we have secured almost 40 credit recommendations from ACE and ECTS with more to come in 2024. Today, I’m excited to announce that we’ve received an authorized instructional platform designation from the American Council on Education. Coursera is the first instructional platform to receive this distinction of academic integrity, security, and rigor. This deeper partnership with ACE has several benefits. It further distinguishes our platform with an important signal of quality and trust. It enables our marketing engine to better merchandise and promote the value of our growing catalog of ACE recommended content, and allows us to more quickly and seamlessly source existing ACE recommended content from other platforms, which can be migrated to Coursera while maintaining the credit recommendation.

For my final catalog update, I’d like to discuss our growing selection of generative AI content. Coursera offers over 800 AI-related courses that have attracted nearly 7 million total enrollments this year. This includes new generative AI courses, like the November launch by AI pioneer and Coursera co-founder Andrew Ng. Andrew’s course, called Generative AI for Everyone, enrolled 90,000 learners from over 190 countries in its first 30 days, making it the fastest growing course of 2023. To-date, the course has accumulated more than 130,000 enrollments. We’re starting to see strong demand for these courses in our consumer segment, but as I touched on earlier with the data from BCG, institutions are only beginning to formulate their AI strategy.

And that’s why we were excited to launch our latest enterprise content offering the Generative AI Academy just a few weeks ago. The Generative AI Academy is a structured training program designed to help executives and their employees obtain the skills they need to thrive in an AI-driven workplace. We believe that high-quality education and training will be an integral part of companies unleashing the next wave of innovation and productivity using generative AI. And we’re proud that the Generative AI Academy features institutions at the forefront of AI, including Microsoft, Stanford Online, Vanderbilt University, deeplearning.ai, Fractal Analytics, Google Cloud, AWS, and many others. The Generative AI Academy has two pillars. The first is Generative AI Academy for Everyone.

It’s a foundational literacy program that gives every employee a general understanding of GenAI’s core principles, applications, and impact, including guided projects on how to actually use AI tools in their day-to-day jobs. And Generative AI Academy for Executives is the second pillar, which is designed to help leaders develop a deeper understanding of what Generative AI is and how it is used so that they can set a GenAI strategy and navigate the risks and ethical issues associated with this new technology. As part of this pillar, I launched my new course, Navigating Generative AI a CEO Playbook, which aims to guide executives in making strategic and ethical choices, as well as lead and motivate their teams through rapid change. The course also offers access to hands-on lab playground running on Google Gemini Pro and hosted on the Google Cloud platform.

This secure private sandbox environment lets executives not only learn how to use Generative AI, but also how to apply this technology to formulate strategic plans and identify specific opportunities to create customer value and boost the productivity of their teams. In conversations with our customers and my recent discussions with business experts, government officials, and academic leaders at the World Economic Forum, we’re consistently hearing that organizations need guidance and support to make sense of these new technologies, develop a strategic adoption framework, and implement a more holistic approach to the human capital development. We’re in the very early stages of helping our customers navigate this change. With the launch of Generative AI Academy, we’re able to better address one of their top strategic priorities and offer a more comprehensive, well-designed solution for their diverse training and talent needs.

That recaps our catalog progress with our educator partners, so let’s move to our second major advantage, the global reach of our platform. In 2023, we added more than 200 paid enterprise customers to end the year with nearly 1,400 business, government, and campuses on Coursera. Growth came from all verticals in all regions. As I highlighted before, we consistently added around 6 million new registered learners each quarter, growing our global learner base by 20% to 142 million. This marked our fourth consecutive year of welcoming more than 20 million learners to our platform, and growth continued to be broad-based with double-digit percentage increases across all regions. And to serve these learners, we’ve been focused on enhancing the localized experience on Coursera, which is where I’d like to start my discussion of our third advantage, the ongoing product innovation that’s happening across our platform.

First is an update on our AI-powered language translation initiative. We believe that high quality learning is anywhere in the world. Throughout 2023, we’ve used advancements in the quality of machine learning to translate our catalog at a fraction of the cost and speed of using conventional human methods. Last quarter, I shared that we’d managed to accelerate this initiative, doubling our amount of full-course translations from 2,000 to 4,000 in seven commonly spoken languages. We saw nearly half a million learners access translated courses in the initial seven languages. Today, I’m pleased to share that we now have more than 4,000 courses, 600 specializations, and 50 certificates available in up to 18 languages, recently adding support from Mandarin, Dutch, Greek, Italian, Polish, Turkish, and others.

Over 58 million registered learners on our platform are based in countries where the primary language is one of these languages. It is a tangible example of how quickly AI innovations can enhance access and personalization at scale, and early feedback has been very positive. We’re seeing higher engagement and course completion rates with learners. And our enterprise customers, particularly governments, are excited about the ability to better serve their constituents with high quality training and education from the best experts in the world, no matter what language they speak. Another major Generative AI feature we have launched is Coursera Coach. Coursera Coach is our virtual learning assistant, powered by Generative AI and grounded in our expert content.

Early feedback from our beta program of participants is encouraging. We’re seeing higher engagement for weekly active learners using Coach, with capabilities like pre-quiz practice, context-relevant examples, and quick video lecture summaries as some of the most popular features. In the year ahead, we’ll continue to embed Coach throughout our platform, including a more personalized learning experience, career guidance, and more personalized learning pathways through content and credentials. To wrap up my opening remarks, let me remind you of several key priorities that we’re focused on this year. First, we are broadening our catalog of entry-level professional certificates, including new partners, roles, languages, and credit recommendations to support degree pathways and campus integrations.

Second, we’re sourcing and launching new degree programs with a focus on flexibility, affordability, and scaled pathways so that our open content and industry micro-credentials can count as credit towards college degrees. Third, we’re focused on growing our enterprise segment across business, government, and campus customers, supporting institutional collaboration to better serve learner needs in this fast-changing environment. And fourth, we’re deepening our platform advantages, including the broad application of Generative AI for translations, personalized learning with Coach, and domain scaling with Generative AI Academy, all while driving more scale and leverage over time. I’d like to now turn it over to Ken. Ken, please go ahead.

Ken Hahn: Thank you, Jeff, and good afternoon, everyone. We are pleased to report another strong quarter, marked by the growing prominence of our platform for millions of learners around the world, as well as the differentiated value of our focus on high-quality branded credentials. Over the past year, we’ve continued to enjoy the benefits of our multi-sided platform, including exposure to multiple growth lepers, including the needs of individuals, businesses, governments, and campuses. A common set of assets, with the ability to leverage our content engine, data, marketing tools, and more across our segments, and a broad global lens to better understand and navigate the trends reshaping higher education. In Q4, we generated total revenue of $168.9 million, which is up 19% from a year ago.

Growth is driven by double-digit increases across our three segments, in particular, sustained strength in our consumer segment results. Please note that for the remainder of the call, as I review our Business Performance Network, I will discuss our non-gap financial measures unless otherwise noted. Additionally, and for the final time, I would like to remind you that our 2023 results, particularly the year-over-year comparisons of gross profit and operating expenses, reflect the shift of expenses in income statement line items, associated with our contract extension with our largest industry partner that took effect at the beginning of 2023. We’ve discussed the shift extensively in our prior earnings calls this year and expect the year-over-year comparisons to largely normalize next quarter and for all of 2024.

Removing the noise from the shift in P&L geography, we drove strong bottom-line EBITDA performance on a year-over-year basis. In 2023, cost of revenue increased by 11 points as a percentage revenue, while total OpEx decreased 17 points compared to the prior year. I continue to be pleased with our ability to balance our growth initiatives and long-term investments, while demonstrating the leverage inherent in our model as our platform scales. For the fourth quarter, gross profit was $91.2 million and a 54% gross margin, which was down 9 points from the prior year period. Total operating expense was $90 million, or 53% of revenue, down 17 points from the prior year period. For the individual P&L line item components of OpEx, sales and marketing expense represented 30% of total revenue, down 8 points.

Research and development expense was 15% of revenue, down 5 points. In general, an administrative expense was 9% of revenue, down 4 points. Finally, a year ago at this time, we provided our expectation to be adjusted EBITDA breakeven by the fourth quarter of this year, and I’m pleased to report that we exceeded that commitment. Fourth quarter net income was $9.5 million, or 5.6% of revenue, and adjusted EBITDA was $5.7 million, or 3.4% of revenue. We are excited to have achieved this profit-building metric and expect increasing leverage in the coming year, more on that in a minute. This milestone capped off another year of demonstrating our ability to grow while creating leverage to deliver strong bottom-line performance. As a reminder of our practice, we set an annual EBITDA margin target at the beginning of the year and work within that plan based on the trajectory of the business.

This year, we are able to deliver an incremental 340 basis points of annual EBITDA margin from our initial target of negative 5%, and this resulted in total annual EBITDA margin improvement of approximately 550 basis points year-over-year. The better-than-anticipate performance was the result of our overall revenue growth and strong operating expense discipline, which we were able to balance with our ongoing investments in many of the growth initiatives Jeff discussed. As you’ll hear shortly, we expect to continue our consistent track record of delivering growth plus leverage in 2024. Now let’s discuss cash performance and the balance sheet, and I’d like to begin with an update on our free cash flow definition. We’ve revised that definition to include cash outflows for purchases of content assets, a figure we already disclosed in our statement of cash flows.

We believe this change will be helpful to investors for two reasons. First, we continue to invest in the success of strategic content assets, particularly our entry-level professional certificates, while we are rapidly expanding with new and existing industry partners. In certain arrangements, we will help fund the production of courses and credentials in exchange for more attractive economics, as well as exclusivity on Coursera’s platform. Historically, this amount was not large enough to have a meaningful impact, but we intend to increase these investments on a go-forward basis as part of our broader content strategy. Second, we want to ensure that our definition most closely resembles the manner in which we analyze our financial and operating goals, and that free cash flow remains aligned with adjusted EBITDA, aside from differences primarily as I said with working capital changes.

We believe this clarity is particularly important as our outlook anticipates strong positive free cash flow generation in the coming year. Under the revised definition and reconciliation, purchases of content assets are treated similarly to other categories of capital expenditures, effectively lowering our free cash flow computation. For clarity, all of today’s materials, specifically the supplemental financial tables that accompany our press release, reflect free cash flow amounts for all periods using the revised definition. With that background, free cash flow was approximately $8 million for the year, inclusive of more than $5 million in purchases of content assets in 2023 and in line with our outlook range provided at the beginning of the year.

Turning to the balance sheet, we ended the quarter with approximately $722 million of unrestricted cash, cash equivalents, and marketable securities with no debt. As we enter new year, I want to remind you that our capital allocation priorities remain unchanged. We continue to focus on investments in our organic growth while valuing the resilience and the strategic optionality provided by our strong balance sheet. As Jeff discussed, the education landscape is undergoing a rapid pace of change, and we believe that our strong financial position is an asset that will help us win in our large and early markets. Next, let’s discuss the performance of our segments in more detail. Consumer revenue was $97.2 million, up 22% from the prior year on strong demand for entry-level professional certificates and newly launched generative AI courses.

As Jeff mentioned, we had another 6 million registered learners this quarter. Segment gross profit was $51.5 million or 53% of consumer revenue compared to 73% a year ago, reflecting the impact associated with the industry partner contract extension, which is most pronounced in consumer. To summarize, our consumer segment is growing at scale. We believe our focus on high-quality credentials created in collaboration with the world’s best brands, distinguishes our platform, differentiates the value of our offerings, which are leveraged across our segments, and allows us to shape what we expect to be a long-term trend in education which is more affordable, accessible, and buildable units of learning that allow students and working adults to progress in their careers.

As you’ll hear shortly in discussion over financial outlook, we expect the ongoing strong execution demonstrated in our consumer segment to be sustainable in the coming year. To move to Enterprise. Enterprise revenue was $58.3 million, up 15% from a year ago, driven by our government and campus verticals. Segment gross profit was $39.6 million or 68% of enterprise revenue compared to 66% a year ago. The total number of paid enterprise customers increased to 1,369, up 19% from a year ago, and our net retention rate for paid enterprise customers was 98%. As we’ve discussed the past several quarters, we continue to see a divergence in performance amongst our verticals, specifically, pressuring Coursera for Business, offset by momentum in our other two verticals, government, and campus.

We see corporate learning budgets remaining under pressure, but hear from customers that many are in the early stages of formulating a talent strategy associated with harnessing the benefits of emerging AI technologies. Ultimately, we expect that AI will create significant changes in job functions with opportunities that will enhance employee productivity, which will, in turn, create additional demand for employee learning. At the highest level, change creates demand for learning, and AI should create increasing change over the coming years. And while we navigate our slower Coursera for Business vertical growth, we’re focused on continuing the strong momentum in our government and campus verticals, where the customer use cases are particularly well suited for the branded job-relevant credentials that are also driving our consumer segment performance.

And finally, our degree segment. Degrees revenue is $13.4 million, up 12% from a year ago, on growth in new students and scaling of recent program launches. The total number of new degree students grew 22% from a year ago to 22,025. As a reminder, there’s no content cost attributed to degree segment, so degree segment gross margin was 100% of revenue. And while the segment is a small portion of our overall revenue mix today, we remain focused on the long-term opportunity in degrees. We believe that our platform is uniquely positioned to fundamentally transform the college degree. We need to start validating that potential with renewed and increasing growth. We believe that the path to better degrees growth lies in working with our university partners to create stronger pathways between our consumer segment, where we benefit from scale, as well as our growing selection of pathway degree programs.

Now onto our financial outlook. For Q1, we’re expecting revenue to be in the range of $168 million to $172 million. For adjusted EBITDA, we’re expecting a range of negative $2 million to positive $2 million. For full year 2024, we anticipate revenue to be in the range of $730 to $740 million, representing approximately 16% growth at the midpoint of the range. For adjusted EBITDA, we’re expecting a range of $26 million to $32 million, or an adjusted EBITDA margin of approximately 4% at the midpoint of the revenue and adjusted EBITDA guidance ranges. This is a 550 basis point improvement in line with the strong progress we made in 2023. As a reminder, we do not optimize for any single quarter. Instead, we manage our annual adjusted EBITDA margin target and work within that plan to maximize growth based on the trajectory of the business.

For free cash flow, we expect to deliver at or above our adjusted EBITDA target. In addition to working capital benefits, this takes into account the increased purchases of content assets based on our revised definition. So overall, a very strong expectation around free cash flow generation, even as we invest. Finally, our practice is to provide some color on the composition and pace of the business as we enter the new year, particularly given the varying impacts of the evolving environment and ongoing trends in the education industry. This includes, one time, beginning of the year, segment level annual growth expectations to help you better understand how we intend to deliver on our overall guidance. For consumer, we believe that the strong, durable performance we’ve demonstrated over the past several years will continue, driven by learner demand for our growing selection of branded industry micro-credentials, along with a rapidly expanding catalog of Generative AI courses.

Our initial outlook anticipates growth of approximately 20%. For enterprise, we remain optimistic about our government and campus verticals offsetting our slower business vertical growth, resulting in expected growth of more than 10%. And for degrees, we’re focused on proving out our pathway degree strategy, including sourcing and ramping new programs in their very early stages. While we work to drive scaled pathways for faster growth, our 2024 expectation is that our degree segment grows by more than 10% weighted towards the second half. To summarize, we’re delivering high quality learning through our multi-sided platform and our diversified channels. We’re producing growth with consistently increasing scale and leverage, resulting from the complementary benefits of our three segments.

And we’re pursuing a long-term strategy from a position of financial strength, allowing us the resilience and the strategic flexibility to navigate and drive the transformation of higher education currently underway. I’ll now turn the call back to Jeff for closing comments.

Jeff Maggioncalda: Thanks, Ken. I want to close today’s remarks by highlighting a recent recognition by the World Economic Forum. The World Economic Forum believes that skill and talent shortages are one of the most critical challenges facing society today. It impedes business growth, timbers economic prosperity, and inhibits individuals from realizing their full potential. In January, their Insight Report on Putting Skills First recognized multiple organizations, including several of our educator partners and customers like IBM, PWC, and Sanofi, for their innovative efforts to resolve labor shortages, solve the skills gap, and better equip workers for the jobs of tomorrow. I’m proud to share that Coursera’s Credit Recommendation Initiative for our professional certificates and pathway degrees was chosen as a government and education sector lighthouse this year.

The report highlights how our efforts are bridging the divide between traditional and non-traditional learning pathways. Our collaboration with industry partners fosters education that is accessible, affordable, and aligned with the evolving labor market needs. And with a growing number of credit recommendations by ACE and ECTS, we have respected third-party support that furthers our ability to extend the reach and depth of the integration use cases we are seeing with traditional academic institutions and systems of higher education. This is another validation of how our business strategy remains deeply intertwined with our founding mission. And I find it inspiring to see members of the Coursera Learning Ecosystem recognized for the important role that they play in enabling the future workforce, addressing skill shortages, transforming the global economy, and equipping the next generation with the education and opportunities they need to succeed in a rapidly evolving digital world.

Now, let’s open the call for questions. Thank you.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Josh Baer with Morgan Stanley. Josh, your line is now open.

Josh Baer: Great. Thanks for the question and congrats on a good finish to the year and a strong guide. I wanted to ask on marketing spend and marketing efficiency. The sales and marketing expense declined year-over-year versus a really strong revenue growth, and that’s been the theme this year. So I was hoping you could dig in a little on marketing spend, just as your products, your certificates, catalog of offerings expand, are you spending more or less on a dollar basis? And then how has the efficiency of that spend changed?

Ken Hahn: Sure, Josh. This is Ken, of course. So two quick things. So yes, one of the things that happened year-over-year and we continue to talk about, and this gets to be the last time we do that, is we had a large partner that was spending, we were spending marketing dollars, their marketing dollars, which helped. And then in their absence have been spending some of our own online. There was a shift in the line items between cost of sales and sales and marketing. So that’s a portion of it, but the more fundamental answer to your question, which is important, is we are seeing greater efficiency and we’ve been able to deploy more marketing spend to drive some of that consumer growth in a highly profitable fashion. So I think you’ll see our absolute dollar spend continue go up with marketing because I see that trajectory continuing it’s good business.

Josh Baer: Great. And if I could just add one for Jeff. Over the last year, there’s been a lot of changes with degree competitors, a couple exiting their businesses and others navigating some other challenges. I’m just wondering how all of that evolving competitive landscape has impacted Coursera’s degree business and outlook. Thanks.

Jeff Maggioncalda: Yes, thanks, Josh. I would say it clearly reflects a pretty difficult environment in North America to be in the business of providing college degrees. I mean, the sentiment in America has gone pretty negative, especially among elite degrees. Labor markets remain tight and where there’s often been historically counter cyclicality between degrees and labor market. I think we’re seeing the same thing. You’re right. Our competitors have faced very, I mean, to say headwinds is an understatement. I think that partly explains why it’s taking us a bit of time to crack this pathway degrees opportunity. But we really do believe that there is a new need for working adults to get new skills and distinguish themselves with credentials like professional certificates and college degrees.

And the traditional college degree could be improved dramatically by this new pathway degrees opportunity. So I’d say that we are facing a lot of the same headwinds as others have. And we have something pretty distinctively different and more advantageous that we’re still trying to figure out, frankly, how to nail down and market appropriately the right degree to the right students and educate people on what degree pathways are. But what’s kind of cool is when we find individuals who are in professional certificates where they understand that there’s a degree pathway, we see retention and satisfaction to actually be higher. And to your question around marketing efficiency, we think that marketing into these distinct of valuable professional certificates could improve as people realize that the value of a professional certificate can extend beyond the certificate to a college degree that you could earn, not only more flexibly, but more affordably, because those credits that you’re buying on Coursera can count as credit towards the college degree.

So we think it’s a pretty tough environment in the U.S., and we’ve got something pretty different, and we feel good about our long-term prospects there.

Josh Baer: Great, thank you.

Operator: Thank you. Your next question comes from the line of Stephen Sheldon with William Blair. Stephen, your line is not open.

Stephen Sheldon: Hey, thanks, and a lot of encouraging updates here. But first of all, for me, just thinking about more about Coursera for Business, it sounds like companies are going to need a lot of support and hand-holding as they try to develop AI skills across the organization. But it’s also coming at a time when learning and development budgets are under pressure. So from a timing perspective, when you think of fear about getting left behind on AI skills development at the organizational level, it starts to overpower the cost containment efforts they put in place. It seems, and with the guidance that you put out there for enterprise, it seems like you may not be assuming much in the 2024 guidance. So you think it’s something that they could start to move the demand needle later this year, 2025, 2026, I guess. How are you thinking about it?

Jeff Maggioncalda: Stephen, this is Jeff. Thanks. I think you’re spot on, and it’s an open question for sure. Will this recognition turn into reality in 2024? As you mentioned, it’s not built into the model. The way I see this from my perspective is that the evolution of general AI in businesses is going to happen in certain phases. And the way I like to think about it is, phase one is kind of conversation. It was kind of 2023 was a lot about, oh, look at chat GPT, this is amazing. What’s going to happen? It’s going to take over the world, blah, blah, blah, blah. That is giving way to a phase two, which is experimentation in a lot of companies. A lot of companies are moving into that, but as I said in the script, 66% of execs are dissatisfied with the progress that they’re making, and BCG puts 90% of companies in that category of being observers, just kind of playing around, but not really doing anything.