Sarah Blanchard: Yes. Great question. We do see some seasonality. Q1 tends to be a great quarter for collections on the back of Q4 bookings. We’ve also been doing some work internally around driving our day sales outstanding down, and so we saw some improvements there as well. So really great collections quarter. There will be pluses and minuses on cash flow quarterly because we have different seasonality both from a revenue perspective, a gross margin perspective and a cash flow perspective between our consumer business and our Udemy Business side of things, where the heavy cash in Q1 – sorry, Q4 and Q1 on the consumer side around some of our bigger promotions, where the heavier cash outflow is Q1, Q2 from a consumer. And then like I just said, UB tends to have a pretty good Q1 collections.
So those are the biggest drivers. But again, just there will be timing noise here and there between the quarters. Overall, focus on driving that cash flow margin to be a little bit better than the EBITDA margin.
Operator: And our next question will come from Josh Baer with Morgan Stanley. Please go ahead.
Josh Baer: Great. Thanks for the question. For Greg, just wondering with the skills-based future as far as the workplace hiring, how far along are we in that journey? And what needs to happen in order to really reach an inflection point as far as the focus on skills and skilling in the corporate world?
Gregory Brown: Thanks, Josh. Appreciate the question. Right now, we’re in early innings. We’re seeing the more progressive companies starting to take action and implementing strategies to develop the skills-based organization, especially with respect to Generative AI. But BCG came out with a report recently, the state of the 90% of organizations are still in the observation mode which is in the process of determining what their strategy is going to be with respect to not only transitioning to skills-based org, but also how they’re going to transform their organization to take advantage of Generative AI, both internally to create operating leverage as well as externally into the products and services they are delivering.
So, it’s early innings. And a lot of the work we are doing right now with our enterprise customers is on the strategy side, right. And one of the things we are doing is we are uniquely positioned to be able to execute against because of the resources we have in our customer success organization is spend the time in that strategy development phase, while we are starting to work on the various, I would say, verticals within organizations as well as functions within our organizations to develop skills packs, purpose-built skills packs. We talked about in our announcement, Gen AI skills packs that we have released, that all supports our ability to – in a very systematic way, be able to start to operationalize what a skills-based organization is going to look like.
And we are in early phases with a lot of customers right now. It’s early innings, and we are excited about the folks that are out in front because those are the case studies and the references we are able to use in conversations with prospective customers, but the vast majority is still to come. This is a multi, multi-year opportunity for us to help organizations through this transition to a skills-based org.
Josh Baer: Thank you. That’s great.
Operator: And our next question will come from Brett Knoblauch with Cantor Fitzgerald. Please go ahead.
Unidentified Analyst: Hi. This is Tom [indiscernible] on for Brett. Congrats on the solid quarter. I guess like from the APAC standpoint, seeing the weakness last quarter, have you seen any early positive impacts from the new hires in South Korea and Vietnam, or do you expect us to see continued weakness into 2024?
Gregory Brown: Hi. I am sorry Sarah and you can jump in. I was involved in the process of onboarding the new leaders, very encouraged by the level of talent we brought into the company. And early days as far as the approach that I am seeing in both of those markets, I am staying very close to it. I am very encouraged by the approach that we are taking and some of the early indicators as far as the – not only pipeline build, but measures of execution. I won’t get into the specifics, but as far as sales productivity and just productivity in general. So yes, early innings, it’s early days. We have to give these leaders’ time to get their feet underneath them and start the execution process. But I like what I am seeing so far. Sarah?
Sarah Blanchard: Yes. I would just add from a – when we expect those new leaders to actually impact ARR that’s in the back half. So, you have to give people time to come in and really make these changes. And then those changes have to really progress through the pipeline. So, like Greg said, we are really excited with what we see. It is early days, and we expect that to start to add to net new ARR in the back half of the year.
Gregory Brown: I will just add that in parallel with onboarding those new leaders, I mentioned in the last call that we have taken immediate action in a number of areas. One was leveraging the expertise we had in Japan with respect to process, productivity and sales engagement, field engagement into both Korea and Vietnam. And that in parallel with onboarding new leaders is why we have the optimism that we have.
Unidentified Analyst: Sound great. I have one more if I may. It’s great to see you guys are expanding the stock buyback program. With valuations contracting a bit across the marketplace, have there been any thoughts about deploying cash to fund inorganic growth opportunities?
Sarah Blanchard: I will take that. We are obviously always evaluating regularly our capital allocation strategy. We have spoken about our interest in prudent M&A. And so what that means for us is finding the right opportunities at the right time, at the right price. So, while we remain active, we are sitting on over $400 million of cash. We are executing share repurchase because it’s a great investment, especially at these prices in comparison to the business and the opportunity we have in front of us. We will still, even after execution of that share repurchase program have plenty of cash left to allow us to continue to be opportunistic on the M&A side.
Unidentified Analyst: Awesome. Thank you.
Operator: And our next question will come from Noah Herman with JPMorgan. Please go ahead.
Noah Herman: Hey. Thanks for taking the questions. First of all, can you maybe just unpack some of the changes you are making at the leadership position for UB? I think you actually mentioned about the position actually encompassing coming to CRO as well. Is there any change of scope to the position…?
Gregory Brown: No change in scope. We are just normalizing the title with the balance of the titles on my staff, so no changes to go up. But the first thing I will say is that our current leader, Stephanie has made significant contributions to this business over the 8-plus years that she has been onboard with Udemy. She was one of the founding leaders for Udemy business. And look, we all heard tremendous data gratitude and wish her well, both personally and professionally as she moves on to the next step in her career. But as we mentioned earlier, looking forward, we are going to be bringing on a leader that has demonstrated experience in scaling global multichannel software-as-a-service businesses from $500 million to $1 billion and beyond.
And we are excited about that because as companies go through different phases of growth, that does require, in many cases, different skill sets. And that is something that we are going to be layering in as we move forward. So, as I mentioned earlier, we expect to have more on this soon, but that’s really the impetus behind it is really preparing us for that next phase of growth as an organization.
Noah Herman: Got it. And it’s really clear. And then just maybe quickly on the guidance, it sounds like you might be layering in slightly a bit more prudent than the guidance. So, just curious to see if did you experience a step down sequentially worsening conditions in the macro environment? Just trying to get a sense for what’s sort of being layered into the guide now at this point? Thank you.
Sarah Blanchard: Yes. I will take that. I wouldn’t say that we have seen a step down in the macro conditions. I will say that it continues to be volatile that we have a pretty large business in EMEA. EMEA continues to have those macro challenges. That being said, we saw the issues that we identified. Some of them were a little bit more pronounced, but we are working through those. We are really happy with the progress. The early indicators are very positive. We are just trying to be really hopeful that there is a lot going on between macro, new leadership and working through this execution short-term challenges. But like we said, all is going well. The long-term opportunity remains. We are – continue to grow our business from multiyear deals. We continue to grow the number of accounts that we have over 100,000. So, lots of really good things still happening as we manage the business through this.
Gregory Brown: Now, I will just add briefly that we are seeing now in some enterprises, optimism to the point to where we have one large bank in Africa that not only signed a 3-year contract, but signed up and bought licenses, not just for where they are today as far as demand and employees, but what they expect to be onboarding over the next four months, basically buying for the future and purchasing upfront with the level of optimism and foresight associated with that. And they would not be doing that if they didn’t, number one, believe in the value and impact of investing to up-skill their employees as they are onboarding and growing and developing the organization. And number two, if they didn’t believe that the environment was going to support that level of investment.
So, that’s just one example of. We are starting to see some green shoots and some examples of organizations kind of coming back to where we have been normal conditions buying ahead and projecting ahead and planning ahead versus where it has been in ‘23 more prudence in terms of buying behavior and patterns. So anyway, there is cause for some optimism here. But again, we are still not completely out of it.
Operator: [Operator Instructions] Our next question will come from Brent Thill with Jefferies. Please go ahead.
David Lustberg: Hey. Thanks so much. This is David Lustberg on for Brent. I wanted to ask about net dollar retention. It was down 800 basis points in 1Q last year, down another 800 basis points in 1Q this year. I know you guys don’t disclose gross retention. But maybe if you could just provide some color around the dynamics there. Is it more so pressure on your gross retention side, or is it just slower expansion commentary there would be helpful? Thank you.
