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

Coursera, Inc. (COUR)

Q4 2023 Earnings Conference Call

Company Participants

Cam Carey - Head, IR

Jeff Maggioncalda - CEO

Ken Hahn - SVP and CFO

Conference Call Participants

Josh Baer - Morgan Stanley

Stephen Sheldon - William Blair

Jeff Silber - BMO Capital Markets

Rishi Jaluria - RBC Capital Markets

Terry Tillman - Truist Securities

Ryan MacDonald - Needham

Presentation

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....

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