Earnings call transcript: Udemy Q2 2025 beats EPS forecast, stock dips

Udemy Inc. (UDMY) reported better-than-expected earnings for the second quarter of 2025, with an earnings per share (EPS) of $0.16, surpassing the forecast of $0.12. Revenue also exceeded expectations, reaching $200 million compared to the projected $196.79 million. According to InvestingPro analysis, the stock appears undervalued at current levels, with analysts setting price targets ranging from $8.00 to $12.21. Despite this positive performance, Udemy’s stock experienced a slight decline of 1.89% during regular trading hours, closing at $7.13, but saw a modest increase of 1.05% in aftermarket trading.

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Key Takeaways

• Udemy reported its first positive GAAP net income since its IPO, totaling approximately $6 million.
• The company’s revenue increased by 3% year-over-year, driven by a 7% rise in its Udemy Business segment.
• Gross margin improved by 300 basis points to 67%.
• The stock showed mixed reactions, with a slight drop during regular hours but a recovery in aftermarket trading.

Company Performance

Udemy demonstrated solid performance in Q2 2025, marking its first profitable quarter since going public. The company’s revenue grew by 3% year-over-year to $200 million, maintaining its impressive 23% revenue CAGR over the past five years. The Udemy Business segment saw a 7% increase, while the consumer segment experienced a 4% decline. With a robust gross profit margin of 63.4% and more cash than debt on its balance sheet, the company’s focus on AI-powered innovations and restructuring efforts has strengthened its financial position.

Financial Highlights

• Revenue: $200 million, up 3% year-over-year
• EPS: $0.16, beating the forecast of $0.12
• Gross margin: 67%, an improvement of 300 basis points
• Adjusted EBITDA: $28 million, representing 14% of revenue
• Free cash flow: $39 million, 20% of revenue

Earnings vs. Forecast

Udemy’s EPS of $0.16 exceeded the forecast of $0.12, resulting in a positive surprise of 33.33%. Revenue also surpassed expectations, coming in at $200 million against the projected $196.79 million, reflecting a surprise of 1.58%. This marks a significant achievement for the company, particularly as it reported its first positive GAAP net income since its IPO.

Market Reaction

Despite the strong earnings report, Udemy’s stock fell by 1.89% during regular trading hours, closing at $7.13. However, the stock rebounded slightly in aftermarket trading, rising by 1.05% to $7.20. With a beta of 1.77, the stock shows higher volatility than the broader market, presenting both risks and opportunities for investors. The stock remains within its 52-week range, with a high of $10.61 and a low of $5.68. The mixed market reaction suggests investor caution, possibly due to broader market trends or specific concerns about the consumer segment’s performance.

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Outlook & Guidance

Udemy provided guidance for Q3 2025, projecting revenue between $190 million and $195 million. For the full year 2025, the company expects revenue to range from $784 million to $794 million. Eight analysts have recently revised their earnings estimates upward, reflecting growing confidence in the company’s outlook. Udemy also raised its full-year adjusted EBITDA guidance to between $84 million and $89 million, with InvestingPro analysis indicating an overall "Fair" financial health score. The company anticipates net dollar retention to stabilize in Q4 and accelerate in 2026, with a target of achieving 20% subscription gross merchandise volume by year-end.

Executive Commentary

CEO Hugo Sarazin emphasized Udemy’s strategic shift towards AI-powered skill development, stating, "The future of talent development is rapidly converging with the widespread adoption of AI." CFO Sarah Blanchard highlighted the company’s financial achievements, noting, "We’ve already delivered $50 million in adjusted EBITDA this year, more than we delivered in all of last year."

Risks and Challenges

• Potential headwinds in the consumer segment, which saw a 4% revenue decline.
• Broader market volatility affecting investor sentiment.
• Challenges in maintaining growth amid increasing competition in the online education sector.
• Dependence on AI innovations to drive future growth.
• Economic uncertainties that could impact enterprise spending.

Q&A

During the earnings call, analysts inquired about the challenges posed by COVID-era enterprise contracts and the company’s strategy for addressing these issues. Udemy’s management also discussed the growing demand for AI-driven learning solutions across global markets and the potential for new monetization strategies to enhance revenue streams.

Full transcript - Udemy Inc (UDMY) Q2 2025:

Conference Moderator: Good day, and welcome to Udemy’s Second Quarter twenty twenty five Earnings Conference Call. All participants will be in a listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Dennis Walsh, Udemy’s Vice President of Investor Relations.

Please go ahead, sir.

Dennis Walsh, Vice President of Investor Relations, Udemy: Thank you. Joining me today are Udemy’s Chief Executive Officer, Hugo Sarazan 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 ks and 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. During this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements, which are prepared in accordance with U. S. Generally Accepted Accounting Principles referred to by the SEC as non GAAP financial measures.

We believe that these non GAAP financial measures support management and investors in evaluating our performance and comparing period to period results of operations in a more meaningful and consistent manner. 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 Hugo.

Hugo Sarazin, Chief Executive Officer, Udemy: Thank you, Dennis, and good afternoon, everyone. Udemy reported strong quarter as we exceeded expectations for revenue and adjusted EBITDA. As you know, this year we’ve been very focused on driving operational improvements to set ourselves for efficient growth acceleration. Separately, we have made significant progress on our strategic priorities. This firmly positions us for growth acceleration in the coming quarters.

Q2 revenues were $200,000,000 up 3% year over year and above the high end of our guidance range. Revenue for our Udemy business segment, which I remind you is our main growth engine, increased 7% year over year, and we ended the quarter with an ARR of $520,000,000 On the bottom line, we delivered positive GAAP net income for the first time since our IPO, and adjusted EBITDA was stronger than expected. I’m very proud of the Udemy team for achieving this major milestone and for delivering another successful quarter. It’s now been four months since I joined Udemy as CEO. In that short period of time, we’ve taken decisive actions to strengthen our leadership team, refine our strategic focus, and accelerate product innovation.

Our early progress reinforces my confidence in Udemy’s potential and demonstrates our newfound ability to execute with urgency. With that in mind, I want to share some update in our strategic priorities, which includes number one, increasing our emphasis on subscription products number two, expanding our partnership ecosystem and third party channels Number three, executing comprehensive global market activation. And number four, most importantly, positioning Udemy as the leading AI powered skill acceleration platform. This will increasingly differentiate us vis a vis our competition. We are not playing the same games as others.

During Q2, we made early and impactful progress across each of these priorities. Let me go through each one of them. First, we continue to emphasize subscription product across our business. With approximately 70% of our top line now subscription base, we are building a more predictable revenue stream. During Q2, we surpassed a milestone of 200,000 paid consumer subscriber and revenue from subscription accounted for 15% of the consumer segment, up two points from Q1.

It is exciting to see that progress in just one quarter of focus effort by our team. To better serve individual learners navigating career transition, we will be expanding our subscription offering with multiple options aligned to specific career goals. We’re now on track to grow consumer subscription to more than 250,000 by year end. We plan to more than double that next year. Beginning later this quarter, we will pilot programmatic advertising across our free course on udemy.com.

We believe there is significant opportunity to unlock a new revenue stream through advertising by monetizing our audience. This will also strengthen our upsell motion to our paid subscription offering. Second, we’re expanding our partnership ecosystem to extend our reach and impact. In April, we announced a strategic partnership with Indeed to integrate Udemy’s comprehensive content with its vast career marketplace. This creates a seamless solution for individuals looking to advance their careers and for employers seeking skilled talent.

We also recently entered into a partnership with UKG, a leading provider of HR, payroll and workforce management solution. UniMe Business can now be integrated with UKG Pro and UKG Ready. This enables streamlined enterprise learning management that aligns with existing workflows and simplifies administrative work for L and D professionals. We also extended our reach in the Latin market through a new reseller partnership with BCN Global, an influential technical training organization in the region. We aim to create strategic reseller partnership like this in each of our priority market, following the playbook we’ve developed with Benese in Japan.

Finally, we are adding new revenue streams to include reselling certification and closing the learning to credential loop by providing enterprise customer with accurate data such as employees test completion. Each of these examples provide an early look at how we expect to unlock further revenue growth through our global partnership strategy. Third, we’re taking decisive action to drive growth in key regions through global market activation. We launched targeted campaigns in localized content strategy in high opportunity markets such as Brazil, India and Japan that we expect will increase engagement with Udemy and improve conversion. Specifically, in Japan, our second largest market, we appointed a new GM a few months ago to address some softness in that market.

We quickly took action to refine our go to market and operational approach and we are already seeing tremendous results. For Q2, we delivered double digit year over year ARR growth and the highest gross retention in over three years. This strong performance demonstrates the significant international market opportunity and the actions we took provide a blueprint we are now applying to other regions. Finally, as I mentioned earlier, positioning Udemy as a leading AI powered skill acceleration platform is and will increasingly be a source of differentiation. I want to remind you, we are pursuing a different product positioning than our competitor.

The future of talent development is rapidly converging with the widespread adoption of AI. Very soon, every employee will need ongoing personalized expert support at their fingertips. This evolution represents a significant market opportunity that Unity is uniquely positioned to capture with our unparalleled collection of more than 250,000 courses covering virtually every professional skill domain. That is our data moat. It is hard for traditional publisher to keep up with Udemy’s pace, particularly with fast moving AI.

Our dynamic marketplace motivates instructors to create content and keep it fresh. For example, type coding has recently experienced a rapid rise in demand. This new approach to software development leverages LLMs to generate code. Udemy’s instructor community responded fast to the demand signal, and we now offer more than 100 courses on the topic. Compare that to fewer than 20 offered across leading competitors’ platform combined.

Our marketplace model is stronger in a fast moving AI world. We are launching a beta test of our model context protocol server with our enterprise customer. We are the first to do so in our category. This technology is designed to help organization embed personalized learning directly in the flow of work for employees. Our MCP server allows organization to access targeted learning within AI powered applications such as cloud and JetGPT.

This helps employee build skills in real time without disrupting productivity. Ultimately, we aim to create personalized assistance for every employee. Since announcing our beta program last week, we have received overwhelming response from enterprise customers that want to be included. Innovation like this perfectly illustrates how we are repositioning Udemy to be differentiated as an AI powered skill acceleration platform. To win this race, we need to be more than a destination for high quality content.

We are evolving Udemy to be an essential partner with our powerful suite of AI tools embedded throughout the enterprise technology stack to provide personalized support to every employee. Udemy has more than 4,500 courses on GenAI, which is nearly five times the amount as one of our top competitors. Paid enrollment across these courses recently surpassed $11,000,000 As discussed previously, we are making important changes to the way we merchandise our offering. During the quarter, we saw early success from two new SKUs for enterprise customers, AI Readiness and AI Growth Packages. These packages are designed to help organizations build AI fluency across the entire organization, not just technical roles.

This expands our addressable market opportunity. Let me share some example. During Q2, a large global medical technology company partnered with Udemy to launch an AI fluency initiative to approximately 40% of its employee this year. They selected Udemy’s new AI research package for the breadth and freshness of our AI content, for the quality of our AI assistant, our AI power skill mapping, and our one of a kind role play experience. Another example is Devoteam in Europe, a longtime Udemy business customer and AI driven digital transformation company.

Devoteam recently implemented a GenAI literacy program across their organization using Udemy’s AI learning path and content. Within a few months, approximately 70% of their employees participated in the training. This initiative was effective at building critical AI skills for employees in all roles and function while contributing to a 4% reduction in attrition. And finally, Prodap, a telecom service provider, engaged Udemy to leverage AI driven learning to thrive in a hybrid era. The organization needed to ensure employees across global locations could access meaningful engaging learning opportunities without disrupting their workflow.

Ultimately, the program delivered meaningful business outcome, achieving 90% organization wide AI literacy, 75% of previously unassigned employees moving directly into revenue generating client project. This comprehensive approach enabled them to transform their technical talent and deliver more innovative solution to their clients. What I like about these examples is that they are all companies that need their workforce to be at the leading edge of AI, and they chose Udemy as their partner. Turning to AI products, we are thrilled to have Ozzy Goldsmith as our new chief technology officer. Ozzy, deep expertise in AI, machine learning, cloud technology, and scaling businesses will be invaluable as we accelerate product innovation and enhance our AI powered learning platform.

During Q2, we accelerated our product development and innovation. Let me give you a few examples. In May, we launched AI powered role play, which allowed professionals to practice and refine their skills in realistic scenarios with an AI coach, I am thrilled to say that the reception has been exceptional. We have more than 7,000 unique role play creation by instructor. That’s more than the entire category combined.

This is a testament to the advantage we can leverage by building AI tools to support content creation and launching them through our more than 85,000 instructors. We also provided Udemy business customer with the ability to create custom role plays. This has resulted in hundreds introduced to their employees all over the world and strengthened our stickiness with those customers. The AI role play unlocks substantial new market opportunities beyond NLT. For example, we will be exploring bespoke solution for sales enablement and customer service.

At the end of the year, we launched our in course AI assistant, which continues to gain traction. The assistant helps learners navigate content, answer questions, and deepen their understanding of complex topic. The early data is exciting and we are seeing that learners are more engaged, have stronger retention, and higher completion rates. But this is only the first step towards a broader personalized AI assistant. We are working to ingest our broad course catalog to provide more engaging and multimodal experiences to our learners.

We also expanded our creative capabilities for instructors with the addition of Lumi. These design tools are integrated into our content creator workflow, allowing them to leverage AI to develop more engaging, interactive content, which enhances the learning experience. Our investment AI are transforming the learning experience while also fundamentally enhancing the economics for our instructors. We are building a virtuous cycle that enhance our competitive advantage. We want our instructor partners to earn more from our platform.

When they earn more, they create more fresh in demand content, and that content attracts more customers and their engagement generates more data to further advance our AI capabilities. As we enhance their economics, we ensure that Udemy maintains the most current, comprehensive, and engaging platform in the category. As we look forward to the rest of the year, we are increasingly encouraged by the signals we are seeing. The majority of our business is B2B. As you know, it takes time to move metrics on all enterprise businesses, but I’m excited about what I’m seeing.

I like the early traction from our new AI skews. I like our increasing enterprise win rate, and I like the pace of building our pipeline. For consumer, we saw subscription GMV growth of over 40% year over year in June and it’s tracking towards 50% year over year in July. While these early indicators have not yet translated into the top line reacceleration, we believe we are nearing an inflection point as we shift our focus towards accelerating growth. Before handing it over to Sarah, I want to emphasize that to keep up with the pace of change from AI, Udemy’s instructor powered marketplace provides a unique advantage that publishers cannot match.

In addition, we are the first in our category to reposition our solution to be an AI platform. This moves us away from being a content catalog, creating new forms of value and creating stickiness for our enterprise customer. Lastly, our evolving platform becomes more resilient to inroad that horizontal LLMs are likely to make in our space. With that, I’ll now turn it to Sarah.

Sarah Blanchard, Chief Financial Officer, Udemy: Thank you, Hugo. I’ll cover the key financial highlights and our outlook. A complete set of financial tables are available on our Investor Relations website. As we move down the P and L, note that all financial metrics other than revenue are non GAAP unless stated otherwise. I’ll start by walking you through the high level details of the results and then I’ll share some of the green shoots we are seeing.

As Hugo mentioned, we delivered strong second quarter results with revenue above the high end of our guidance range. I’m particularly pleased that profitability exceeded our expectations. We achieved a significant milestone in Udemy’s financial journey with our first quarter positive GAAP net income since our IPO. This achievement represents a culmination of our disciplined approach to balancing growth investments with operational efficiency. We have established a solid financial foundation that provides us with increased flexibility to pursue organic and inorganic growth opportunities that align with our vision and accelerate our market position.

In the second quarter, revenue of $200,000,000 increased 3% year over year, including a negative one point headwind from FX. Our Udemy Business segment delivered revenue of $129,000,000 a 7% increase year over year with a minimal impact from FX headwinds. Unity business ARR reached $520,000,000 at the end of Q2, representing 6% year over year growth, driven by an increase in total customers and average contract value for new customers. That growth was partially offset by lower expansions and higher churn, primarily from the SMB cohort. ARR from large customers increased by 7% year over year, and we closed nearly 40 new business deals over $100,000 in ARR during the quarter.

Multiple leading indicators suggest we are approaching an inflection trajectory, with several metrics pointing to an acceleration in the coming quarters. I’ll share more about that in a moment. Our Consumer segment generated revenue of $71,000,000 down as expected 4% year over year, including a negative two percentage point impact from FX. I do want to call out that during the quarter, we recorded a onetime benefit of $2,500,000 from consumer breakage revenue that is not expected to be as meaningful in future periods. Gross margin improved 300 basis points year over year to 67%, driven by our continued focus on growing subscription products and the revenue share adjustments we implemented earlier this year.

Operating expenses were $112,000,000 or 56 percent of revenue, an 800 basis point improvement compared to Q2 twenty twenty four, reflecting our continued focus on operational efficiency. On the bottom line, I’m particularly proud that we delivered positive GAAP net income of approximately $6,000,000 a remarkable improvement from a loss of $32,000,000 in Q2 of last year. Adjusted EBITDA was approximately $28,000,000 or 14% of revenue, representing an 1,100 basis point year over year expansion and marking our fourteenth consecutive quarter of exceeding expectations on the bottom line. This consistent profitability growth demonstrates our commitment to disciplined cost management and provides us with significant flexibility to accelerate investments and high growth opportunities. We generated $39,000,000 in free cash flow during the quarter or 20% of revenue.

Our balance sheet remains strong with $393,000,000 in cash and marketable securities at the end of the quarter. Now turning to the green shoots I mentioned earlier, I want to highlight several encouraging leading indicators. First, during Q2, we generated our highest amount of $100,000 plus deals in the pipeline since 2022. This was not just a few large deals, but rather a broad based increase in the number of substantial opportunities. The majority of the overall increase came from North America, but we saw a healthy increase across other regions as well.

In just the first few weeks of the third quarter, our North America, APAC and LatAm markets are all showing year over year growth in total open pipeline. We’re on the other side of the go to market team restructure and we expect net new ARR to be up meaningfully in the third quarter and in the fourth quarter more in alignment with what we saw in Q4 of last year. Second, Udemy business win rates increased during the quarter. Over the past few quarters, we have seen an increase in expansion deals as our upmarket focus on increasing penetration is starting to play out. Those deals typically convert at higher rates than new business, reflecting the increasing value customers are finding in our platform.

Third, new bookings from our self-service, team plan subscription product grew more than 35% year over year. Although still a relatively small portion of our overall bookings, the offering represents another high margin growth lever and is a valuable source of organic lead generation. Finally, in our Consumer segment, we are beginning to see early signs of traction with our efforts to prioritize subscription products and stabilize the overall Consumer business. As you heard from Hugo, subscription GMV increased by more than 40% year over year in June. These are all early indicators that signal we are near an inflection point.

Delivering sustainable long term growth requires both maximizing the lifetime value of existing customers. Our consolidated net dollar retention rate was 95% at the end of Q2 with large customers at 99. Our new Chief Customer Experience Officer is already making a meaningful impact on our renewal process and customer success motion. Since net dollar retention is a trailing metric, these improvements will take time to reflect it in our reported numbers. We are also in the final stages of renewing our COVID cohort of U2B business customers who entered into multi year contracts in 2022.

These deals present unique challenges as many were established without the foundations we now have in place. Our newer contracts feature more robust implementation, clearer value metrics and stronger executive sponsorship. These are all factors that contribute to healthier renewals and expansions over time. Finally, we have outsourced the SMB renewals process to a third party retention optimization firm. This allows us resources to drive further penetration of the upmarket opportunity.

As a result, we expect net dollar retention to bottom out in Q3, be flat in Q4 and accelerate in the 2026. Now for our outlook. The market opportunity continues to expand, particularly as AI transforms the nature of work across all industries. This shift is fundamentally changing roles from execution to orchestration, moving professionals from doing work to reviewing and coordinating work with the support of AI agents. This evolution requires widespread and continuous workforce upscaling.

For the third quarter, we expect revenue to be between 190,000,000 and $195,000,000 Assuming exchange rates remain constant, we expect headwinds from FX and our forward revenue to be minimal. The midpoint of the guidance implies due to the business revenue increases approximately 3% year over year, while consumer revenue is expected to be down 9%. On the bottom line, we expect to deliver adjusted EBITDA of 18,000,000 to $20,000,000 or approximately 10% of revenue. For full year 2025 revenue, we expect to be in the range of $784,000,000 to $794,000,000 representing a slight year over year increase at the midpoint. This implies new business revenue increases approximately 5% year over year and consumer revenue will be down approximately 8% year over year at the midpoint of the range.

On the bottom line, we are raising our full year adjusted EBITDA range to $84,000,000 to $89,000,000 or approximately 11% of revenue at the midpoint, representing a 600 basis point year over year expansion. In closing, we are pleased with the progress we are making in our transformation and are proud of the financial discipline we’ve demonstrated over the past few years. We’ve already delivered 50,000,000 in adjusted EBITDA this year, more than we delivered in all of last year. It is important to reiterate that the current growth rate for either segment does not reflect Udemy’s true potential. The green shoots we are seeing across the business give us confidence that we are approaching an inflection point in our growth trajectory.

The combination of our strong pipeline generation, improving win rates, subscriptions momentum and AI driven demand create multiple paths to accelerating growth in the coming quarters. The financial flexibility and operational efficiency we’ve achieved through disciplined execution now enables us to strategically pivot our focus toward capturing the tremendous growth opportunity ahead of us created by the AI transformation. This will require targeted investments, which we will approach with the same disciplined mindset that got us to this point. We’re confident that we can deliver sustainable profitable growth that will create long term value for our shareholders and we’re more excited than ever about the path ahead. So with that, we’ll open up the call for your questions.

Moderator?

Conference Moderator: Thank you. We will now begin the question and answer session. And your first question today will come from Josh Baer with Morgan Stanley. Please go ahead.

Josh Baer, Analyst, Morgan Stanley: Excellent. Thanks for the question, and congrats on a good quarter. Questions for Hugo. I mean, we’ve seen and we’re hearing about some of the actions and initiatives that you’ve been focused on early on. I was hoping you could kind of summarize some of your key observations from your first four months in the role.

Hugo Sarazin, Chief Executive Officer, Udemy: Thank you, Josh. In the last four months, I spent a lot of time with our customers, more than 300 of them. And there’s two teams that emerge. And I’m not just talking to L and D leaders, I’m talking to COO, CEO, CTO, CPO, CDO. And it is really, really clear an important shift is happening.

The first one, AI reskilling is the topic in every geography. Everybody’s trying to figure out what’s the right way to reposition their workforce in this AI world. The second is, given that there are all these tools, GitHub Copilot, Cursor, Devon, and you name it, they’re expecting more from their learning partner. They want more than an online catalog. They’re wanting more ROI, and they want more AI.

And that makes me super, super excited about the pivot that we’re doing towards what we are now calling Udemy two point zero and what we’re doing. And there’s like three core things here. And I’ll just start with, before giving you the three things, like a short story that is super illustrative. This is one of the top three pharma speaking to CTO. The meeting starts, he says, hey, my engineers are knee deep in all these AI tools, they do their work differently.

I don’t want them to do any learning. That made for a very awkward beginning of a meeting. And then the more he spoke, the more he explained, he was basically saying, I don’t want to take my engineers off of working and then going to learn twenty hours of the course too that one day maybe if they remember some of the content, they can apply it. I want it to be in the flow of work at the moment they need it with the right context. And he was basically asking for a AI learning partner, a skill trainer that was powered in a very, very different way.

So our Udemy two point zero has that in spade and I’m very excited where we’re going. First thing is we’re expanding the capabilities. We’re going beyond content. We’re going into assessment, role play, labs. We’re demonstrating mastery with more data and easier to demonstrate ROI.

We’re also demonstrating recency so that people don’t have learned something at one point and they forget it. We’re demonstrating constantly that they’re still up to date. And that’s pretty different than a content catalog. The second is we’re building a platform. A platform is a technology intensive endeavor and it requires different capabilities.

You need to integrate more deeply with the tech stack. So today, most players have a very superficial API integration where you give an LMS, an LXP or other piece of software a sense of your content catalog. Where we’re going way beyond that in this MCP, I just want to kind of say how excited. I mean, we’ve been talking about this with customers one on one. And now that the beta is out, it is wild.

And what is exciting about it is what we’re saying is in a LLM world where people are going to be building their own LLM with their own data, we’re going to make the content of our, you know, courses, assessment, labs, role play available so that they can integrate and personalize the learning experience. That’s a very, very, very different play. We’re also going to go deeper and we’re going to pull in data like, you know, the employee engagement survey to say, you as a manager, is there a correlation between the courses you’ve taken, the skills assessment you’ve done, the labs you’ve done, and your engagement so that we can better guide how the workforce is going evolve? So again, a platform is a very, very different play. The last thing is this AI.

We’re going to embed it on the instructor side. We’re going to embed it on the learner side. And what we really want to do is build this personal skill trainer. Somebody that’s going to be there as your coach side by side, in the flow of work, giving you customized information based on the task that you’re trying to accomplish. So it’s a different world out there, I couldn’t be more excited about how we’re pivoting to be relevant in a LLM centric technology stack.

Josh Baer, Analyst, Morgan Stanley: Excellent. Thanks, Hugo. Sarah, I was just wondering, you mentioned coming up against like COVID contracts and renewing, and that’s part of what’s pressuring UB net dollar retention rates. Was hoping you could unpack that a little bit. So, are you seeing logo churn, seat contraction like other down sells?

How much longer do you face these COVID contracts? And

Dennis Walsh, Vice President of Investor Relations, Udemy: is

Josh Baer, Analyst, Morgan Stanley: there any kind of saying it’s macro related or budgets are drying up or any element of the changes to your go to market or competition? Thank you.

Sarah Blanchard, Chief Financial Officer, Udemy: Yeah, thanks for the question, Josh. So, of these COVID contracts, these are multi year deals where if you’ll recall, we shared a few years ago that we had really started pushing multi year deals in 2021, 2022. And at the time, we didn’t have the same implementation capabilities to make sure that those are successful implementations, getting alignment on those clear value metrics, having the same sort of executive sponsorship that we have today. And so when these come up for renewal, without those things in place, we may have a down sell, we may have some logo churn. What we’re excited about is number one, we are working through the final of those that were set up like that because we’re now in 2025 and this really was a 2021, 2022 when we’re setting it up.

But also we have Naracha, our new customer, Chief Customer Experience Officer for the first time who is already making a lot of positive changes. That’s everything from outsourcing SMB to BPO, to bringing AI plan to renewal. So even if it was a COVID contract, now we have these new AI skews to help talk about the benefit and the ROI of being able to AI enable your workforce. We’re also really aligning our customer success approach to optimize outcomes for customers. So you know this takes time, but we’re happy with the progress.

Lots of these renewal conversations start on the enterprise side nine months in advance. But we are working through those we expect to be through the rest of those most of this year. Certainly, there’ll be some that renewed in ’twenty three on that three year contract, but we’re getting through them.

Hugo Sarazin, Chief Executive Officer, Udemy: Okay, thanks.

Conference Moderator: And your next question today will come from Ryan MacDonald with Needham and Company. Please go ahead.

Ryan MacDonald, Analyst, Needham and Company: Thanks for taking my question and congrats on a good quarter. Maybe, Sarah, just to sort of start on where we left off on Can you kind of just help us understand sort of how the balancing out of sort of the some of these maybe potential headwinds on the renewals, but the sort of level of optimism and sort of positivity you’re seeing sort of on pipeline development and growth? And how we should sort of triangulate that into what the trajectory of UB looks like as we go into the back half of this year? And sort of how is sort of the macro at play right now given there is, at least hearing stills level of uncertainty on the budgetary side?

Sarah Blanchard, Chief Financial Officer, Udemy: Yeah, it’s a great question. I am going to let Hugo after I speak talk about what he’s seeing from a budget perspective and talking to leaders across the businesses. Let me break it down in two different parts. One is on the ARR side of things and the restructuring that we did in the fourth quarter of last year. So we announced it at the end of Q3, restructuring in Q4.

Enterprise transformations take time, but we’re really through that now. So we do have some headwinds from a renewal perspective. But what we’re seeing is a lot of momentum on the pipeline build, everything from 100,000 deals that are building the pipeline, but also that we signed in the last quarter. Bookings are up quarter over quarter. Our pipe growth is up year over year in NAMR and APAC and LATAM.

And so all of these leading indicators from a bookings perspective give us great visibility into a substantial increase in net new ARR in the third quarter. And then we’re expecting to have the fourth quarter net new ARR be similar to what we saw last year. On the retention side, I spoke about what is happening with our Chief Customer Experience Officer, Narascha, but I also want to share that what Hugo just spoke about this Udemy two point zero, this is an inherently stickier value prop and product. It is integrated into the full work. It’s integrated into the technology stack.

It is combining our data with their data to create an even higher ROI and ability to customize and to create a personalized learning experience that is like having a coach at your side. And so putting all these together, that is what leads us to have the confidence in our trajectory and what we’re looking at through the back half of this year and into next.

Hugo Sarazin, Chief Executive Officer, Udemy: If I can just add a few things on the macro. As I said at the beginning, we’re spending a lot of time with the L and D leader and they’ve got their own set of dynamic. And we’re shifting also to spend a lot more time with the businesses and Udemy two point zero plays into that. So if you’re looking into the L and D budget, there are some headwinds like where you have less employees, there’s a lot of layoffs happening, people are replacing individual with agents and things like that. So that’s a headwind.

There’s a bit of uncertainty, but on the positive side, they would need to reskill their entire workforce. So they’re like looking for solutions to do that. So we feel that on the L and D, it’s probably going to net out in a reasonable place, particularly as they go towards consolidation. And then our inherent advantage in the consolidation play, we feel really, really good because we play both on the technical side and the non technical side. And now with this Udemy two point zero, we have more.

Now what’s really more exciting, at least from my point of view, is now our ability to go after budgets that are outside of R and D. And our solutions now is going to be way more relevant for those folks. Let me kind of give you one example to bring it to life. Our AI role play, which is like a massive success this quarter. You can imagine showing up to a sales leader and say, you’re onboarding new reps, we have the ability to accelerate the rate of onboarding of those reps and that’s of value.

That’s a different pool of dollars. I had a conversation two weeks ago with one of the largest call center outsourcers. He trains 20,000 people every month and he was like, oh wow, this is a different solution. And I can customize that to my needs for each of the clients I’m outsourcing to. I want this.

Can you kind of give it to me? And I’m saying, we’re to roll you through the MCP program and we’re going to do it in a way that is helpful. So the L and D budget is important. And I think they net out. More importantly is as we do the pivot, we’re going after new budgets.

Ryan MacDonald, Analyst, Needham and Company: Very helpful color there. Maybe just one on the consumer side. It sounds like there’s some obviously some great progress being made on the subscription, but I was very intrigued to hear about this programmatic advertising opportunity and revenue stream you mentioned. Can you just provide a little more color on sort of what you’re going to be targeting there? How quickly do you think that revenue stream could ramp up as we go into the back half of this

Dennis Walsh, Vice President of Investor Relations, Udemy: year and into next year? Thanks.

Hugo Sarazin, Chief Executive Officer, Udemy: Great question. I’ll start by saying, one thing that struck me when I first got here is we had an amazing installed base, we had amazing customers, we had amazing audiences, and we were trying to monetize that in one singular way. And we’re going to change that. We’re going to deploy new ways to monetize our assets. An ad is one example.

It’s not the only one, we hinted at a few others and there’ll be more coming, but now just to stick with the ad, the audiences, let’s pick a number, 39,000,000 monthly visitor. And these, many of them are incredibly interesting visitors. You can have a really fun conversation with advertisers and then you can do different things. You can put before a video rolls, can put an ad, you can put an ad at the end, you can stop, put the ad in the middle, you can do better ads, You can do sponsorship of domains. You can do sponsorship of names.

You can do sponsorships of days. All of this is on the table. And what we’re doing in Q3 is we’re doing some experiments to understand how it helps in certain use case and certain audience, with certain content, so that we can refine this and push to accelerate this later this year. So expect this to become more of an important revenue stream over time, but it is a very exciting example of how we plan on monetizing our assets in the future.

Ryan MacDonald, Analyst, Needham and Company: Great. Looking forward to hearing more. Thanks.

Conference Moderator: And your next question today will come from Jason Tilchin with Canaccord Genuity. Please go ahead.

Josh Baer, Analyst, Morgan Stanley: Hi, good afternoon. Thanks for taking my question. One for Hugo, last quarter you sort of talked about this a bit in your prepared remarks today too, how the product offering has been in a really good place, but it maybe wasn’t being packaged for merchandising in all the right ways. With some of these new AI readiness and growth packages, can you share a bit more about how customers existing customers are sort of responding to those and what the opportunity looks like for further improvements and new packages on the enterprise content side going forward? When will this maybe have a more meaningful impact on revenue per enterprise customer?

Hugo Sarazin, Chief Executive Officer, Udemy: Great question. Thank you, Jason. Listen, merchandising on the enterprise opportunity. Let me answer directly the enterprise and the AI skew. The reception has been overwhelmingly positive.

We had the first case example I gave earlier. This got initiated in the quarter and got closed in the quarter and it’s a very, very, very large deal. So we’re hitting a really clear need and then by merchandising more precisely around AI and AI fluency versus the broad catalog and all these capabilities, we’re also making it easier for our sales team to come with a very targeted value proposition. So you couldn’t have imagined a more excited go to market team to now have these tools in their bag. And now we’re also using these tools during renewal as Sarah hinted.

The pipeline that has been generating since the beginning of these SKUs represents 25% of our overall pipeline. So it really hitting the mark and we suspect that throughout this year this is going to be a meaningful part of the way we’re going to finish the year. And then what’s exciting is now that we have this muscle, that we’ve demonstrated we can do this, before that we had only two SKUs in the enterprise space. We just like double it. Imagine as we get a bit more sophisticated and we now start to target different populations, different use case, different budget, it’s going to be amazing.

The same thing on the consumer side. Again, we’ve done an interesting job with this transactional marketplace. We had the subscription sitting on the side And now we emphasize subscription, but don’t think what we are offering today is what we’re going be offering in the future. First of all, there are multiple subscriptions to be created. That’s going to be one version of the merchandising.

Second, we’re going to evolve what the definition of subscription is. It’s not just going to be access to courses. It’s going to be access to other services that are natural in the affinity. It could be podcasts. It could be books.

It could end up being coaching. It could end up being career counseling. This is an example of what the Indeed thing can do over time. Or you can imagine how subscription value proposition is going to evolve and that aligns to the point I was making earlier. We’ve got so many opportunities to monetize what we have that we’re going to start to take advantage of that.

Conference Moderator: And your next question today will come from Yi Fu Li with Cantor Fitzgerald. Please go ahead.

Yi Fu Li, Analyst, Cantor Fitzgerald: Thank you for taking my questions. And congrats on a very productive 2Q to the entire Udemy team. A lot of work done. Hugo, I want to double click, circle back on the product technology differentiation. You kind of mentioned Udemy is highly different than competitors.

Sounds like the Udemy two point zero you are trying to build is more customized, tailored to the individual level. Can you comment on how the new CTO, Ozzy, bolt on with a stellar resume as a founding architect of Dave Foss, will bring to the Udemy two point zero product roadmap? And then I have a quick follow-up with Sarah as well on the financial side.

Hugo Sarazin, Chief Executive Officer, Udemy: Thank you. I mean, it’s so central. First of all, the Udemy two point zero makes it clear, we’re going beyond being a marketplace. We’re not abandoning the roots of being a marketplace. But as an enterprise software, we needed somebody who has scaled and developed that.

And Ozzy’s the right person. He’s done it with very, very complicated products. He’s done it at scale. And he’s gonna help us do things like, how do you create the backend to support multiple SKUs, license management, these different monetization. I kind of hinted at the fact that in the AI world, we’re going to need an AI pricing model that may be different than the subscription pricing model.

Well, we need a backend to support that. And what I mean by that is we may charge for platform fees, we may charge for consumption. This is different than a catalog and I’m so excited to have somebody who knows how to do this, who knows how to do this at scale, and who’s done some very, very transformative technology shifts. That should cover broadly the question.

Yi Fu Li, Analyst, Cantor Fitzgerald: Okay. Thank you very much, Hugo. And then flipping over to Sarah on the financial side. It’s great to see that it sounds like your commentary is there’s going to be a little bit more bottoming in the third quarter of this year. And then we’re going to see an inflection in 2026, 2026.

So kind of like light at the end of the tunnel. Firstly, Sarah, how are going to get there? And secondly, can you just comment on the COVID-nineteen cohort from the 2022 and 2021? When will that flush out in terms of timing? And that’s it for me.

Thank you very much.

Sarah Blanchard, Chief Financial Officer, Udemy: Yeah, thanks for the question. So, first, how are we going to get that revenue reacceleration? It’s a lot of what we’ve already talked about, which is how we are monetizing everything from the AI demand that we see, which is not just on the UV side, it’s also on the consumer side, to driving better retention through operational things from having these AI plays that we can bring into renewals and over time from having an inherently stickier product. And I’m gonna give you a little stat that can help give you visibility into what is happening as we’ve moved up market, as we’re having these AI conversations. You’ve heard Hugo say 25% of our pipeline is associated with these AI use cases now.

Our large customer new ARR per new logo is up almost 30% year over year. So the conversations that we’re having are at a or sorry, quarter over quarter. The conversations that we’re having are at a higher level. They’re talking about broader portions of the team because the use case for AI is across the entire organization. And so all these early indicators with the pipeline growing across the regions, the bookings growing and the work we’re doing to increase retention, all of those are going to lead to that ARR acceleration.

Conference Moderator: And your next question today will come from Stephen Sheldon with William Blair. Please go ahead.

Josh Baer, Analyst, Morgan Stanley: Hi team, have Pat McAuley on for Stephen today. Thank you for the questions. So on the UB side

Hugo Sarazin, Chief Executive Officer, Udemy: of the business, this was

Josh Baer, Analyst, Morgan Stanley: the first quarter I can recall seeing your customer count step down sequentially. And I just wanted to ask, is that just a natural byproduct of your focus on larger customers with some of those smaller customers rolling off the platform? Or is that more of a factor of these COVID renewals and or the broader macro pressures you’re seeing in that segment?

Sarah Blanchard, Chief Financial Officer, Udemy: Yes, thanks for the question, Stephen. It really is related to the SMB side of things, where we focused and shifted upmarket. We added about 100 new logos and large customer net new logos in the large customer side of things. And what we’re excited about is bringing on this VPO to help us out on the SMB side of things. So that’s all going in the right direction.

We did expect to see some noise from a customer logo count as we shifted our focus upmarket.

Josh Baer, Analyst, Morgan Stanley: Okay, understood. And then shifting to the consumer side, can you talk about what you think are the biggest factors driving those green shoots you mentioned and the improvement in your outlook for that business, whether it’s strength and demand for AI courses, the early innings of some AI disrupted workers looking to reskill or strength internationally?

Hugo Sarazin, Chief Executive Officer, Udemy: So thank you for the question. There’s a lot of what you said So it’s multiple factors. The first one I’ll highlight is a greater focus on subscription. And a lot of our marketing, customer acquisition and customer journey is now focused on driving subscription.

By the way, it does cannibalize a bit of some of the transactional stuff. So there are timing issues that are playing out in our numbers, but we like it. We’ll do the trade any day. The LTV of a subscription customer is phenomenal. So that is one aspect, is a bit of a focus in that direction.

The second is, we are focused in some domain and some category that are more relevant. A lot of them are related to AI or certification prep. There’s a lot of demand and a lot of good stuff associated with that. And also the certification prep space is one where we do have additional monetization opportunities, will present more clearly in the upcoming quarters. And then the last is we’re optimizing our region.

There are some regions where there’s more demand right now and we’re obviously switching some of our marketing dollars to those geographies.

Conference Moderator: And your next question today will come from Jeff Meuler with Baird. Please go ahead. Yeah. Thank you. Steven Pawlik on for Jeff.

On the win rates, I guess, how is that being measured? Is that reflecting dollars, customers? Is that more tied to new opportunities or the expansion opportunities? And then if you could just sort of quantify how much improvement you’re seeing and maybe compare it to 2020, 2021 timeframe?

Sarah Blanchard, Chief Financial Officer, Udemy: Yes, I’ll take that question. So first, it is dollars. We like to look at everything on a weighted basis and how it’s impacting our financials overall. And so those win rates are up on a dollar perspective. And it is pretty broad based, meaning it’s happening both on the upsell business side.

And we have a very healthy upsell to new business mix, which we’ve continued to have. We have seen a bit of an uptick in upsell large size deals in our pipeline. So everything is coming together with all the planning that we did in the fourth quarter, the transition that we did of the team and now we have these AI skews and that’s what we’re seeing across a broad based upsell new business and it’s dollar weighted.

Conference Moderator: And your next question today will come from Devin Au with KeyBanc. Please go ahead.

Devin Au, Analyst, KeyBanc: Hey, thanks for taking my questions. Just first one quickly, just Sarah, could you provide more details on the $2,500,000 benefit to consumer revenue in the quarter? What drove that and why wouldn’t it reoccur again? And I have a follow-up.

Sarah Blanchard, Chief Financial Officer, Udemy: Yes, thanks. So it really was how we were set up. We were unable to take breakage revenue as it was happening or as we could estimate it. We made some administrative changes and we’re able to pull that through. And then on a go forward basis, each quarter we will be able to take that breakage revenue.

It just won’t be as meaningful because the $2,500,000 was sitting on the balance sheet.

Devin Au, Analyst, KeyBanc: Understood. And then just a quick follow-up, really great to hear about the green shoots, very encouraging. The green shoots that you’re seeing, would you mostly contribute that to better execution and having like a broader portfolio of products to sell into? Or was there like a tone change from customers that now they need to really focus on rescaling the workforce? Yeah, just any additional color would be helpful.

Hugo Sarazin, Chief Executive Officer, Udemy: Yeah, I think first and foremost, I do think the team has continued to improve its execution and its focus and it’s the strategy that’s playing out. The mixture of what we’re doing on the go to market and the focus, it is the additional product and the way to monetize. It is also just expanding the kind of conversation rather than being constrained to the L and D going more broad. It does have some counter effect by the way, it does elongate some deal conversation that you can’t close in the quarter. But again, if you’re able to close bigger and longer and more strategic and you’ve got better alignment on the outcomes, you’re going to be better positioned for renewal.

So we’re doing all of that and that’s kind of giving us that degree of confidence. The second piece is back to what I said at the very beginning. They’re asking about AI fluency now. And the fact that we’ve pivoted to kind of make that the story and the approach, We’re resonating. And I was a bit nervous that it was an American or North American thing.

I’ve been in each of the geography. It’s worldwide. It is really it has a bit different flavor in Europe and etcetera. But everybody is trying to figure out what to do given this. And the other piece, which is the part around being positioned not as a content provider, but as a more technology heavy using AI ourselves, I think it resonates too because they’re doing that across their whole technology stack.

They’re seeing their lawyers are using AI tools like Harvey to do things. The marketing folks are using AI tools. So they’re kind of turning to their content provider and like, what’s going on? You need something to kind of match that. And we have a good answer.

So I think for all those reasons, we’re kind of saying, woah, we’re pretty excited about where we’re positioned in the market. We’re very different than others. And we think we’re where the fuck is going because this LLM and this transition to AI and agents and all that is going to be pretty broad, pretty comprehensive, and we’re kind of a leader.

Conference Moderator: And your next question today will come from Nafisa Gupta with Bank of America. Please go ahead.

Nafisa Gupta, Analyst, Bank of America: Hi. Thank you for the question. Can you hear me?

Sarah Blanchard, Chief Financial Officer, Udemy: Yes. Yes.

Nafisa Gupta, Analyst, Bank of America: Yeah. So my first question is on the consumer front. You mentioned some green shoots there, and it looks like North American business is doing better than as we are than expected earlier last quarter. Is that would you call that inflection in consumer behavior given, you know, stronger subscription that you’re seeing there? Is that or it’s just continuation of previous trends that you were seeing on the macro front, Hugo?

Hugo Sarazin, Chief Executive Officer, Udemy: I think on the consumer is we fundamentally have a change of strategy right now. And that’s what really is driving kind of like this We’re targeting a different value proposition, we’re focused on a different set of product, we’re targeting different audiences, we’re messaging differently. We’re also over time, it will take time where you don’t have to discount as much as we’ve historically done. So it’s all of the above. So it’s a purposeful shift.

We need to be careful and we can’t do it too fast because we do have ingrained behavior. We do have historical positioning of our product and we’re trying to change that. And we have the assets to do it and we need to be very thoughtful. We also need to be thoughtful because the timing of transactional and subscription is not the same. And capital markets look at things on a quarter by quarter basis, so we’re going to do it very carefully.

But the reality is by having, we’re like we’re on track to have 20% of our GMV by the end of the year to be subscription. That is a fundamental shift. So imagine what we’re going to be able to do next year, particularly as we expand the definition of subscription, we expand the number of types of subscription, we make it more targeted, we make it more appealing to different types of audience. I couldn’t be more excited about what we’re going to see and it’s how we are changing because the demand was there. We weren’t just pursuing that demand.

Nafisa Gupta, Analyst, Bank of America: Thanks. One more from me for Sarah. Sarah, we’ve seen quite a lot of leverage in the sales and marketing front. How do we think of that going ahead? And anything that you’re doing in that space to see that leverage?

Which areas are you focusing on now in terms of UB versus consumer?

Sarah Blanchard, Chief Financial Officer, Udemy: That’s a great question. So first, the shift to upmarket is driving some of the leverage we’re seeing. That’s on the Udemy business side of things. There is more leverage to be gained from being able to sell more into the same customers and being able to retain those customers longer. And on the consumer side, as Hugo mentioned, the LTV of the subscription is significantly higher than that of the transactional business.

There’s more we can do from a marketing perspective and from an owned channels perspective to drive the top line, but also that shift to GMV and revenue coming from consumer subscriptions will give us more leverage. So we’ve got lots of levers on both sides from a sales and marketing perspective. We’ve started pulling them last year, but we’re going to continue pulling them.

Hugo Sarazin, Chief Executive Officer, Udemy: I’ll just add one more thing to Sarah’s answer, Rich. Both on the enterprise sale aside and on the consumer, our increasing use of partners is going to give us a very, very different leverage, very, very different leverage. We are going to start to look a lot more like a classic enterprise software company on the UB side, And we’re going to use these partners to help co sell and support lead generation. On the consumer, I mean, the Indeed is just one example. It’s a customer acquisition channel that has a very, very different tack, very, very different value proposition.

It is converting very differently, incredibly well. And we’re so excited because again, we’re getting the consumer at a moment where they need something. They’re in a career transition and we’re giving them a value immediately and they want this, they’re excited and if we can continue to demonstrate value, then we can retain them for the long run. So that also will give us leverage in the sales and marketing model.

Conference Moderator: This will conclude our question and answer session. I would like to turn the conference back over to Hugo Sarazin for any closing remarks.

Hugo Sarazin, Chief Executive Officer, Udemy: Thank you for joining, and I look forward to connecting again in October for our Q3 call.

Conference Moderator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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