Good day, and welcome to the Udemy Q2 2024 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Dennis Walsh, Vice President of Investor Relations. Please go ahead. Thank you, David. Joining me today are Udemy's Chief Executive Officer, Greg Brown, and Chief Financial Officer, Sarah Blanchard. During this conference call, we'll 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 complete discussion of risks associated with these forward-looking statements, we encourage you to refer to our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. Our forward-looking statements are based upon information currently available to us. We caution you to not place undue reliance on forward-looking statements, and we do not undertake and expressly disclaim any duty or obligation to update or alter our forward-looking statements except as required by applicable law. In addition, during this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with U.S. generally accepted accounting principles referred to by the 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 website. Please note we have provided a supplemental deck with tables and charts with details on some of the initiatives announced today. The deck can be found for download on the quarterly results section of our Investor Relations website. A replay of today's call will also be posted on the website. With that, I will now turn the call over to Greg. Thank you, Dennis, and good afternoon to everyone on the call. I'm pleased to report that for the Q2 of 2024, our revenue came in at the high end of our guidance range, and we significantly exceeded the range for Adjusted EBITDA margin. Udemy Business revenue increased 19%, including the negative impact of two percentage points from changes in FX rates, while ARR grew to nearly $500 million, up 17% compared to the same period last year. As a result, total revenue increased 9% year-over-year, including a negative two-point impact from FX to $194 million for the quarter. The growth was primarily driven by Udemy Business and was somewhat offset by an anticipated year-over-year decline in consumer revenue. On the bottom line, we overdelivered on our expectations for Adjusted EBITDA as we continued to drive operational efficiencies throughout the business. This quarter, we also surpassed a monumental milestone of 1 billion course enrollments since inception. This remarkable achievement underscores our unwavering commitment to transforming lives through learning and highlights the profound impact we've made on individuals and organizations around the world. I'm extremely proud of our team's performance and can't thank our employees enough for their hard work and dedication. Now that we're more than halfway through the year, I wanted to provide an update on the current state of the market and several strategic initiatives that we're implementing to more effectively position Udemy for long-term success. The global workforce skill gap is widening as generative AI accelerates the pace of change across all industries and geographies. By 2030, it is estimated that there could be 85 million jobs unfilled due to a shortage of workers with the right skills, leading to $8.5 trillion in lost annual revenues. Companies and individuals need to adapt to a rapidly evolving job market accelerated by AI, where skills are the new currency and traditional education credentials are becoming less predictive of job success and adaptability. Udemy is uniquely positioned with our comprehensive platform to help organizations address the skills gap challenge and to help individuals meet their career goals. To that end, we remain committed to establishing Udemy as the skills platform of choice and providing the highest value to our customers around the world. Over the past few years, these trends have contributed to the significant expansion in our global enterprise customer base. Notably, in just three years, we have doubled the number of enterprise customers we serve while simultaneously deepening our relationships with existing customers. As a result of our successful execution, Udemy's business is at a critical juncture where we are preparing to propel our business from a $500 million revenue organization toward a $1 billion industry powerhouse. In order to capture the significant future market opportunity, we are taking deliberate action to shift our strategic focus and resources toward large enterprise customers, which represent our highest growth opportunity. We anticipate that narrowing our focus on the large enterprise customer will enable us to deliver accelerated profitability, given the better unit economics and higher returns on our go-to-market initiatives. As part of this shift in focus and following a comprehensive review of our go-to-market operations with Udemy's new Chief Revenue Officer, Rob Rosenthal, we're implementing four key initiatives. First, we're reallocating resources upmarket toward enterprise companies with more than 1,000 employees, which we call our Large Customer Cohort. The SMB segment has been more impacted by the current macroeconomic environment and therefore more budget constrained. Given its lower growth and less attractive unit economics, we are de-emphasizing our focus on the SMB cohort. We believe the large customer cohort represents the greatest growth potential for Udemy, given the wider range of use cases and land-and-expand opportunities. The large customer cohort currently represents approximately 75% of our Udemy Business revenue and is growing at a significantly faster rate than the SMB cohort. We've been executing successfully in this segment with stronger pipeline build, larger deal sizes, higher retention, more upsell opportunities, and better unit economics. With just over 5,000 enterprise customers in this cohort, we have barely penetrated the global addressable market opportunity of more than 130,000 enterprises worldwide. Additionally, large enterprises are moving faster than SMBs to capitalize on the opportunities presented by AI and the skills-based economy. As an example, during Q2, a large global professional services firm with more than 85,000 employees came to Udemy with a defined set of challenges. They were facing several pain points, including the imperative to keep up with the rapid pace of technological change and the anticipation of competitive pressure from the emergence of generative AI. They needed an effective learning solution to prepare the company's consultants for certification exams and to develop a strategy for transitioning to a holistic skills-based organization. The company selected Udemy for our industry-leading learning programs and hands-on immersive learning experiences. The customers reported remarkable results. In just three months since launch, nearly 50% of its 6,000 licenses were being utilized across various roles, and over 10,000 hours of learning have been completed. New large enterprise customers like this represent significant opportunities to grow meaningfully through our proven land-and-expand strategy, which brings us to our next initiative. Second, we will focus on increasing penetration within our existing large customer base. Udemy Business has penetrated less than 10% of potential licenses within this cohort, with significant headroom to grow. We estimate our seed expansion opportunity alone to be over $1.5 billion based on 50% penetration of the more than 85 million employees in our current installed base of large enterprise customer accounts. As an example, Devoteam, a leading digital transformation consulting firm headquartered in France, has been a customer since 2016. Devoteam is a workforce of more than 10,000 employees across 25 geographies in EMEA. The past two years, Devoteam increased its coverage of Udemy business licenses from 30% to 100% of employees, enabling comprehensive training in generative AI across the organization on general AI proficiency and Google's Gemini. This strategic investment has notably accelerated the attainment of industry-leading IT certifications among their employees, with certification rates rising from 40% to nearly 70% across all consultants within the same timeframe. Devoteam set a goal to have all employees certified on AI before the end of this year. We know from experience that once we prove our value, we can accelerate expansion and upsell opportunities within our existing customer base, particularly with large enterprises that have a strategic approach to critical skills development. One of the primary benefits of the land-and-expand strategy within the large enterprise customer base is that it represents our highest margin opportunity and return on investment. In addition, we have several new AI-powered capabilities launching over the next few quarters, including skills mapping and the AI learning assistant, which have received strong feedback from early testing. We believe these products will support further expansion within our customer base. Third, we will continue to support growth through strategic partnerships, strengthening our global distribution capabilities, opening up new routes to market, and providing additional ways to access the Udemy platform. Partnerships are not only a critical way to drive revenue growth, but also an important way to drive customer satisfaction. As you can see from our recent announcements, we're focused on building relationships with hyperscalers such as AWS and large developer platforms like Docker and CNCF. Just last month, we expanded our partnership with AWS and launched our first collaboration to develop branded content specifically for Udemy. The program, Unlocking GenAI Opportunities with AWS, is a six-week cohort learning program offered exclusively through Udemy Business Leadership Academy. This program is designed to equip mid- to senior-level leaders with essential generative AI knowledge and change management skills. This collaboration aims to help leaders across various industries develop the skills necessary to drive digital transformation within their organizations. Fourth, we're accelerating operational efficiency initiatives in order to emerge a more durable, competitive company. These initiatives include accelerating the reallocation of resources into lower-cost geographies, reducing organizational layers, and optimizing the go-to-market organization consistent with segments and regions where we see the most opportunity, specifically focusing on our fastest-growing, more profitable large enterprise customer cohort. These initiatives are intended to enable us to more effectively navigate the near-term market conditions to generate greater profitability and capitalize on the massive long-term opportunity that is available to us. Not only that, but we expect that these initiatives will also better position Udemy to serve our customers and enhance the coordination among our R&D teams. With more than 60% of revenue and 80% of traffic to our website coming from outside the United States, it's important for us to have a workforce that can support our customers, instructors, and learners' needs quickly and effectively on a global basis. Ultimately, we anticipate that these operational efficiency initiatives will generate meaningful cost savings. Our goal is to deliver adjusted EBITDA of $130 million-$150 million in 2026 and to achieve further meaningful adjusted EBITDA expansion in 2027 and beyond. Before I turn the call over to Sarah, I wanted to reiterate that we cannot be more excited about the future of Udemy. We're making strategic decisions to build upon our past successes. ARR is approaching $500 million. We have robust gross margins. We're profitable on an Adjusted EBITDA basis, and we have a solid cash position to fund future growth. Our competitive positioning is strongest with large global enterprises who are moving quickly to capitalize on AI and upskilling, and our runway is massive within these organizations. The deliberate and purposeful initiatives discussed today will make us a stronger, more durable business and position Udemy to deliver meaningful value to all stakeholders as we enter our next stage of growth. We thank you for your continued support on this journey. Now, I'll turn the call over to Sarah for a financial review. Thank you, Greg. I'll start with comments on the key financial highlights and then provide our outlook. You can find the complete set of financial tables in our news release, which is available on our investor relations website. Revenue increased 9% year-over-year to $194 million. With more than 60% of our total revenue coming from outside the U.S., we had a negative impact from FX to our year-over-year growth rate of 2 percentage points. Absent the higher-than-anticipated FX headwind, we would have exceeded the high end of our guidance range for Q2. Udemy Business revenue for the quarter was $121 million, an increase of 19% year-over-year, including a 2 percentage point headwind from changes in FX rates. We ended the quarter with annual recurring revenue, or ARR, of $493 million, up 17% from a year ago. Professional services, financial services, manufacturing, tech, and retail continue to be the strongest verticals contributing to ARR growth. Our consolidated net dollar retention rate, or NDRR, at quarter-end was 101%. The rate was 108% for large customers or those with 1,000 or more employees. As expected, upsells are taking longer than historical norms in this environment, so we are still seeing some pressure on net dollar retention. Gross dollar retention has remained stable. In aggregate, we grew our global customer base by 11% year-over-year to nearly 16,600. Gross margin for our Udemy Business segment came in at 72% for the Q2, up 500 basis points from the prior year, primarily due to the instructor revenue share change that went into effect on January 1 of this year. As expected, second-quarter consumer revenue of $74 million was down 4% on a year-over-year basis, including a negative 3 percentage point impact from FX. Within that, Personal Plan subscriptions contributed more than 10% of the segment's revenue for the first time. During Q2, average monthly visitors grew 21% year-over-year to more than 41 million. The increase in traffic was primarily driven by new marketing initiatives to drive engagement with consumers across digital channels. As we move down the P&L, note that all financial metrics are non-GAAP unless stated otherwise. Q2 gross margin was 64%, a 500 basis point improvement from Q2 2023, driven by the instructor revenue share change, as well as the continued revenue mix shift to Udemy Business, which accounted for approximately 62% of total revenue in the quarter, an increase of 500 basis points year-over-year. As previously shared, we expect total company gross margins to increase to approximately 70% in 2026 as the instructor revenue share steps down to 15% on all subscription revenue. Total operating expense was $124 million, or 64% of revenue. FX for the quarter was approximately 300 basis points higher than Q2 of last year due to increased sales and marketing investments, as well as some professional service fees in G&A that are not part of our ongoing operations. On the bottom line, we delivered a net loss of approximately $6.5 million, or -3% of revenue. Adjusted EBITDA was positive for the fifth consecutive quarter at approximately $5.5 million, or 3% of revenue, representing a 200 basis point expansion year-over-year. The better-than-expected Adjusted EBITDA result was driven by our ongoing focus on operational efficiency. Moving on to key cash flow and balance sheet items. We ended the quarter with $422 million of cash, cash equivalents, restricted cash, and marketable securities, and generated $25 million of free cash flow in the Q2. Now for our outlook for Q3 and full year 2024. As a result of the ongoing challenging macroeconomic environment, softer-than-expected marketplace conversions, tight enterprise customer budgets, and the optimization of our go-to-market organization, we're lowering our revenue growth expectations for this year. We now expect full year 2024 revenue to be in the range of $776 million-$782 million, or nearly 7% growth at the midpoint, including an expected negative 2 percentage point impact from FX. In the earnings supplement, we have provided a bridge between our prior full year 2024 guidance midpoint of $800 million and our updated guidance midpoint of $779 million. As you will see, of the $21 million reduction at the midpoint, $11 million is attributable to the consumer segment, $6 million is attributable to Udemy Business, and $4 million due to our updated FX assumptions. While the challenging macro and strategic shift toward enterprise customers will create a near-term headwind to revenue growth, the actions we are taking are intended to position us to grow into a more scalable and profitable business over the medium term. On the bottom line, we now expect to deliver full-year Adjusted EBITDA margin in the range of 250-350 basis points, while we continue to invest prudently in the most important initiatives and take cost actions that will benefit 2025 and beyond. With respect to the Q3, we expect revenue to be between $191 million and $194 million, or approximately 4% year-over-year growth at the midpoint. Assuming exchange rates remain constant, FX is expected to negatively impact Q3 revenue growth by 2 percentage points. On the bottom line, we are targeting 200-300 basis points of Adjusted EBITDA margin. We expect that the actions we are taking, which Greg outlined earlier, will meaningfully improve our expense structure going forward, as it will generate $25 million in annualized structural cost savings against our run rate. It is important to highlight that the remaining cost basis will increase due to compensation and benefits increases, additional reseller fees as our partnership revenue continues to grow, and further investments that support our strategic initiatives. Since we will begin implementing these actions immediately, we expect to have some redundant expenses in the back half of this year. Therefore, we will begin seeing the impact of these efforts in the first half of 2025. Ultimately, these actions are intended to deliver meaningful Adjusted EBITDA, which we expect to be in the range of $130 million-$150 million for the full year of 2026. As we've shared before, we set a long-term target of achieving 15%-20% Adjusted EBITDA margin. In the supplemental deck, we have provided some of the key building blocks to achieve the high end of that target sooner than planned. Specifically, we expect to generate 650 basis points in gross margin improvement, primarily through the instructor revenue share change that rolls out over the next 2 years and the continued mix shift to our higher-margin Udemy Business segment. We expect to deliver approximately 300 basis points from operational efficiency initiatives announced today, as well as another 750 basis points from FX leverage. We have several levers at our control to achieve significant expansion in Adjusted EBITDA well into the future. Udemy leadership and our board remain confident in the long-term opportunity for Udemy, which is reflected in the activity of our share repurchase program. We used $35 million in cash to buy back 3.8 million shares through a repurchase program during Q2. As of quarter-end, we had approximately $60 million remaining on our $150 million authorization, and we expect that we will continue opportunistically buying back shares. In closing, we are confident that the long-term opportunity available to us remains intact. We have made a strategic decision to focus on our most attractive large enterprise cohort and drive margin improvement faster to ensure we create economic value for all stakeholders. As always, we are committed to a disciplined and balanced approach to optimizing costs and improving efficiency and profitability over time while maintaining the flexibility to invest in future growth opportunities. So with that, we'll open up the call for your questions. Moderator. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. Our first question comes from Brett Knoblauch with Cantor Fitzgerald. Please go ahead. Hi, this is Thomas Shinske on for Brett. Thanks for taking my question. I guess on the consumer weakness, last quarter we kind of pointed out the North American weakness, but strength outside of North America. I guess any update to the trends there? Are we seeing continued consumer weakness and any idea when you think this might pick up? Hi, Tom. Thanks for the question. So a few things. I think the first is just a reminder that what we focus on most when it comes to consumer is our consumer vibrancy metrics. So really making sure that we are seeing the course creation and the updating that makes our solution and our platform so powerful. And we continue to see 5,000+ courses updated and created each month, which we're really happy to see. That being said, we did have a strong Q1 from a conversion perspective. We saw softness across Q2, and there wasn't really any area. It was really broadly just consumer spending. We have also, as you probably know, been pulling back on marketing spend over the past few years. One other thing I will add is we did implement some new low-cost marketing initiatives in the quarter, so you saw traffic jump up quite a bit to about 41 million, over 20% up year-over-year. So there's some puts and takes within consumer. Traffic is up. We've got some low-cost long-term marketing initiatives, but we did see softer conversion across the board from both a category of learning and from a regional perspective. I'll just add real quick that from a strategic standpoint, our focus is on investing into the enterprise and deploying resources to scale and take advantage of the massive opportunity in the enterprise. So as Sarah just alluded to, we've been pretty clear that we're not investing in the consume business in a material way to see significant growth. It's really about vibrancy. So you should expect as we go forward, the investment and where we apply our resources is going to largely be into the large enterprise. Awesome. Thank you. And then one more if I may. On the enterprise shift, I guess how will this shift affect existing SMB customers in terms of service continuity or changes in contracts? And I guess how will that also affect as we're looking at the NRR delta between the two NRRs that you guys disclosed? Should we start to see those go in different directions here? Should we start to see the 108% kind of stick and the lower one kind of drive further down? Or what are we seeing there? I'll take the first part of the question, and Sarah, I'll let you take the second. So I'm just going to broadly state that we've taken a very deliberate and data-driven approach to the decision of now reshaping our strategy to focus up market into the enterprise in a more concerted way. Now, that really is about us moderating, I would say, and adjusting to the headwinds and the tailwinds that we're seeing in our business. But by no stretch are we divesting and not going to serve the SMB opportunity to your customers. That absolutely is still going to be an important component of our overall strategy. So please take that away that we're going to take care of our SMB customers just as efficiently and ideally more effectively going forward than we have in the past. But the investment into our growth and the expansion opportunity is going to be in the enterprise. So SMB customers are going to be well taken care of. Go ahead, Sarah. Yeah, I would just add to that. In thinking about net dollar retention, we are going to still continue to support our SMB customers. Where we're moderating our spend is in things like generating pipeline and regions and segments on SMB side where that pipeline, it's inefficient to generate, it's inefficient to capture. So from a moderation perspective, a lot of it is in landing those new SMBs, but of course, we're always going to take good care of our customers. Awesome. Thank you. Thank you for the question. You're welcome. And our next question comes from Steven Sheldon with William Blair. Please go ahead. Hi, team. You've got Pat McIlwee on today. My first question, just quickly wanted to ask, so as we're seemingly on the cusp of hopefully improving macro environment, can you just talk a bit more about the decision to strategically refocus on larger enterprise customers now versus down the road? Yeah, it's a good question. Happy to take that. Based on our assessment of the environmental conditions we're operating in today, as well as projecting forward, and then coupling that with the assessment of all of the unit economic data that we have access to and our ability to build pipeline and everything we just mentioned in the release with respect to higher win rates and what have you, all data points for us lead to the decision that we've made to invest into the large enterprise. That is something that has not been taken lightly, obviously. It's got a lot of thought, and data has supported the decisions we've made. So the macroeconomic conditions, I would say, play some factor, but this is really about us playing to our strengths and allocating resources and really getting focused as an organization on what we can control. And what we can control is the investment into this segment, which we have historically had a disproportionate amount of revenue growth, win rates, and we compete very, very well in this segment. And that's also going to enable us to deliver what we talked about on the bottom line, which is material acceleration and expansion of our bottom line, which again is very much within our control. So that's a little bit of color around the decision process and what led us here. Right. Okay. Thanks, Greg. Then just now that it's been a couple of quarters since you implemented the change to the instructor payouts, can you just provide an update on how that has gone with instructors, how retention has held up, and particularly with those instructors on the higher end? Yeah. We are very pleased to say we continue to have had no top instructors opt out, and we expect that to continue. We are in constant communication with our instructors. Most recently, our Chief Product Officer had a session with them going more deeply into the product capabilities that we're going to be releasing, that we're moving into beta right now with. The sentiment coming out of that meeting was extremely positive. The comments and the dialogue continue to be very much upbeat. So really happy with the work our teams have done to bear hug and wrap our arms around our instructors, which are the lifeblood of our business, and making sure that the vibrancy of the conversation we're having with them continues to remain very, very positive. Great. That's helpful. Thank you. And our next question comes from Ryan MacDonald with Needham & Company. Please go ahead. Hi. Thanks for taking my questions. Greg, maybe first one for you on one of the areas of strategic focus in terms of increasing that focus on penetrating the existing large customer base. I think you noted that it was about a $1.5 billion revenue opportunity if you get to over 50% penetration there. What specifically can you do in the current environment to increase that penetration with those that you're obviously already embedded with? Obviously, there's been some volatility in the market with some competitors struggling. Is there any way you can use that to your advantage in the near term to help continue to consolidate share or maybe accelerate that consolidation of share occurring? Yeah. Good question, Ron. I I appreciate it. I'll touch on a couple of things. One is we continue to get strong data points from a variety of different sources that give us confidence that this shift to a skills-based economy and focus on learning and development continues to gain steam. Most recently, our own report, Workplace 2.0 report, saw 84% of our customers are focused on developing a skills-based infrastructure. Most recently, over the last week, Insight published a report that investment by leaders and prioritization and learning and development is up from 29% in 2023 to 50% in 2024. So we continue to see momentum in the direction of developing a capability around skills. And that also manifests in customer wins. We had a number of nice customer wins. One in particular I'll just call out. It was a large consumer products company that came to us needing a platform, a broad platform to consolidate onto. It was us against the usual suspects from a competitive perspective. And the requirements were much broader than just IT, including business skills, professional skills, management leadership skills, very much playing into our favor in that that's exactly what we've developed, the capability of platform that will serve an entire enterprise in their endeavor to transition to a skills-based organization. And so that ended up manifesting in a nice win for us, and this is a nice global partner. We've got a number of those that we could speak to, and that momentum continues to gain steam. And then to your question around maybe one of the folks in our category that has maybe had a difficult time of late, there's no question that we're very focused on taking advantage and maximizing those types of opportunities. And I won't go into great detail on that, but we've seen a number of wins this last quarter, consolidation wins, if you will, or takeaways as a result of those exact type of opportunities. And just one of the other many data points that gives us a lot of confidence in our ability to continue to win a disproportionate amount of the time in the large enterprise. Super helpful color there. I appreciate it. Sarah, maybe as a follow-up for you, as we think about this pathway now to $130 million-$150 million of Adjusted EBITDA in fiscal 2026, can you just help us understand maybe what the assumptions are around the sort of operating environment or maybe growth environment as you kind of work towards those targets? Do we need sort of the end markets across consumer and UB to just sort of remain relatively constant with where they're at today? Do you require an improvement, slowdown? Just kind of curious of maybe the environment or framework as you think about your pathway towards these targets. Yeah. Thanks for the question, Ryan. So how we're thinking about it is first on the UB side, UB, we believe is going to continue to be a very durable double-digit growth segment for us. As we focus on the enterprise, the unit economics on that side of the business are already much stronger than on the SMB side. The retention is stronger, the ability to upsell and sell in. Greg just spoke about it. The pipeline has been building faster, and that is going to be our fastest growing segment. The consumer side, there's a little bit less visibility. Ideally, we've spoken about over time running that flat to up a few points. That could take some time, right? We're going to be exiting this year in the low down probably 10%-11%, as we saw that's our expectation as we saw those conversion rates in the second half. We think that going forward, we're going to be able to stabilize that consumer business somewhat, drive the UB and continue to delivering double-digit, and really expand on that bottom line aggressively because we're focused on controlling the controllables, and we have continued to overdeliver on EBITDA quarter after quarter after quarter as a public company. So that's where our focus is. I know there's a lot of different scenarios from a top-line perspective when you think about our EBITDA targets and getting there faster, but just that's how we're thinking about it. The margin expansion that's going to come from about 650 basis points is going to be gross margin improvement. The vast majority of that is instructor revenue share change and mix shift. Then we've got these operating efficiency initiatives that we're undergoing right now that'll deliver another three points. Then another 7.5 of operating leverage, 750 basis points of operating leverage over the next few years. So that's how we're thinking about it. And we're just really focused on this new strategic focus. Excellent. Appreciate the additional context there. The next question comes from Terry Tillman with Truist Securities. Please go ahead. Hi. This is Dominique Menansala for Terry. Thanks for taking the question. So as we think about reacceleration for UB business in the back half of the year, how should we think about growth on quarterly breakdown, and what factors are driving the growth rate in each period? Yeah. I'll take that question. So what we're looking at with our updated guidance is exiting the year with UB in the low double digits. And from a net new or incremental ARR, that is what we will see in the Q4 step up a bit. But with this shift in our focus and with the changes we're going to be making, the changes we're going to be making to our go-to-market organization, that reacceleration of UB is going to take a little more time. Great. Thank you. And could you also provide an update on international operations in the APAC region? I'm just curious as to how the demand and execution in Japan has also held up. Yeah. Happy to take that. So we've talked in prior announcements that we did have some softness in that region. We've shored up leadership, feel good about the leadership we have in that region. And we continue to work through the execution aspect of what's happening in both Korea, Vietnam, and then, of course, Japan, which has been operating and executing well for some time. Nothing specific to call out. I feel good about what we're seeing. Rob now, our new CRO, is in the saddle, has been to Japan, spent a full week, I believe 10 days over there with customers and partners, came back with a lot of optimism around the upside potential there. So nothing material to call out with respect to APAC other than what I just mentioned. Great to hear. Thank you. And the next question comes from Josh Baer with Morgan Stanley. Please go ahead. Great. Thank you for the question. I was wondering if you could maybe help appreciate the bridge that we have, but as far as the annual margin expansion from 2024, either out to the 2026 EBITDA dollar guide or the 20% in 2027, any help in thinking about the path there? Yeah, Josh. Thanks for the question. In this focus on pulling our margin expansion forward, you should expect to see significant margin expansion in both 2025 and 2026. And so you can think about the gross margin, you know what that looks like in that expansion. And you could expect not perfectly, but roughly linear expansion over those few years. Okay. Got it. And then a follow-up with that in mind, so kind of talking about maybe 550 basis points of annual expansion or something like that to just get from 3.5 in 2024 to 20% in 2027, you're like 14, 15% in 2026. And you have an EBITDA range there, $130-$150. At the high end, that's over $1 billion in revenue, which is like a 15% growth CAGR. But Q4 is exiting at 3% growth. So I was just hoping you could talk a little bit more about what it's going to take to really accelerate from 3% exiting this year to 15% over the next couple of years. Yeah. So we're not putting any targets out for revenue growth rates in 2025 and 2026 right now. 2025 will happen at the end of this year. And there is a wide variety of potential revenue growth rates that will allow us to get to that $130 million-$150 million in EBITDA. And so when you're thinking about the growth for us, again, UB is going to remain a double-digit growth, but we are exiting this year about 12% growth rate. So just thinking about that and that accelerating over some period of time, but not quickly. Multiple scenarios for consumer. We're focused on the bottom line. We have a clear path to it. And we'll be providing more detail on 2025 and 2026 in the upcoming quarters. Okay. That's helpful. Thank you. Thank you, Sarah. Thanks, Josh. And the next question comes from Jeff Mueller with Baird. Please go ahead. Yeah. Thank you, Steven Pawlak, for Jeff. Under the new strategic plan, I guess, what can you do differently under the new model that you aren't already doing to drive upsell at existing clients besides just increased capacity? That's a good question. So I think a lot of it has to do with the focus we're going to apply and the process and the rigor that we're going to implement under Rob's leadership in terms of how we're landing and expanding into our class of enterprise customers. And we now have a broad platform. And the vast majority of our revenue to date has been through seat expansion, well, landing with our core product and then expanding core product seats. We're going to get much better at selling our additional products and capabilities, Udemy Business Pro, Udemy Business Leadership Academy, as well as the new set of products, AI products that are coming online in the back half of the year. So we're going to have more to sell. We're going to get really good at selling those products through our enterprise customers as well as accelerating seat expansion. Remember, we're less than 10% penetrated in the 5,000-plus customers we have in that segment. So there's tremendous opportunity for both seat expansion and new product expansion into this class of customers. And with the focus that we're going to be applying, with Rob's experience and expertise having done this for 25 years at high-growth companies like Adobe and SAP, I've got a lot of confidence. We have a lot of confidence in our ability to do just that. So focus is a great thing. We're applying focus now. With the win rates that we've seen in our enterprise customer segment, keep in mind, right now, we're growing at more than twice the rate at over twice the scale of any of our public peers. We're adding more customers every quarter into that segment than any of those folks in a material way. So we've got a position of strength that we're building off of, and we expect to extend that. Understood. Then with the reallocation of resources up market, is there a retraining that's involved there? And And sort of what's the timeline to maybe have those people reach full capacity if that's the case? We've already got a strong contingent of account executives selling into our enterprise and strategic accounts. Is there some additional training around sales process that Rob and team are going to be layering in? Yes, there is. But that's going to be on the fly and continuing to improve how we engage, land and expand, and sell value up to the C-suite as we continue to move through the months and quarters ahead. So yeah, I mean, there's no doubt there's an investment there, and that will be ongoing. But I've done this a long time and led go-to-market teams for a long time. And that's always an ongoing process, right? So that's always an evolution that organizations are going to continue to have. Appreciate the color. Thanks. You got it. Again, if you have a question, please press star, then one. Our next question comes from Noah Herman with JPMorgan. Please go ahead. Hey, Greg and Sarah. Thanks so much for taking the questions. So just on the point about optimizing the go-to-market organization, can you just elaborate if maybe you have to hire additional sales leadership to really execute the new go-to-market playbook as you're sort of reshuffling the deck a little bit? And if so, what is really the timeline for the transformation? Thanks. It's a good question. We don't expect material changes in leadership on the sales side to be able to execute our plan. Are we going to be reshaping the motion and augmenting processes to be able to execute and do what I've alluded to now, which is land and expand more efficiently and effectively into this segment? Yeah, we surely will. And so, yeah, I mean, there may be some small changes that we make as we move forward from a personnel standpoint leadership. But yeah, really, it's about focus for us and not trying to sell equally into all segments, but getting really, really good at focusing on and executing well into the enterprise segment. So Rob is in process of working with our teams to determine if we need to shift some heads from one segment to the other. And that'll be an ongoing process. And that's always an ongoing process. Where we see opportunity, we're going to laye r heads in. We're going to laye r account executives. And we're going to do that as aggressively as we can where the opportunity presents itself. And that's just a process that'll unfold over the next quarters and months ahead. Yeah. No, that's really helpful. And just maybe for Sarah, just on the guidance, understanding everything happening with the consumer segment, but for the large customer cohort, what exactly are you embedding in the guidance that's really changing on a sequential basis outside of the key initiatives that you're implementing? Was there any change that you saw in terms of pipeline or impact from macro that's really being baked into the guidance now? Thank you. Yeah. Thanks for the question. We have continued to see the macro be a challenging environment. And by that, I mean we have continued to see deals take longer to close. Some of them are a little bit smaller than they have been historically. It's taken a little bit longer to upsell. And so we have factored that into the guidance as well as the impact of this strategic shift up market. Both of those have been taken into consideration. We're really focused on driving that growth efficiently. You heard Greg talk about the LTV and the retention and the efficiencies of that enterprise segment. We're really focused on capturing that market really efficiently. Our next question comes from Devin Au with KeyBanc. Please go ahead. Hey. Thanks for taking my question. Just wanted to get more clarity on the conversion, free-to-paid conversion slowdown in consumer. When did you see kind of that conversion slowdown in the quarter? And thus far, this quarter, has it deteriorated? I just want to get more clarity on kind of what happened there just because you guys picked up the guide last quarter, but now you're seeing slowdown there. So just maybe help us bridge what happened there. Yeah. Thanks for the question, Devin. So we really did see Q1 was strong, as we stated, and we did bring up our expectations on consumer for the year. April was, I'm going to say, okay. And then we saw that deceleration or suppression of the conversion rates in May and June. We continue to see it be tough. And our expectation for the rest of the year is that it's going to remain tough, that the consumer environment is going to be hard. One thing I will mention is we do have a new head of consumer. And he's pulled together his plan along with the team. And so we're going to be launching some new strategic initiatives. But we don't want to press the pedal on spend. We've been pulling back that marketing spend. We're operating that business pretty thoughtfully until some of these strategic initiatives allow us to have an LTV that we feel comfortable spending into. But again, our focus right now is keeping consumers stable, that marketplace vibrancy, and really focusing on our new strategic initiatives. Helpful. And then just one quick follow-up on the enterprise side. I think you alluded to the recovery timeline of enterprise ARR growth is going to get pushed out. I mean, how much of that extent of timeline is driven by the changes that you're making on the go-to-market side, and how much of that is really just the step down that you're seeing in the macro environment? Thanks. Yeah. So we're not going to break down between those two categories. What I will say is, on our last call, we did say that we expect our incremental ARR to be pretty flat in Q2 and Q3 and then step up a bit in Q4. That is still our expectation, a little more muted with this focus on the focus up market. This is consistent with how we were seeing net new ARR throughout this year. This concludes our question and answer session. I would like to turn the conference back over to Greg Brown for any closing remarks. Yeah. I'd like to thank everybody for joining the call today. We look forward to the next update for Q3 in November. Thanks so much. The conference has now concluded. Thank you for attending.