Morning, everyone. I am Jason Tilchen, Senior Research Analyst at Canaccord Genuity covering educational technology, and it's my pleasure to welcome Hugo Sarrazin, Udemy's CEO. You joined the company in March after four years leading tech and product teams at UKG, and you have more than 20 years of experience in the consulting space at McKinsey as well. Hugo, thanks so much for joining us today. My pleasure. Thank you. Absolutely. As we were saying before, there's just so much that you've been doing since you joined the company a few months ago. Maybe just high level, if you could start by sharing a little bit about what attracted you to the role, what you've learned so far, and what you're most excited about going forward. Yeah, I'll do it quick. You know, as you said, I spent the last four years at UKG in an adjacent space, the human capital space. I grew that business, doubled it in that four years, rolling a bunch of AI products and many other new innovations. I spent a lot of time with CHROs, and I saw the issues that they had with their existing online content provider. There are a lot of really big issues as they try to move and reskill their workforce. Udemy, while it's the leader in the space, it's the biggest player. I saw that with AI, you could completely transform this experience. I was super excited to come to a company that had 17,000 large enterprise, 80 million learners, 250,000 courses, and say, what if I decided to make a hard pivot away from online content and online catalogs to being a real enterprise platform and use AI to transform the learner's experience and go after reskilling? This is kind of like a huge opportunity. Reskilling is not going away. AI is only accelerating the need for reskilling. There are some stats out there, you know, 92 million Americans will need to be reskilled because of AI in the next five years. Who's going to do that? It's not ChatGPT. Somebody has to be there, and I want to be that player. That's the excitement, and that's the opportunity. Yeah, and you touched on it, sort of the enterprise business that you have. It's very much over the past few years, since it's really started, been focused on this technological evolution and how that forces people to constantly change the day-to-day responsibilities of jobs, and you need someone to sort of reinforce those new skills. Gen AI has sort of come along over the past, call it 12-18 months, and really thrown a lot of gasoline on that fire. Maybe you could just talk to what the trend was to start with and then how you guys are evolving what you're doing in a little bit more detail to meet this AI demand. Yeah, so at a macro level, the workforce is constantly evolving. There are new roles that are created, and we've been able to meet many of those needs with traditional online content. With Gen AI, we just saw an acceleration, just a huge, huge, huge acceleration, and also an opportunity to do this very differently. Traditional online catalog was a wonderful innovation 15 years ago of changing the cost of distribution. That's it. It was great. You could now take a class at any point in time, and it was much more affordable. It didn't change the learner's experience. With AI, you now have the ability to gather information. That's why I'm making a real big deal around, like, we're a platform. We're not a catalog. We're becoming a platform. A platform has a lot of data. It goes deeper in the technology stack. If we take, for example, data from the HCM, your performance reviews, where it says, here's what you're missing, and I use that to end the flow of work at the moment, not just in case. Traditional online learning is just in case learning. If you move to just-in-time learning based on what you're trying to accomplish at that specific moment, and I bring you that knowledge in that context, you can transform the experience. Being an enterprise player, you have something else. I'll give you another example. If you're wondering today how many employees did a ChatGPT search or a Gemini search or a Cloud, that's great. They will do that. You're a CHRO, you still don't know what the skill of my organization is. You know they've answered a bunch of questions. If you're truly trying to take a workforce and move it from A to B, you need a bunch of tools. You need dashboards. You have the ability to confirm mastery of a skill. You need to confirm relevancy of a skill. All those tools are missing. If I can kind of come in and build the whole technology stack, I've got staying power. I've got the ability to really deliver an ROI. I've got the ability to transform people's lives and help organizations transform. That's the play on the B2B. I've got a different play on the B2C, and we can come back to that. It is a completely different, and I'm so excited. We're the first one who's made this move. Nobody else in our space has done that. That's why I'm literally comfortable saying we are exiting the online learning space, and we're moving into a new category that doesn't exist. We're an AI-enabled skill acceleration platform. I use the word skill because it's more than content. It is assessment, it's role plays, it's lab, it is demonstrating mastery. It's demonstrating relevancy. When you learn something, the fact that you knew it one day doesn't mean that it's still valid. What can I create to constantly demonstrate the relevancy of the skills you've mastered? That is worth so much money for a large enterprise. They'll pay for this, and it will pay a whole lot more than they pay for content. I want to touch on a lot of the different things that you're doing from a strategic and product standpoint to sort of shape and build that platform. I think maybe a lens that could be helpful to start to look at that is your recent results. You just reported Q2 results about two weeks ago. Yep. Maybe just talk to some of the different cross-currents. There was about a year ago an enterprise shift of the strategy there, how that's impacting revenue today versus some of the initiatives that you've put in place already since you joined the company. Yeah, so listen, this is a transition year. That was set up as a transition year. I came in March as a transition year. There were a few things on the enterprise side. We had changed the go-to-market motion. We moved people from the commercial segment to the enterprise for a whole host of good reasons. It takes time to do that. On the renewal, we were dealing with the COVID hangover, where we got a whole lot of folks to buy a whole lot of licenses. Now, three years later, they're revisiting that. We have pressure on that. On the consumer, we'll come to that. There were some organizational opportunities. Because of all of that, there was going to be a tough year of transition and a year where we're going to begin to see opportunity. I'm super excited. The results, we had the largest number of $100K deals, 40 plus. Really cool. We have a pipeline of $100K deals that has never been this big since COVID. We're seeing a lot of really, really good progress on the consumer side. We'll come back to that. Subscription growth, which was a shift we did, has been blockbuster. I mean, July was 60% year-over-year growth. We've never seen that. There's a lot of excitement in just the underlying foundation of the business. I'm leaving alone the fact that we've got new players, and we have a new product roadmap and new capabilities. The last thing I'll say to the part of your question of what did we change, I mean, very quickly, as I got here, I saw the opportunity to merchandise differently. We had a big catalog, a very big catalog, and that's what we were selling to everybody. When the team was saying, hey, we only get 10% penetration in the enterprise, well, yeah, that's not surprising. You're selling the big catalog, and the people who can afford the big catalog or the employees who need that will pay for that. What about willingness to pay and adapting it to different groups? Now we're beginning to create more SKUs, so we doubled the number of SKUs, and we went after the AI SKUs. The AI SKUs obviously are really in demand right now. I'm pretty sure by the end of the year, 30% of our pipeline will be these AI SKUs. I've doubled the number of SKUs in no time. No time. There are more SKUs to be created, and there's also more partnerships. We're beginning to announce a number of partnerships. You saw the Indeed one. Super exciting. The conversion rate, like, we're delivering our product at the moment where people are searching for jobs. I mean, the conversion rate is significantly higher than a Google keyword search. We've got that rolled out. We have partnerships now with Glean. Think about, like, a player who's consuming all the internal content and then putting it in context. I'm in the back delivering in the flow of work these amazing reskilling experiences. Partnership with Workera, where we are winning deals with customers, where we're doing assessment, providing enablement and reskilling, and then confirming... The feedback loop. We got the feedback loop. I mean, it's a different business that is beginning to get assembled. It's going to be, I mean, we're not, again, I keep saying we're not an online content player. We're going to be an enterprise player and a B2C subscription player. On the point about merchandising, you sort of identified that as some of the low-hanging fruit. On the last earnings call, you shared some really interesting anecdotes about some of the early customer wins you're seeing so far, just a few months after introducing some of those changes. Maybe you could just share one or two of those. I'll tell you one from this week. I was involved. It's one of the largest technology players. We had 8,000 licensed, traditional licensed, the big license. We're having a conversation with the CHRO, not the L&D leader, the CHRO and the Chief Technology Officer. They want to have an AI fluency wall-to-wall, 25,000 employees. It's 17,000 new licenses we're going to end up selling. That would not have been possible before that because it makes no sense to offer somebody in marketing the big catalog. Now, if you kind of come back and say, I've got something tailor-made for people in marketing, tailor-made for people in finance, and obviously, AI is a pretty good one. That's an example just from this week. There's more. The other one I'll give you, we didn't touch on this, but we've introduced the MCP server. We're the first one to do so. The MCP server, I'll describe it very briefly, then I'll give you another example. The MCP server is the ability to not only share with API the table of content of what we have, but the actual course inside. What's inside? It's context. If we can now bring that into the LLM that large enterprises are building for themselves, like, we're talking to a lot, we're really big in the professional service space. Every professional service organization has their own version of an LLM that is trained on their proprietary data, and they want to have access to our content just in time. Now, my second example, to get back to that, we had a deal go from zero to sign more than a million, three weeks, ELA because of the MCP. There you go. That is just one of a number of different things we're doing for a product. We're going to have plenty, but this one, we announced it literally, like, we've been talking to our customer in advance. We launch a beta, I think it's three weeks or maybe four weeks. It's fully packed up. Everywhere we go and we talk about MCP, we're the only one, because again, we're not a content player. We're a platform player. They see the value. They were like, oh my god, this is going to help me achieve my goals. Yeah, we're going to ride this wave. That's why, for those investors who are interested in getting exposure to an AI player in the application stack, we're not a frontier model. We're above that. I mean, this is a good play. You mentioned expanding that platform beyond just the content, which is a key part of what you're doing. You've introduced a number of new things over the past year or so, role-play simulations, things to help with soft skills. You made an acquisition recently. Just wondering if you could share what you're most excited about from a product standpoint going forward. Yeah, so the MCP server, clearly a game changer, because now we're having a very different type of conversation on how we augment the traditional LLMs. The role play you touched on, we rolled out maybe eight weeks ago a role play. Essentially, creators in our marketplace can create a role play. We created 7,000 of them. We have more than the entire industry combined. It's pretty wild. These role plays allow you to do different things. I'll give you an example. If you're a new manager, if you've never done a performance review, you can practice your performance review before you do your first performance review. Wouldn't that be great? Let's make it even better. You can consume the HR policy of your company and now know in context what is the right performance dialogue you should have. That's cool. We can take the same role play capability, and now we can point it at a sales team. That's like, OK, here are the, when you do the onboarding of a new account executive, here's the product description practice of selling motion. Now I can accelerate the time to ramp of an AE. That's worth a huge amount of money for a leader of a go-to-market organization. Even better, I'm not going after the L&D budget anymore. I'm going after the sales ops budget. I had a conversation with a call center. The CEO operates the largest outsourced call center. He trains 20,000 agents every month. He's like, can I use your role play to accelerate the speed at which I onboard these 20,000 people who are trained in one way for one client, trained in another way for another one? The opportunities around this are fabulous. Let me do the last one just to kind of complete the play. We have a marketplace. It's a wonderful thing. It's a competitive advantage. It allows us to be super dynamic. Great. We still do that in AI. In AI, it's super important to be able to move fast, and everybody else who's in the publishing model goes slow. Now what's really, really, really interesting is we created tools for the learners. We're now putting AI tools for the learner. We had tools for the creators, the instructor. We're putting AI tools for the instructor. Now we're taking the same AI tools for the instructor, and we're creating a new product. Didn't exist. I don't know why we never did this, but we never. We can offer the enterprise a creator edition of the platform. They get access to the same tool the instructors. Now they can create some very custom content for their own organization. Guess what? Once you have your own content in there, you have agency over the outcome. Create stickiness. You create stickiness. I'm so excited about what we are now creating and the optionality that's embedded in there. It's a very, very different company, even in the short five months I've been here. Yeah, absolutely. Maybe before jumping to the consumer side, one way to wrap up the conversation around enterprise, you've guided to roughly sort of mid-single-digit growth for the enterprise business in fiscal 2025. You're not going to give guidance for next year today, but maybe you could just talk to the progression that you're seeing as you introduce these as the conversations, the pipeline's building, how you expect that enterprise growth trajectory to sort of evolve as you exit this year and go to 2026. Yeah, there's a few things. One, we're getting through the COVID cohort. The downward, I mean, this year is the largest year of renewal in our history, absolute dollar,% dollar. That puts a lot of pressure. Every time we have a renewal conversation, there's always a risk. The cohort from COVID was sold in a different way. It was benefits. That goes away, and that pressure goes away. We're going to see net ARR for the second half of the year be substantially higher. We're going to see the NDRR stabilize and start to pick up. In 2026, it will kind of go into the area that you expect for an enterprise player. OK, very helpful. The company's DNA is in that consumer marketplace selling content to individuals. It's an important part of what you do on the enterprise side as well. That business has sort of been in a little bit of a structural decline as you focused on enterprise over the last few years. Maybe you could just talk to, A, what are some of the overarching trends on the consumer side? You mentioned subscriptions being an important part of what you're doing. I think you maybe teased in our prior discussion that you made a press release just as we were starting our conversation. Just as we should. Maybe you could talk about that as well. Yeah, so I mean, the simple story, our history is consumer. We got into the B2B, and we made a lot of focus. It's now $500 million of our $800 million of revenue. Internally, we had a student body shift left. You know, when everybody says this is the shiny thing, everybody goes there. We lost our way on the consumer. We didn't pay attention. When I showed up, I couldn't find anybody who was responsible for consumer. There were six people, and they were always doing this part-time. One of the things we've done is we created now a team that's dedicated on consumer so that we can stop the self-inflicted decline. We announced this morning that we have a new President for Consumer who, you know, is one throat to choke on that. He has tons of experience driving subscription businesses across media, e-commerce, marketplace. The perfect guy. I'm really, really excited. He's going to make a big, big difference. That's kind of one big change, like a really focused organization on this with transparency of data and focus on execution. Second is we were trying to monetize for a bunch of good historical reasons at a very, very low price. We ended up with an LTV to CAC that was a bit challenging. It had been challenging for many, many years. Therefore, you know, one of the things I thought would be prudent is to kind of make an emphasis towards subscription, where the LTV is substantially higher. We now have a focus on that. We've grown our subscription business incredibly well. We announced at the end of Q2 we had 200,000 subscribers. We grew it in July at 60% year over year. We said we would hit 250,000 by the end of the year. I am going to blow through that number. Blow through that number. Watch out, the press release will come at the right time. I am not nervous at all. We gave some guidance of 500,000 for next year. We're also going to hit that. That's working really, really well. The quality of the subscriber product today is at its lowest point it will ever be, because we're going to start to layer a bunch of additional capabilities and monetization opportunity. The subscription product is only going to get better, and the ASP that you have for that product is going up. Interesting. We'll be keeping a close eye on the developments there. The company had put out a margin target for fiscal 2027 of 20%. Two questions related to that. One, can you just share a little bit about what the sort of building blocks are to get you from where you are this year to that 20% target, and also maybe how you think the trajectory may change a little bit as you invest in all these different product and strategic initiatives that we've talked about so far today? Yeah, we've delivered 14 quarters in a row above or on our EBITDA target. I think from an operation point of view, our ability to hit the EBITDA number is really, really, really strong. Year to date, $50 million, and we're guiding to almost $90 million. I mean, we're going to do that. This is in our DNA, and we can do that very well. We've got some additional improvement that we can do in the business, and we're going to pursue that. It's a bit premature to guide for next year. You're probably getting a sense from the way I'm talking that there's going to be maybe a new focus around making sure we capture the growth that's available to us in the AI space and in the subscription space. We're going to come up with the right plan for 2026 that balances growth and profitability. We'll have an opportunity that we haven't landed on a date, but we'll have an investor date, and we'll share the overall plan. OK, very helpful. We just have a few more minutes. I just want to first check with the audience and see if there's any questions from anyone for Hugo. I've got plenty, if not. One thing I'm curious about, you ended last quarter with about $400 million of cash on the balance sheet. Can you just talk to your capital allocation strategy? Are there any other sort of deals maybe on the horizon? What your philosophy is around what you would be interested in buying if there was something? Yeah, so we have almost $400 million. You also may have noticed we added a $200 million revolver to give us a lot of flexibility. I have quite a lot of experience in M&A. At UKG, we did six while I was there. While at McKinsey, a third of my time in the last decade or so was with private equity, buying things in and around technology. I am very comfortable with this. In terms of how we're thinking about this, we're going to be prudent. We need to find opportunities that are accretive to our strategy that help us accelerate becoming an AI-enabled skill acceleration platform to reskill the workforce of the future. There are some technology capabilities that may be helpful, and that may lead us down the path of acquiring. There are some geographies where maybe we didn't touch on this, but there are places like Japan right now with double-digit growth, Japan. We're the unquestionable market leader. Can we recreate the dynamic in a few other markets? That would be interesting because when you are such a leader, you have returns to scale that are pretty attractive. There are some markets where we're pretty close. That could be an interesting play. There are some adjacent categories that we're not in that may be different frontline workers, where there's some natural subscription and recurring revenues that we could add to the mix. There are always some industry plays that we can look at. The most important thing is we're going to look at this in a way that is holistic and make sure that it really supports the strategy we're trying to do. Yeah, all these demand trends are global trends. They're not just exclusive to the U.S. There is certainly a huge opportunity elsewhere to attack them and find solutions for companies. I'm curious, if there's one thing we touched on so much today about the business, about the consumer side, about the enterprise side, if there's one thing that you want people to take away from this discussion, what would it be? Yeah, it won't be a surprise. We're pivoting away from being an online catalog to being an AI-enabled skill acceleration platform. That's the number one thing. With that comes all sorts of new capability, all sorts of new opportunity. I would give you a second one. If you want to think about how to measure our progress moving forward, I'll give you a simple way. It's the way internally we're looking at it. You have the enterprise business, its growth. What growth are we delivering there, and can we bring it back to double-digit growth? Second, subscriber growth. The sum of those two today is almost 10% today. It's a different way of looking. There's a drag on the transactional consumer business, and we're going to keep that drag because we're trying to reposition the business away. Focusing on enterprise growth, subscription growth, and then we didn't touch on, but we've got a bunch of ancillary revenues that we're layering in the ad business, and then the other one, I mean, the voucher one. Think of this one. The voucher, 1.4 million people are taking certification training on CompTIA alone. The ASP of that is anywhere between $20 and $30. When we add the test voucher, 3x. Much higher margin. 3x. It's amazing. We just launched that last week, so it's going to roll it through. It's going to roll through. We got 60 different plays like this. CompTIA is the first one. A lot of exciting stuff to keep track of. Hugo, thanks so much for joining us today, and good luck in the second half of the year. Thank you. Appreciate it. Yeah, bye. Thanks.