Coursera, Inc. (NYSE:COUR) Q3 2023 Earnings Call Transcript

Coursera, Inc. (NYSE:COUR) Q3 2023 Earnings Call Transcript October 26, 2023

Coursera, Inc. beats earnings expectations. Reported EPS is $-0.01, expectations were $-0.07.

Operator: Ladies and gentlemen, thank you for standing by. And welcome to Coursera Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode and please be advised that this call is being recorded. After the speaker’s prepared remarks, there will be a question-and-answer session. [Operator Instructions] I’d like to turn the call over to Cam Carey, Head of Investor Relations. Mr. Carey, you may begin.

Cam Carey: Hi, everyone. And thank you for joining our Q3 earnings conference call. With me today is Jeff Maggioncalda, Coursera’s Chief Executive Officer; and Ken Hahn, our Chief Financial Officer. Following their prepared remarks, we will open the call for questions. Our press release including financial tables was issued after market close and is posted on our Investor Relations website located at investor.coursera.com, where this call is being simultaneously webcast and where versions of our prepared remarks and supplemental slides are available. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP measures to the most directly comparable GAAP measure can be found in today’s press release and supplemental presentation which are distributed and available to the public through our Investor Relations website.

Please note all growth percentages refer to year-over-year change unless otherwise specified. Additionally, all statements made during this call relating to future results and events are forward-looking statements based on current expectations and beliefs. These forward-looking statements include, but are not limited to statements regarding the potential impacts of trends affecting our industry and business and factors affecting the same, the anticipated benefits and impact of our strategic assets and platform advantages, our ecosystem, platform, content and partner relationships, our anticipated plans and the anticipated advantages and benefits thereof, our strategy and priorities, our share repurchase program and cash and capital allocation and our vision, business model, mission, opportunities, outlook, financial business and otherwise and future intentions.

Actual results and events could differ materially from those expressed or implied in these forward-looking statements due to a number of risks and uncertainties, including those discussed in our press release, SEC filings and supplemental materials. These forward-looking statements are not guarantees of future performance or plans and investors should not place undue reliance on them. We assume no obligation to update our forward-looking statements except as required by law. And with that, I’d like to turn it over to Jeff.

Jeff Maggioncalda: Thanks, Cam, and good afternoon, everyone. It’s great to be with you all. I am pleased to share that we delivered another strong set of results. We grew revenue 21% over the prior year, driven by 27% growth in our Consumer segment. We welcome 6.5 million new learners to our platform, our highest third quarter since the pandemic tailwinds of 2020. And once again, we are raising our outlook on revenue and adjusted EBITDA as our business model scales. We are delivering these results against the backdrop of a dynamic macro environment, which has reinforced my confidence in our vision for the future of higher education, the strategic assets that differentiate our ecosystem with quality, trust and world-class branded credentials and the global need for a platform like Coursera.

We have a lot to cover today, so let’s jump in, starting with the long-term trends that are driving our business. The first trend is digital transformation. For many years, the combined forces of technology, globalization and automation have been accelerating the transformation of every institution in our society. More recently, the explosive adoption of generative AI is beginning to demonstrate how profoundly this new general-purpose technology will reshape how we live, learn and work. A McKinsey global survey on AI published in August showed that nearly 80% of respondents, which included participants from all regions, industries and seniority levels, reportedly some exposure to generative AI, either for work or outside of work. Ultimately, we believe increased demand for education will be driven by an unprecedented rate of change as every facet of our society, including businesses, governments and academic institutions, grapples with the need to improve their productivity and human capital in this new world of generative AI.

This change in our society brings me to the second major trend which is skills development. The rapid adoption of new technologies, tools and processes, creates an urgent need for organizations and individuals to remain competitive. The same McKinsey survey found that high-performing organizations expect to re-skill more than 30% of their workforces over the next three years as a result of AI adoption. For businesses, we believe that learning and development and HR leaders will play a crucial role in building organizational agility and implementing programs to take advantage of growth opportunities, product innovations and productivity measures. This will include rapidly deploying new technologies, adapting to change and unlocking new talent and skills.

But businesses are not alone, governments will need to deliver job training programs at the speed and scale required to keep pace with job dislocation and unemployment changes. As many of the world’s largest employers, they will also need to transform their government workforces in order to unlock the value and efficiency gains enabled by generative AI. And academic institutions, from single campuses to entire systems of higher education will reckon with how they changed the way professors teach, the way the students learn and the courses that they must offer to meet the needs of graduates and the employers who hire them. Arguably, generative AI will have a larger and more enduring impact on higher education than COVID did. A recent study by researchers at Princeton, Penn and NYU assessed the impact that generative AI would have on more than 800 job roles.

They concluded that 11 of the top 13 job roles that will be most impacted by generative AI are college and university professors in post-secondary education. And this leads me to the third trend driving our business, the transformation of higher education. Our vision for the future of higher education requires cross-sector collaboration between academic institutions, employers and government, to meet the needs and pace of a fast-changing economy. In past quarters, I have discussed our growing number of partnerships with international institutions including entire countries, looking to up level their higher education systems. This quarter, I am excited to share an innovative blueprint for reimagining higher education in one of the largest and fastest-growing states in the U.S. Coursera has partnered with the University of Texas System to launch one of the most comprehensive industry-recognized micro-credential programs in the country.

The forward-thinking leadership of the UT system believes that micro-credentials are a powerful and effective tool in producing graduates who are both broadly educated and specifically skilled, giving them a competitive edge in the labor market while also enhancing their overall student experience. Additionally, they are focused on investing in programs that can meet the state’s evolving workforce demands, viewing the system as an engine for the local economy. What began as a pilot in 2022 has expanded into a system-wide project? The program provides access to over 240,000 learners including students, faculty and staff, as well as alumni. It encompasses nine UT campuses, all of which have access to the Career Academy on Coursera, which now includes more than 40 entry-level professional certificates created by the world’s most respected companies.

And these certificates are being integrated into the curriculum and often offered as career electives for credit, for students pursuing traditional degrees. We designed Career Academy to be a turnkey, scalable solution for our customers and the value of this offering is continuously enhanced every time that we have launched a new certificate, secure additional credit recommendations and forge new pathways between open course certificates and college degrees. Our partnership with Texas brings together the vision of Coursera’s three-sided ecosystem, including broad, affordable access to high quality education for learners, the powerful combination of universities and industry experts as educators, and the collaboration with employers, government and academic institutions to enable innovation at the scale of an entire state or an entire nation.

We are able to pursue these partnerships because of our strategic assets and platform advantages, which include our leading educator partners who created a broad catalog of trusted and branded content and credentials, our global reach to individuals and institutions, which encompasses businesses, governments and campuses, as well as our data technology and AI advancements that we leverage across our platform. Now let’s cover some of our recent progress for each of these categories. First, educator partners. In a world where machines are increasingly capable of producing content at scale without guard rails for quality and accuracy, we believe trusted institutions will continue to play a critical role in education. Coursera is the trusted steward of more than 300 of the world’s top university and industry brands, who continue to expand rapidly their catalog on our platform.

I’d like to begin with updates to our portfolio of entry-level professional certificates which we leverage as a strategic asset across every segment of our platform, driving consumer growth, enabling governments in campuses like Texas to embed micro-credentials into their curriculum with Career Academy and allowing students to begin and earn credit towards a college degree with the regional credit recommendations and a growing number of degree pathways to bachelor’s and master’s programs. Today we have 44 entry-level professional certificates live on the platform, including new titles from Microsoft and Tableau that launched during the quarter. And earlier this month, we were proud to welcome our first entry-level professional certificate from Amazon Web Services in the fast-growing field of cloud consulting.

Our expanding relationship with AWS seeks to serve our learners at every stage of their career. The new training program provides the foundational skills required to start or switch into a cloud career and it is complemented by AWS’ existing catalog of intermediate and advanced content already on Coursera. Now let’s discuss degrees. We announced four new degree programs in Q3 from new and existing partners. They include a Master of Advanced Study and Engineering from the University of California, Berkeley, the top ranked public university in the U.S. A Master of Engineering and Computer Engineering from Dartmouth, the university’s first fully online degree and the first online Ivy League master’s degree in the field, which aims to prepare engineering leaders in emerging technologies and combat talent shortages associated with the CHIPS ACT, as well as two additional master’s degree programs from Northeastern University in Data Analytics Engineering and Information Systems.

Both Northeastern programs provide performance-based admissions pathways for learners, where eligible completion of open content on Coursera simply scoring a B or better on two initial courses, can reduce historical barriers to starting a degree. We believe that the college degree needs to be more accessible, affordable and relevant, and we have spent much of this year laying the groundwork for how our platform can uniquely address the needs of working adults, collaborating with partners committed to transforming the degree experience. Coursera is pioneering a new type of degree that we call Pathway Degrees that are designed to meet the needs of working adults. These degrees incorporate credit pathways where the learning in open content on Coursera can count as academic credit towards a college degree program, admissions pathways, where performance in open content on Coursera can unlock admissions into a college degree program and progress pathways, where completion of content on Coursera can count as completion of course work in a college degree program.

One example of this is our recently launched degree programs with Illinois Tech. We are excited to share that as of September, Illinois Tech has agreed to create more than 10 pathways from our industry content into two master’s degree programs. The industry content includes several of our best performing entry-level and advanced professional certificates from Google, IBM and more. And these micro-credentials have over 4 million cumulative historical enrollments. That recaps our progress with our catalog and educator partners, so now let’s move to our second major advantage, the global reach of our platform. For institutions, we increased the number of Paid Enterprise Customers to over 1,300, with many of the recent additions driven by the momentum we are seeing in our campus vertical.

As I highlighted before, we added 6.5 million new registered learners, growing our global learner base to 136 million by the end of September. Growth continued to be broad-based, with double-digit percentage increases across all regions. This year, we have been investing in a number of strategic priorities focused on enhancing the localized learner and customer experience on Coursera, which is where I’d like to start the discussion of our third advantage, the ongoing product innovation across our platform. First, is our AI-powered language translation initiative. We believe that high quality education from the world leading experts should be accessible to learners anywhere in the world no matter what language they speak. For much of the world, access to educational opportunities is often limited to those who speak English.

As emerging technologies create new skill requirements and the world’s talent becomes more globalized, language barriers create impediments to collaboration, productivity and economic opportunity. Our strategy is to use technology to dramatically reduce the time and cost of producing high quality, trusted content at scale. And remarkable advancements in the quality of machine learning translations can now translate courses at a fraction of both the cost and speed of using conventional human methods. We set an ambitious target at the beginning of this year to deliver more than 2,000 full course translations into seven of the world’s most commonly spoken languages. I am pleased to share that we accelerated our efforts, launching twice our original goal, with more than 4,000 full course translations in Spanish, Arabic, Brazilian, Portuguese, French, German, Bahasa Indonesia and Thai.

The newly translated courses include the full learner experience like lecture video subtitles, course readings, assessments, discussion prompts, the user interface and more. And we have created a simple toggle experience providing learners with the option to practice skills in their local language or use subtitles for English courses to advance their proficiency in specific workplace skills. I have been inspired by the team’s progress but we are just getting started. We expect to have more than 4,000 courses translated into more than 15 languages by the end of this year and we see many other ways that generative AI can reduce language barriers in addition to the translation of written words. Second, I’d like to provide an update on our credit recommendation initiative.

We have been actively pursuing American Council on Education or ACE credit recommendations for many of our most popular courses and credentials, specifically our catalog of entry-level professional certificates. Achieving these credit recommendation distinctions, which is possible due to the quality of our catalog, has enabled us to pursue many of the strategic highlights I have shared today including large, system-wide deployments of Coursera for Campus, as well as a growing number of pathways from our Consumer segment into our Degrees segment. I am excited to share that the foundation for International Business Administration Accreditation has certified 12 professional certificates from Google and IBM with European Credit Transfer and Accumulation System or ECTS Credit Recommendations.

This allows ministries, higher education institutions and students to accept and transfer university credit for eligible industry micro-credentials on Coursera at institutions across 49 member nations. It’s an important milestone in our ongoing regional efforts to bridge the combined expertise of university and industry for the benefit of learners, employers and academic institutions. Finally, we continue to make progress in our efforts to integrate generative AI into our product experience. Coursera Coach, our virtual learning assistant, launched as beta version to Coursera Plus subscribers during Q2. This quarter we expanded our beta program to include Enterprise customers while embedding the Coach interface into additional areas of the learner experience.

We remain excited about the potential for this technology to dramatically enhance the personalized learning and discovery experience on Coursera and feedback from beta participants remains encouraging. Specifically, our distinct ability to ground these technologies in the expert-trusted content on Coursera. To wrap up my opening remarks, let me recap several key priorities that we are focused on in the years ahead. First, we are rapidly enhancing our catalog of entry-level professional certificates, including new partners, roles, languages and credit recommendations. Second, we are sourcing and launching new degree programs, especially those tailored to meet the needs of working adults, including flexibility, affordability and streamlined pathways between our consumer micro-credentials and college degrees.

Third, we are focused on growing our Enterprise segment across our business, Government and Campus verticals. And fourth, we are harnessing AI technologies to deepen our advantages, while reimagining the platform experience for the benefit of our learners, customers and educator partners and we are accomplishing these priorities while delivering more scale and operating leverage over time. I’d like to now turn it over to Ken. Ken, please go ahead.

Ken Hahn: Thank you, Jeff, and good afternoon, everyone. I am pleased to report another strong quarter of performance for Coursera. Our diversified platform continues to serve us well, providing multiple growth opportunities and producing financial and operational leverage as we scale. As I will discuss shortly, this is once again leading us to raise our revenue and adjusted EBITDA margin targets for the full year. Our third quarter performance is highlighted by the durable demand, solid execution and increased confidence associated with our Consumer segment. We believe we are in the early stages of a long-term trend in education, where the units of learning are breaking down into more affordable, accessible and relevant credentials that can unlock a job or lead towards a college degree.

This trend in combination with our assets is fueling our Consumer results. And we are actively driving this strategy with key investments, growing our catalog of trusted brands, building localized payment infrastructure in international markets and deploying new technologies, including initiatives like our AI translation efforts, to better serve the millions of learners coming to Coursera for high quality job relevant education. In Q3 we generated total revenue of $165.5 million, which was up 21% from a year ago. Growth was driven by double-digit increases across all three of our segments, with particular strength in consumer. Please note that for the remainder of the call as I review our business performance and outlook, I will discuss our non-GAAP financial measures unless otherwise noted.

Additionally, I’d like to remind you that our results in 2023, particularly the year-over-year comparisons to gross profit and operating expenses continue to reflect the shift in income statement line items associated with the beginning-of-year contract extension with our largest industry partner. We would discussed this shift thoroughly in our prior earnings calls and throughout the year, so again, just a reminder. Removing the noise from the shift in P&L geography, we are driving strong bottomline EBITDA performance on a year-over-year basis. Cost of revenue increased by 14 points as a percentage of revenue, while total OpEx decreased 15 points compared to year-ago results and we are increasing our guidance for annual EBITDA margin as I will soon share.

For the third quarter, gross profit was $84.9 million and a 51% gross margin, which was down 14 points from the prior year period. Total operating expense was $94.5 million or 57% of revenue, down 15 points from 72% in the prior year period. Looking at the P&L line item components of OpEx, sales and marketing expense represented 32% of total revenue, down 6 points. Research and development expense was 16% of revenue, down 5 points. And general and administrative expense was 10% of revenue, down 4 points. Net loss was $2.1 million or 1.3% of revenue and adjusted EBITDA was a loss of $5.3 million or 3.2% of revenue. The better-than-anticipated result was due to both overall revenue growth and strong operating expense discipline and I continue to be pleased with our ability to invest in multiple growth initiatives while delivering leverage and scale.

Turning to cash performance and the balance sheet. Free cash flow was $15.6 million during the quarter, compared to $1.3 million a year ago, driven by overall operating performance, as well as some working capital benefits. We ended the quarter with approximately $721 million of unrestricted cash, cash equivalents and marketable securities with no debt. Additionally, we continue to make progress on the share repurchase program announced on our April call. During the third quarter, we bought back approximately 300,000 shares, an average price of $12.67 per share. This amount in combination with the strong initial traction we made in the second quarter has allowed us to repurchase a total of $58.5 million to-date. Finally, I want to remind you that our capital allocation priorities remain unchanged.

We are focused on both investments in our organic growth along with the resilience and the strategic optionality provided by a strong balance sheet to win our large and early markets. Next, let’s discuss the performance of our segments in more detail. Consumer revenue was $99 million, up 27% from the prior year on solid execution. Demand remained strong for our growing portfolio of entry-level professional certificates including a number of successful recent launches from Google, IBM and Microsoft. As Jeff mentioned, our top-of-funnel activity remains robust with 6.5 million new registered learners coming to Coursera. Segment gross profit was $51.8 million or 52% of consumer revenue compared to 73% a year ago, reflecting the impact associated with the industry partner contract extension, which is most pronounced in Consumer.

We believe our strategic bet on high quality credentials created by the world’s leading brands distinguishes our Consumer segment and has created a differentiated offering for learners around the globe. And we intend to invest into this tailwind to create more value for our learners, expand our new and existing partners and reinforce the competitive assets and operational leverage that also benefit our other segments. Now, let’s move to Enterprise. Enterprise revenue was $54.9 million, up 14% from a year ago on growth in each of our three-segment verticals. Segment gross profit was $37.1 million or 68% of Enterprise revenue, compared to 71% a year ago. The total number of Paid Enterprise Customers increased to 1,315, up 21% from a year ago.

And our Net Retention Rate for Paid Enterprise Customers was 99%. Our commentary in Enterprise has remained consistent this year, with ongoing pressure in our Coursera for Business vertical offset by momentum in our newer verticals. While we await more clarity on corporate learning budgets, we are leaning into the benefits of our diversification of Government and Campus where the customer use cases like the Texas example, Jeff just discussed, are particularly well suited for our branded job-relevant credentials. And finally, our Degrees segment. Degrees revenue was $11.7 million, up 13% from year ago on growing student enrollments. The total number of Degrees students grew 15% from a year ago to 20,432. As a reminder, there is no content cost attributable to the Degrees segment, so Degrees segment gross margin was 100% of revenue.

As Jeff discussed, our progress in Degrees remains promising as we prioritize the foundational work required to fundamentally transform access and affordability in online Degrees, using the capabilities of our platform and our ecosystem partners. This requires sourcing and launching new programs that leverage our platform’s unique assets, while increasingly creating pathways between our Consumer segment and our Degree programs. Today, more than a dozen of our most popular certificates offer credit pathways into multiple Degree programs and we are focused on building more linkages from micro-credentials where we benefit from scale. Now, onto our financial outlook. For Q4, we are expecting revenue to be in the range of $161 million to $165 million, driven by our increased confidence in the durable demand we continue to see in our Consumer segment.

While a relatively small contribution on dollar basis, we don’t expect Degrees growth trajectory to be linear quarter-to-quarter and now anticipate mid-single-digit growth in Q4. We remain focused on enabling our pathway degree strategy while closely monitoring cohort recruitment and student persistence, particularly for newly launched programs with more flexible structures. As a reminder, we will share updated views on segment-specific growth expectations for full year 2024 on the February call following the completion of our annual planning process. As we have discussed, since the beginning of the year, fourth quarter adjusted EBITDA is expected to be breakeven. As a relatively new public company, we look forward to achieving this milestone and delivering on our accelerated commitment to profitability.

Turning to the full year, we are increasing our outlook for both revenue and adjusted EBITDA. We now anticipate revenue to be in the range of $628 million to $632 million, representing approximately 20% growth at the midpoint of the range. Our full year revenue outlook has increased by $30 million since the start of the year and $10 million since the prior quarter. For adjusted EBITDA, we are now expecting a reduced loss of approximately $15.7 million or negative 2.5% adjusted EBITDA margin at the midpoint of the revenue guidance range. As you know, our consistent practice, both pre-public and as a public company is to set an annual EBITDA margin target at the beginning of the year and work within that plan based on the trajectory of the business.

This year, we have been able to drive both topline performance and operating efficiency for revised guidance improvement of 250 basis points in a full year adjusted EBITDA margin from our initial 2023 target of negative 5%. Finally, I want to reiterate our expectation of being EBITDA positive for full year 2024 and intend to share more detail regarding next year’s annual margin target on the February call. We are operating a diversified growth company, delivering high quality learning through multiple channels. We are producing this growth with consistently increasing scale and leverage resulting from the complementary benefits of our three segments. And we are investing in our long-term strategy from a position of financial strength, allowing us the resilience and the strategic flexibility to fundamentally transform the education market.

I will now turn the call back to Jeff for closing comments.

Jeff Maggioncalda: Thanks, Ken. Our mission has always been deeply rooted in our business. So to wrap up today’s remarks, I’d like to highlight one additional Enterprise customer that demonstrates how our platform is impacting the next generation of talent. Like many states across the country, emerging technologies are reshaping the labor market in Nevada, fostering new industries, creating job opportunities and changing in-demand skill sets. I am proud to share that Coursera for Government has partnered with the Nevada Department of Employment, Training and Rehabilitation to launch LearnNV, a new statewide program that will provide free job training to tens of thousands of unemployed and underemployed Nevadans. The program’s initial focus is aimed at Nevada’s youth population, equipping young adults, ages 18 to 24, with the skills and credentials that can help them unlock well-paying careers.

We are excited about the inclusion of our entry-level professional certificates which were specifically designed for learners with no college degree or background in the field to learn the skills needed for a job in less than a year. But these young learners don’t need to choose between an entry-level job or a college degree. With a growing number of ACE credit recommendations, completions of these micro-credentials provides them with the opportunity to earn academic credit and the optionality to pursue a bachelor’s or master’s program through one of our Pathway Degrees should they choose to continue their education in the future. The first phase launched in Clark County in September and will expand to the entire state in the coming months.

It’s one more example of a Coursera partner with the ambition to deliver a statewide impact through our platform. Our government customers like businesses and academic institutions, increasingly understand the important role that they play in enabling the future workforce, addressing skills shortages, transforming their local economies and equipping the next generation with the education and opportunity that they need to succeed in an increasingly digital world. Now, let’s open the call for questions. Thank you.

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Q&A Session

Operator: Thank you. [Operator Instructions] We will take our first question from the line of Stephen Sheldon with William Blair.

Stephen Sheldon: Hey. Thanks. Great results here. First, I just wanted to ask about kind of generally how you are thinking about the resiliency of Consumer revenue growth, which I think has far surpassed everyone’s expectations in recent quarters. Do you think there could be some slowdown, especially if industry job openings pull back at all, I think a lot of learners on your platform are trying to drive the appointment outcomes at least more so than maybe some other B2C platforms out there. So, generally, how you think about the consumer segment as we head into 2024?

Jeff Maggioncalda: Yeah. Hey, Stephen. This is Jeff. We agree. I mean if you looked at the numbers, Consumer has been very strong. And pretty much across the Board, when you look down the funnel and you look across regions, it just seems like these types of professional certificates that are designed around a job and don’t have a lot of requirements for a college degree or prior work, they just seem to be resonating with people who — I mean, maybe it’s a job opportunity, but a lot of it seems to be frustration with the jobs that people are in right now. I mean when we interview people in these certificate programs, what they say is, I am not sure what job I want to get, but I am sure I want to get a different job that’s more flexible, pays better and has better long-term career opportunities.

If that’s the reason they are coming, maybe it would abate if there were fewer job opportunities out there. To some degree, it’s more about people looking for something better than looking for something specific. And so, we don’t see a reason why this should slow down, and like I said, across the Board, whether it’s in North America or in Europe, these professional certificates in the consumer segment seem to be growing at a good clip.

Stephen Sheldon: Great. Yeah. That’s really helpful. And then, great to see the progress on translating courses into other languages. Curious what feedback you are getting about the quality of translations from learners that have engaged with it so far. And I know it’s early, but is the language expansion driving any positive outcomes or I guess at least more positive conversations especially with — within Enterprise?

Jeff Maggioncalda: Yeah. So we are — when we have been doing the translations, I mean, part of what we are able to do is to look at the quality ratings from the translation providers. As you can imagine, they do a lot of testing on language pairs to say, hey, our models, when we translate from English to Spanish, this is the quality rating. They usually benchmark it against what they call a blue score, but basically, it’s against a reference point of professional human translators. These blue scores are coming up across almost every language pair and certain providers are better at certain language pairs. But what we are finding is, feedback from learners, that certain language pairs are very good and usually that’s based on the amount of language that’s available on the internet.

So English to Spanish, really good; English to French, really good; English to Brazilian Portuguese, really good; English to Thai, not as good as Spanish. But what we hear from Thai learners is, I am so much happy to have some translation than nothing. And what we are doing is we are actually building a human-in-the-loop process where the learners get notified that it’s machine translated and they have the ability to put a little down from there to say that wasn’t so good. They can even specify, what amount it wasn’t good and then we do have human translators that will go in and improve those elements of courses in certain languages that — where the quality level needs to be improved. But the other thing that we are talking to our institutions about and we have also been institutional testing, so we are not only getting feedback from consumers, but also from institutions who are looking at this and measuring quality, is we are saying that the rate of progress is so high and the rate of cost decrease is so high that we will effectively just keep on translating these things as every new model comes out with better quality.

So, right now, it’s machine translation with humans in the loop. As the models get better, there will be fewer and fewer humans needed in order to keep the quality at the bar that we are looking for. But overall, we have been pretty positively impressed by the feedback that we are getting from both Consumers and from Enterprises. And then, Stephen, you asked about unlocks. I think that we are just now kind of promoting that these certificate — but are most certificates, but other courses are available in other languages. On the Consumer segment, we need to unlock the payment capabilities to really take advantage of the language translations on Consumer, but especially on Coursera for Government and Coursera for Business, where an institution has a global population or a large population of non-English speaking learners, they are kind of saying this is pretty good.

It’s really high quality from well-known brands, but still available in lots of different languages. And for a business that might have a workforce across 10 different countries and speaks five different languages, being able to use the same high quality content, so everyone’s learning the same stuff, that they are able to learn in multiple languages, that’s something that currently almost no other solution on the market can provide. So we are getting very positive feedback from enterprises on the applicability of this for global workforce.

Ken Hahn: Early guess for anecdotal extra contracts close, but Jeff you are in the field all the time and you are hearing very positive feedback by asking.

Stephen Sheldon: Great to hear. Appreciate the color.

Jeff Maggioncalda: All right. Thanks, Stephen.

Operator: We will take our next question from Josh Baer with Morgan Stanley.

Josh Baer: Great. Thank you for the question and congrats on the outperformance in the quarter and Consumer acceleration. I did want to ask on Degrees, and I think, I heard like the commentary for mid-single-digit growth that was Degrees in Q4, I just wanted to confirm that. And I believe that’s when you combine sort of Q3, Q4, it’s a bit different than some prior expectations on the growth profile. If you could sort of talk through any changes that you are seeing as far as Degree performance.

Ken Hahn: Sure, Josh. This is Ken, of course. Yes. That is the implication and which is why we wanted to make the comment ahead of time. We are still working through on the Degrees strategy, our pathways, and we are seeing good progress and we are excited about the growth going forward, do not get us wrong on the strategy as and we have been very open about this. As we are sorting that strategy, the growth has been a little bit more variable in the meantime. So finishing off this year is not quite where we thought it was going to be at the beginning of the year. We are excited about it as we get into 2024. We will produce or we will provide additional guidance in the February call and we are going to be for the year on Degrees in each of the segments. But, overall, yes, that’s exactly why we made those comments.