Coursera Inc

NYSE:COUR

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Coursera First Quarter Fiscal Year 2021 Earnings Call. [Operator Instructions] And please be advised that today's call is being recorded. [Operator Instructions]

I would now like to turn the call over to Cam Carey, Head of Investor Relations. Mr. Carey, you may begin.

[Cam Carey, executive]

Hi, everyone, and thank you for joining our Q1 earnings conference call. With me today is Jeff Maggioncalda, Coursera's Chief Executive Officer; and Ken Hahn, our Chief Financial Officer. Following their opening remarks, we will open the call for your questions. Our press release, including financial tables, was issued after market close and is posted on our Investor Relations website where this call is being simultaneously webcast. Additionally, downloadable versions of our prepared remarks and supplemental slides have also been made 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 located at investor.coursera.com. Please note that all growth percentages refer to year-over-year change unless otherwise specified.

Additionally, I'd like to remind you that all statements made during this call that relate to future results and events are forward-looking statements based on current expectations. Actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our press release, SEC filings and supplemental materials. We assume no obligation to update our forward-looking statements.

And with that, I'd like to turn it over to Jeff.

[Jeffrey Maggioncalda, executive]

Thanks, Cam, and good afternoon, everyone. Welcome to our first earnings call. I've been a CEO for almost 25 years, and I have never been so excited about spending my time and talent to help build something so important.

Coursera was launched in 2012 by 2 Stanford computer science professors, Andrew Ng and Daphne Koller. They put a few computer science courses up on the Internet, and they were stunned when more than 100,000 people signed up. These learners came from around the world, from many countries across many age groups and from many walks of life. And most important, they included people who did not otherwise have access to a great education.

Our #1 goal has been and always will be to serve learners. Now since those early days, Coursera has grown into a global learning platform with 82 million registered learners at the end of Q1. Our mission is to provide universal access to world-class learning so that anyone anywhere has the power to transform their life through learning.

Today, I'm pleased to report we're delivering on that mission. We grew revenue 64% to $88.4 million. Each of our business segments, Consumer, Enterprise and Degrees, saw strong double-digit growth, reflecting the continued trend of individuals and institutions embracing online learning to develop skills for a digital future. In particular, we saw strong demand for our entry-level Professional Certificates that are redefining the opportunities people have to get jobs. Learners with no college degree or background in the field are coming to Coursera to earn a Professional Certificate and to learn the skills needed for an entry-level digital job in less than a year. Professional Certificates can also provide access to career pathways, which connect these learners with hiring partners looking to fill open digital roles with candidates from nontraditional backgrounds.

But it's not just career pathways. Coursera also offers degree pathways to learners who complete certain entry-level Professional Certificates with our university partners able to award academic credit towards a college degree. Programs like this powered by institutional collaboration between universities, businesses and governments allow anyone to develop skills online at low cost, earn a Professional Certificate, get a job and then start their degree while working.

This is what the future of learning looks like for many adults, and it is being driven by several global fundamental forces at play. Our world is accelerating driven by technology and globalization. The force of technology, especially the Internet, cloud computing, social media, mobile and AI, is transforming industry after industry. And just about every person in every job needs to keep learning throughout their life to stay relevant in a fast-changing workplace.

But higher education, one of the largest industries in the world at $2 trillion, has seen relatively little innovation over the past 3 centuries. Traditional college degrees are not affordable to many people. Their monolithic, 4-year structure doesn't meet the needs of lifelong learners. Degrees often lack relevance to today's employers, and they're not designed for working professionals who don't want to quit their job or move their families to a college campus in order to get a college degree.

Coursera is a platform that is enabling the digital transformation of higher education and adult learning more broadly. Our platform is transforming the way learners learn. It is transforming the way educators teach. It is transforming the way employers upskill and reskill their employees. And unlike many other platforms, Coursera is more enabler than disruptor because Coursera works directly with leading universities and higher education to enable them to do a better job meeting the needs of all learners in this new digital world.

We believe the world needs high-quality education to be more accessible, and the need for this kind of change has never been more urgent. 1.3 billion people around the world are projected to reach working age over the next 10 years, and they'll be entering a labor market that looks nothing like what we've ever seen before. The world is becoming more digital, and jobs that are repeatable and predictable are being automated by technology. Jobs most at risk of being automated, like freight movers, retail clerks and waiters, are typically held by lower-skilled workers making lower wages.

These are also the jobs that have been most impacted by COVID-19. The pandemic has accelerated trends that have been at play for decades. We've been fast-forwarded to a new normal of online learning, digital skills, digital jobs and remote work. 84% of employers report that the pandemic has increased their intent to rapidly digitize work processes. And businesses and governments around the world are looking to upskill people so that they have the knowledge, the skills and the credentials to enter digital jobs. We believe that the Coursera global learning platform is designed to meet this challenge with a number of advantages over other players in the market that now I'll discuss in more detail.

First is our educator partners. Coursera has a 3-sided platform that connects learners, educators and institutions in a global learning ecosystem. Our large, growing learner base and global brand makes us an attractive partner to educators who want to reach a global audience of learners and deliver high-quality, affordable education at low cost. More than 150 universities and 60 industry partners have come to Coursera to teach the world, and we're proud to have recently welcomed more, including 10 new university partners spanning the globe from the U.S. and Latin America to the Middle East and Asia; and just last week, a new collaboration with industry partner, Microsoft, with a beginner specialization on Microsoft Azure to help kickstart our learners' cloud careers.

Additionally, our enterprise channel allows these partners to also address the evolving needs of the workplace. More than 6,000 institutions, businesses, governments and campuses have used Coursera to upskill and reskill individuals in data science, cloud computing, business and many other skills required to compete in today's economy. Whether learners need to quickly grasp a new skill at work or pursue life-transforming degrees at their own pace, the power of our global ecosystem allows industry and university partners to continuously deliver more job-relevant skills, content and credentials and to do this at greater scale and lower cost.

The second big advantage is our content catalog. Our stackable system of branded, high-quality, freemium content enables us to attract learners at low cost and serve them at a range of price points, from free to $45,000 for a master's degree. Content on Coursera is modular and stackable, designed to meet the needs of learners across all stages of their lifelong journey. Bite-sized learning, like hands-on projects and short courses, can build towards a broader course of study, such as a professional certificate or multiyear, accredited bachelor and master's degrees. And our catalog of world-class branded content and credentials continues to grow.

At Coursera Conference last month, I was proud to announce some exciting new products from our educator partners, including: 5 new degrees from leading international universities, including the first degree programs on Coursera from universities in Brazil and India; 6 MasterTrack programs from leading universities around the globe, including our first MasterTrack program from an Ivy League university, our first Spanish-language business MasterTrack certificate and our first MasterTrack program from Australia; and 3 additional entry-level Professional Certificates from leading technology companies, including IBM and Salesforce, for today's most in-demand skills. With these recent additions, the Coursera catalog now includes: over 1,000 guided projects that offer hands-on learning; more than 5,000 courses and 550 specializations; over 40 certificates, including Professional Certificates that require no college degree; and now 30 bachelor's and master's degrees.

The final competitive advantage I'll mention is innovations to our learning platform. To further enhance the learning experience on Coursera and make it easier for educators to create in-demand content, our product team continues to introduce a number of new platform innovations. For learners, we're introducing real-time, personalized content recommendations, preferred language subtitle translations for over 2,000 top courses and WCAG 2.1 AA accessibility that supports both desktop and mobile experiences for learners of all abilities. Innovations for educators include scalable tools to author content efficiently and effectively, including upload-based authoring and LMS content ingestion to Coursera, which speeds up the authoring process. And innovations for institutions include the Data Science Academy and SkillSets to help organizations develop, measure and benchmark skills.

Individually, our key advantages, including leading educator partners, world-class, branded content and credentials and continuous product innovation, increase scale, reduce acquisition costs and increase the value of customers on Coursera. But the real power is the way that these advantages reinforce each other on Coursera's unified platform and produce a flywheel effect as a growing selection of content and credentials attracts more individuals and institutions, which in turn motivates educator partners to create more content and credentials.

We believe that the shift in higher education is only in the early innings, and we see many opportunities to drive growth for Coursera in the coming years and decades ahead. First, we will continue to invest in our growing enterprise channels using a land-and-expand strategy that focuses on acquiring new customers and efficiently growing our relationships with existing customers. In particular, we launched our Coursera for Campus offering only recently, in October of 2019, and we see a large market opportunity developing as universities and colleges around the world turn to online learning to help keep pace in a digital world.

Second, on the degrees side, we will look to grow the number of students in current degree programs and to expand the number of degree programs offered on Coursera. Today, more than 160 university partners author courses on Coursera, but fewer than 20 of them currently offer degree programs on Coursera. We believe there is a big opportunity for many more university partners to offer degree programs on Coursera.

Third, we will continue to grow our learner base and build our brand, investing in increasing the number of registered learners on our platform. We will also continue to grow our content and credentials catalog and our network of educator partners. And finally, we are seeing some of our fastest growth in emerging economies, and we will invest in localizing certain content, pricing, payments and content discovery. When I look at the fundamental trends driving our growth, branded, high-quality content, world-class educator partners and a scalable platform model continuously delivering new innovation, I believe that Coursera is in a unique position to deliver the in-demand skills, programs and degrees that our learners and learners around the world need today and going forward.

And now I'd like to turn it over to Ken to discuss our financial results in more detail. Ken?

[Kenneth Hahn, executive]

Thanks, Jeff, and hello, everyone. Our first quarter performance marked a strong start to the year as we continued to build on the robust momentum we saw throughout 2020. Total Q1 revenue of $88.4 million was up 64% as compared to the year ago quarter driven by strong execution across all 3 of our business segments. For the remainder of the call, I will discuss key operational metrics as well as non-GAAP financial measures excluding pro forma adjustments, unless otherwise noted.

Gross profit was $49.6 million, up 71% from a year ago and represented 56.2% of revenue. That gross margin percentage was approximately 230 basis points higher than the year ago quarter.

Let's look at the 2 components of our cost of services and how they have changed in the past year. The first is our content costs. Content costs will vary depending on the revenue mix amongst our segments and the content margin rate for each of these businesses. To illustrate the effect of mix shift, in rough terms, our Consumer business has a 57% content margin. Our Enterprise business has a 68% content margin, and our Degrees business is 100% margin given it has no content costs. So the relative mix of volume affects our overall gross margin rate. Over time, we expect this to be a significant driver of our overall financial performance and profitability as our Enterprise and Degrees segments become a larger portion of our total sales, driving structurally expanding gross margins.

The content margin percentage rate for each of those segments can also vary. This quarter, our Consumer segment content margin rate increased from 54% to 57% year-over-year due to a larger consumption of lower-revenue share content.

The second component of cost of services is non-content costs. On a year-over-year basis, our non-content costs decreased as a percentage of total revenue from 10.7% to 9.7%, resulting in a 100 basis point improvement in overall gross margin.

Next, I'll provide some details of our operating expenses. But first, I'd like to be sure we are clear about definitions as related to stock-based compensation. In Q2, we expect a large stock-based compensation charge associated with restricted stock units for which amortization began with the completion of our IPO. The non-GAAP income statement measures that follow in today's remarks exclude stock-based compensation and related payroll tax. Please refer to the reconciliation of GAAP to non-GAAP results in the appendices of our earnings release and supplemental presentation for additional detail.

Total operating expense was $62.7 million or 71% of revenue compared to 76% in Q1 of last year. Sales and marketing expense represented 35% of total revenue, down from a prior 37% as there were lower investments in media spend in Q1 this year. We expect our overall sales and marketing expense in 2021 to represent a similar percentage of total revenue as in 2020.

Research and development expense was 23% of revenue versus 27% in the year ago period as our strong growth has provided higher leverage. We expect our overall R&D expense in 2021 to represent a similar percentage of revenue as in Q1 of this year. General and administrative expense was 13% of revenue versus 12% in the prior year given personnel, consulting and systems investments ahead of our IPO. We expect this higher expense as a percentage of revenue to continue in 2021.

Net loss was $13.4 million or 15.1% of revenue, and our adjusted EBITDA loss was $10.1 million or 11.5% of revenue. We have been consistent in our communication that 2021 will be an investment year, focusing on growth in our learner base through sales and marketing, expanding our content offering and driving innovation on our platform. We anticipate that we'll continue to incur losses for the foreseeable future, though we plan to incrementally demonstrate scale and leverage on an annual basis. Free cash flow was a use of $8.6 million or $1.3 million better than the $9.9 million figure a year ago.

Looking at the balance sheet. We ended the quarter in a strong cash position. As of March 31, we had over $280 million of unrestricted cash, cash equivalents and marketable securities. On a pro forma basis, taking into account the $525 million of net proceeds from our IPO we closed in April, total cash equivalents and marketable securities would be over $800 million with no debt. Regarding capital allocation, we are in the early stages of our life cycle and believe we have substantial growth opportunities ahead of us. We intend to continue to invest aggressively to pursue these opportunities and ensure ongoing scaling and leverage in our business model.

Turning to our business segments. We report our results in 3 segments: Consumer, Enterprise and Degrees. While each segment benefits from our unified platform of content and credentials, technology and data, they are unique in how revenue is generated and the associated segment margin, which we define as segment revenue less content costs in our audited financial statements.

First, let's discuss our Consumer business. Consumer revenue was $51.9 million, up 61% year-over-year on broad-based strength across all regions and strong initial adoption of recently launched Professional Certificates. While we have a freemium model where learners can view course lectures and other content at no cost, we earn Consumer revenue when a learner purchases a specialization or Professional Certificate subscription, subscribes to Coursera Plus or pays for a certificate of completion. Segment gross profit was $29.7 million or 57% of Consumer revenue as we benefited from a lower content cost rate during the quarter. Our Consumer segment is important because it serves as top-of-funnel source for our Enterprise and Degrees segments, and we added 5 million new registered learners during the quarter for a total base of 82 million.

Next is Enterprise. Enterprise revenue was $24.5 million, up 63%, with strong growth in new and existing customers across all institutional categories. We earn Enterprise revenue when these institutions, businesses, governments and campuses purchase seat licenses that provide access to our partners' courses, specializations and professional certificates in order to upscale and reskill their employees, citizens and students. Our net retention rate for Paid Enterprise Customers was 113%. Segment gross profit was $16.6 million or 68% of Enterprise revenue, which was slightly lower on a percentage basis than the prior year due to a lower content cost rate in Q1 of 2020.

And finally, our Degrees segment. We earn Degrees revenue when learners take a university degree program hosted on Coursera. Our Degrees revenue was $12 million, up 81% as prior student cohorts scale and new students embrace our expanded offerings. With the recent announcement of 5 new degree programs, our portfolio now includes 30 degrees from university partners spanning the globe from the U.S. and Lat Am to the Middle East and Asia. And our total number of Degrees students reached 13,493, up 88% from a year ago. Segment gross margin was 100% of Degrees revenue as there's no content cost attributable to Degrees segment. Students pay tuition directly to the university and the university pays us a fee based on the amount of tuition.

Now moving on to our financial outlook. We have fairly good visibility into the revenue on a quarter-to-quarter basis, particularly in our Enterprise and Degrees segments. However, we don't have perfect visibility as revenue in our Consumer segment is impacted by our large and growing registered learner base where individuals can pay in the form of onetime, single courses or as a subscription.

For Q2, we're expecting revenue to be in the range of $89 million to $93 million. This represents a growth rate of 23% at the midpoint of the range versus Q2 of 2020. As a reminder, next quarter, we will begin to lap difficult compares from the onset of the COVID-19 pandemic. In Q2 of last year, our revenue grew more than 60% from the prior year. For adjusted EBITDA, we're expecting a loss in the range of $9.5 million to $12.5 million, which translates to an adjusted EBITDA margin of negative 12% at the midpoint.

For full year 2021, we anticipate revenue to be in the range of $369 million to $381 million, representing nearly 28% growth at the midpoint of the range. For adjusted EBITDA, we're expecting loss of $45.5 million to $52.5 million or an adjusted EBITDA margin of negative 13% at the midpoint. Our outlook for full year 2021 reflects additional investments in personnel-related costs, sales and marketing and product development as well as incremental general and administrative costs associated with being a public company.

We manage our business for the long term and do not plan to optimize for any single quarter. We run our business on an annual cadence for expenses and adjusted EBITDA. As our business grows, we intend to continue to invest as we see opportunities to expand our competitive moats. We plan to pursue growth opportunities in the transformation of online learning, while also demonstrating scale and leverage over time.

Before passing to Jeff for closing comments, I'd like to summarize several highlights of our business model. First, in addition to the rapid sales growth we're experiencing, we expect to have clearer forward visibility on our top line in the years ahead as our mix of revenue evolves, including a greater contribution from the Enterprise and Degrees segments. Within Enterprise, our annual recurring revenue is growing strongly with customer cohort growth that increases predictability over time. This includes early customers, along with the layering of new customer cohorts as we sign multiyear contracts. Additionally, our Degrees business has even better forward visibility given that we fill student cohorts from one academic year to the next and the revenue naturally and predictably builds.

Second, we believe we'll have ongoing structural gross margin expansion over the long term driven by a mix shift to higher-margin business and by our scaling platform. And finally, our business benefits from our freemium model, which enables us to attract new registered learners at low acquisition costs through the power of Coursera's platform and the brands of our partners. As learners are attracted to Coursera for free projects and course lectures, we are able to match them with personalized learning opportunities based on their background and goals, including higher value degree and certificate programs that support our high-margin businesses.

In summary, we're proud of the business we've built, and we're just getting started. With our key advantages, we see a significant opportunity ahead of us to attract new learners, institutions and educators to the Coursera platform, rapidly grow revenue and expand our margin profile over time.

And with that, I'll turn it back to Jeff.

[Jeffrey Maggioncalda, executive]

Before we open the call for questions, let me leave you with a few thoughts. We believe that learning has the power to transform our world, from illness to health, from poverty to prosperity and from conflict to peace. It has the power to transform our lives for ourselves, our families and our communities. No matter who we are or where we are, learning empowers us to change, to grow and to redefine what is possible.

We believe that access to education creates more equal opportunity, and more equal opportunity creates a more just world. That's why in February, Coursera became a B Corp, which means that we have a legal duty to balance shareholder needs with the needs of society more broadly. We announced more than 18,000 scholarships for underserved learners with Facebook, Google, Microsoft, Goodwill, Black Girls Who Code and Women in Cloud. And on April 27, Time Magazine included Coursera in its 2021 100 Most Influential Companies list, alongside companies like Tesla, Airbnb, SpaceX and DoorDash. It's a testament to how the world views Coursera's ability to impact lives and impact the world. We embrace this responsibility wholeheartedly, and we always have.

The desire to help, to serve, to move humanity forward was the reason that Andrew and Daphne started Coursera in the first place. It's what has drawn our employees to join Coursera and inspires us to work so hard every day. And it is what has attracted leading universities and companies to join us in our mission. If we can unlock the full potential in every person, we will help transform lives, and we will help transform the world.

With that, let's get to Q&A. Can you please introduce the first question? Thanks.

[Operator]

[Operator Instructions] And for our first question, we have Josh Baer from Morgan Stanley.

[Josh Baer, analyst]

Congrats on a very strong first quarter. My question is on the COVID relief efforts. And as it relates to the enterprise side and just the timing of those efforts, wondering where are we as far as the monetization potential of converting some of those institutions from free to paid?

[Jeffrey Maggioncalda, executive]

Yes, Josh, thanks for the question. This is Jeff. And obviously, we started doing the workforce recovery initiative back in March of 2020, and then the workforce -- the campus response was first with the campuses, and then the workforce recovery was with governments and that was in April. I would say that we are starting to see an acceleration of uptake in the conversion of those free workforce recovery relationships with government agencies. That seems to be happening at a bit of a quicker pace. And I think one of the big reasons is the level of unemployment and the urgency of getting people back to work and into new digital jobs is definitely higher now than it was a year ago.

Another thing that we're seeing is that most, seems to me at least, that most government agencies didn't have experience with online training programs. I mean they were doing it kind of the old way. They were all forced to embrace online-based workforce development programs. I think they're seeing that the -- how modern it is, how effective it is, how scalable it is, how cost effective it is, how well it works in the pandemic environment is all working pretty well. So we're pretty good with the conversion efforts there.

On the campus response initiative, it's -- we think it's a bigger opportunity just in terms of the number of institutions out there. We continue to move along, but different regions around the world have different policies, regulatory stances. Faculty have different levels of influence and power. I'd say we're making good, steady progress. It is not, in Q1, like a hockey stick of conversion on the campus side. We're seeing good, steady conversion of the pipeline that we have built in 2020.

[Josh Baer, analyst]

Great. If I could just ask Ken a quick one on Degrees. We know segment margins are 100%. I was hoping you could talk through some of the other costs of Degrees. What does OpEx look like for that segment?

[Kenneth Hahn, executive]

Sure, Josh. You're welcome. The -- so we do not plan to break out specific costs, of course, on the different segments of the operating line. But to discuss the structure and what it looks like, the biggest cost or the biggest group supporting that effort is the university partnership people who both bring in new universities, expand degrees and operate and help on a day-to-day basis with those clients, with those universities to ensure that they have what they need. So there's a group dedicated to doing that, and that lives in our operating expenses.

[Jeffrey Maggioncalda, executive]

Another thing I'll just add, Josh, is as you can probably imagine, we're a technology company. And so we love, love seeing human processes that are automatable. And so we don't only build technology that is learner-facing. We're doing a lot on the back end to automate the capabilities associated with serving degree programs.

And I'll also just point to, I think, a pretty big accomplishment that Andrew and Daphne and the team in the early days got to, which is for the most part, when you look at course authoring, just single courses, not degrees, but single courses of which there are now over 5,000, those are pretty much all self-serve. Pretty much our partners just they know how to use the tools, the professor is not the author, they author, they post, it goes through a QA process. But for the most part, that is self-serve, and we can see a lot of leverage over time as it relates to building more scalable, repeatable automated processes on the degree side as well.

[Kenneth Hahn, executive]

And one general add-on I'd add to that, which is why we haven't broken out these various costs is because, and it's part of the overall business model that benefits and helps us scale differently than other competitors, is the fact that, that technology is used across all of the businesses. And so the only distinct one is the university partner people for that segment.

[Operator]

For our next question, we have Stephen Sheldon from William Blair.

[Stephen Sheldon, analyst]

Congrats on the successful IPO and strong first quarter. But first, I guess, within the Enterprise segment, really strong trends there this quarter and nice acceleration in Paid Enterprise Customer growth. Can you maybe give an update on the size of the direct sales force there and the trends you're seeing in productivity, especially for the additions you made to the enterprise sales force in the second half of 2020?

[Jeffrey Maggioncalda, executive]

Yes. I guess what I would say, Stephen -- and Ken, I don't know if you want to put any sort of financial color on this, but we did take a reasonable amount of the, if you will, the COVID tailwind surplus that arrived at our door in Q2 and Q3 primarily. And if you looked at our sales and marketing numbers in Q3 and Q4, that reflected a pretty reasonable ramping of our direct sales team. We are on track with respect to training -- with respect to hiring. We are on track with respect to ramping. We're feeling good about our progress here, and we expect that this is giving us the capability to continue to close a lot of the opportunities that we're seeing in the enterprise space. So all that stuff seems to be coming right along schedule. Ken, anything you'd add to that?

[Kenneth Hahn, executive]

Yes, just the hiring has been consistent to plan, and we pay a lot of attention to that because it's sales capacity. You asked the question for an obvious reason. And we're right on track with our sales capacity on the Enterprise group.

[Stephen Sheldon, analyst]

Great to hear. And then just continuing to see advertisers from Coursera on different media types. So can you maybe talk some about plans for marketing spend over the remainder of the year? And how much that could be helping brand awareness and pulling in more registered burners in the Consumer segment?

[Jeffrey Maggioncalda, executive]

Sure. Last year in Q4, not unlike some of the additional investments that we made in the direct sales force, we also made some investments that were somewhat atypical in the portfolio of marketing mix that we took to market. We had an interesting and, I think, very cool co-branded campaign with Disney Soul. We ran more TV than we had in the past, just to kind of see in different markets and different segments what might be the ROI. It led us -- it left us feeling that we really love the basic freemium model. I mean it is hard to really build cost effectively, awareness and brand with just advertising dollars.

So I would say that through those experiments and as you see us rolling into 2021 here, we are going to go with our pretty standard marketing mix that we've been doing so far. Pretty highly leveraged, [ love just a ] freemium model, high SEO, word of mouth, some affiliate marketing which seems to do pretty well with our partners' content and credentials. But generally speaking, more in line with the kind of sales and marketing that we're doing earlier in 2020 than we were in the later part of 2020. And you might see more sort of TV advertisement. It might be the case that you're just noticing them more. We're not really pushing heavily dollars against that channel. Ken, anything you'd add to that?

[Kenneth Hahn, executive]

Well, Stephen, I'm very glad you asked the question actually because we didn't have a Q4 earnings call because we weren't a public company. But we're hitting on something that will be a recurring theme, which is that as we plan our expenses, on an annual basis, we want to show leverage in the business. We plan to see EBITDA margins getting better year-to-year. We're not going to focus on that quarter-to-quarter, and the discussion we're having right now around Q4 is spot on. We expect to do that again in the future. We're going to manage the business to show more leverage and to get better on an annual basis. But in between, we may experiment and accelerate our -- within that band and accelerate our spending. So we make sure we capture this market, right? And so anyway, I wanted to take the time to make that point so everybody knows what we're doing going forward since we didn't have a Q4 earnings call.

[Operator]

For our next question, we have Terry Tillman from Truist.

[Terrell Tillman, analyst]

I'll echo the congrats on the IPO and also in the quarter. Maybe the first question, I'll just throw it out there. In terms of specializations or the special certificates, maybe an update on how meaningful this is as a proportion of the business, where you see some of the most notable traction. And how does Microsoft fit into that? So unfortunately, that was a 3-part first question. I have another one behind that.

[Jeffrey Maggioncalda, executive]

No worries. Yes. So as we think about specializations, these are -- a product that was launched right around 2014. It was one of the first times that the monetization of Coursera started taking off. And I think that the sort of the secret sauce on that, the first specialization was the Johns Hopkins data science specialization. It was either 4- or 5-course series. At a time where it was really difficult to earn any kind of credential with data science, it was one of the first available. And it attracted a lot of more advanced data science learners on to Coursera, and they were going for these specializations. When you think specializations, generally, you'd be thinking business technology and data science often comes from universities often at the more intermediate or advanced levels.

There's another type of product which is very similar. It's also a multicourse series, subscription-based, which are Professional Certificates. These generally come from our industry partners, not universities. And there's a certain type of Professional Certificate, which is the entry-level Professional Certificate. These are the ones created by Google, and Facebook has got a social media marketing and IBM has got a number of them in cybersecurity. They're all basically assuming that you don't have a college degree, you don't have any background in the field and they're teaching you online in less than a year the skills that it takes for an entry-level, high-demand, well-paying job.

Those are the -- those entry-level Professional Certificates are what we are seeing a lot more uptake across almost every segment: consumer, business, campus and government. And what we think is happening is a couple of things. One is the portfolio is getting bigger. So this time last year, we had 2. So we had the IBM data science for an entry-level data science position; and we have the Google IT support certificate, which was really the first in the reference Professional Certificate, if you will. Now we have 13 live, and they cover many more different careers. And they also include, since then, one from Salesforce. We've announced one with Intuit in bookkeeping. We got one from Facebook in social media marketing.

We just went live in Q1 with 3 additional entry-level certs from Google. So UX design, software project management and data analyst. And they're all, again, no college degree required. These are really -- I think the larger portfolio and the higher incidence of unemployment and people post pandemic really thinking, "I got to get myself into a digital job," is really seeming to resonate. So we put a little more texture around this in the script. We are seeing some nice numbers here, and we think that this is going to be well suited for the environment, the sort of the job market environment that we see now and probably for many years to come.

[Terrell Tillman, analyst]

That's great. Maybe the second question, I thought it might be easy, but maybe it's not an easy one. So I don't know if this is -- if you want to give this to Ken or you want to take it. But the vitality of the Consumer business going forward, the registered learners, I mean, you still are adding a nice amount. Obviously, it's not quite at the COVID levels. But we're going to get the question a lot about post-COVID, if there is such a thing, kind of how does the vitality of your Consumer segment looks? So whether there's a commitment to double-digit growth. Or just what can you say about the ongoing vitality particularly because of the international opportunity in the Consumer segment?

[Jeffrey Maggioncalda, executive]

Yes. It is a tough question, so I'll turn it over to Ken. No, let me give you a real quick sort of here's how we think about it. In the long term -- the longer term, I really want the top of funnel, the number of registered learners, to be generally pacing with the business. And so generally, we want to grow 30% or more per year. So we want to do definitely double digits on that number over the longer term. Of course, you can generate more revenue by getting conversion rates higher and getting a mix shift and things like that. So -- and obviously, if we have more products to monetize, you get higher conversion rates. You can have higher LTM if you -- I mean, LTV, if you get people buying, say, things like degrees at a higher average selling point. So I'd say, overall, we do want to be growing the top of funnel.

I think on the revenue side of the Consumer segment, a lot of it will be these career-oriented credentials. That's where we think that the strength and vitality of the revenue will be. And again, in a world where unemployment is a pretty big issue and a lot of the world is just switching towards digital jobs, we think that, that will provide at least double-digit, longer-term growth rates. We said on the road show, historically, it's been mid-teens, high to mid-teens. We think we should be able to do that and better for some time.

[Operator]

For our next question, we have Ryan MacDonald from Needham.

[Ryan MacDonald, analyst]

Congrats on the quarter, Ken and Jeff. I want to start in the Consumer segment. You talked about pro certs being quite strong in the quarter. Would love to understand how free to paid conversion has been trending in the quarter and if you're seeing any improvements there. And I guess on top of that, has Coursera Plus contributed to any of the success at all?

[Jeffrey Maggioncalda, executive]

Yes. I'll do it at a high level, and then I'll see if Ken wants to put any financial texture on it. So the Professional Certificates, one of the things that we are noticing about these, although we launched the Google IT certificate with Google in January of 2018, we had a pretty thin portfolio, and we had 2 of these things. And so we didn't have a lot of data. It's still early days.

One of the things I think is quite interesting is when we think about who's buying these, from the time in 2018 when we launched the first one, well over 75% of the people that bought that first one came from off-platform. They were new to Coursera. There's been an interesting phenomenon that obviously happened in 2020, which is a lot of people came to Coursera because they wanted to try online learning for the first time. They're not necessarily like advanced data scientists. It's a broad swath of society across many countries.

And there's a question of like, well, are they equally monetizable? Not clear whether they're equally monetizable. But I will say that as we've launched more of these Professional Certificates, a higher and higher percentage of the monetization is coming from on-platform learners who are more of your sort of representative learners post-COVID than it was in the early days of Coursera. And we are seeing that generally speaking, when someone's thinking about changing careers, the ROI that they're assigning to that, the commitment that they're assigning to it, the value that they're assigning to it is causing them to be more higher propensity to pay. So relative to a general average course, these entry-level Professional Certificates do seem like they are a pretty compelling value proposition to the typical everyday learner who seems to show up on Coursera in 2020.

Ken, anything you'd add to that? And then I'll -- so Ryan, on the Coursera Plus side, we're seeing good results there. This is for those of you on the line who aren't so familiar. It's kind of a little bit [ like a Spotify ] model where with one subscription fee, you get access to almost all of the courses from our partners on Coursera. We are mostly seeing this as a payment mechanism that could facilitate different types of offerings.

We have seen certain types of learners who maybe wanted a sample across specializations or Professional Certificates, say, a job seeker who's not sure if they want to do IT or do I want to do marketing or do I want to do cybersecurity. The ability to explore the catalog is obviously facilitated by Coursera Plus. And so it is looking like this will be a tool for certain segments at certain times in the consumption phase. And so we like it. It's not necessarily like going hockey stick in Q1. But it's a useful tool to have. It's helping us. And in the future, we hope to find ways that could help us even more.

[Ryan MacDonald, analyst]

Okay. Great. And as a follow-up, just on the Enterprise segment, it looked like a near-record quarter in terms of new paid enterprise addition. Just curious what the role of Coursera for Business had in that strong additions and what you're seeing or hearing from enterprise organizations in terms of prioritizing reskilling and upskilling.

[Jeffrey Maggioncalda, executive]

Yes. So on the Enterprise side, I mean, I would kind of say it's useful to look at the number of paying customers. Obviously, customers come in all shapes and sizes. Some with very large franchises, some with smaller, some who are buying more expensive stuff and some buying less expensive. So I think it's a useful metric. I wouldn't look at it too carefully. There could be a quarter that's really great and that number doesn't look so good or vice versa.

I think that a lot of what that's reflecting is a combination of businesses and governments and campuses all really thinking about, "Oh, my gosh, the world's really changing." It comes back to employability but from a slightly different angle. The businesses know that they need to be competitive. So we have seen, and this is from the World Economic Forum survey, businesses saying because of COVID and just generally the rise of AI and digital transformation, we need to move faster in skilling people. We've not seen that abate. But in addition, governments seem to be much more interested now than they were pre-pandemic about using skill training programs online to get people reemployed. So we've definitely seen good uptake there.

And I will also say campuses, in a more difficult job market, a lot of what students -- individual students are really looking for is should I spend my dollars paying tuition for 4 years or so in the hope that I can get a better job and a better wage. On the one hand, it's a tougher job market, so you want a credential that distinguishes yourself. On the other hand, you really want to make sure that it actually enhances employability. In Coursera for Campus, we see the value proposition of student employability really resonating in a way that it didn't when we launched the product back in October 2019. So I'd say long answer to say, yes, generally speaking, a tough labor market is creating demand across all 3 types of enterprise institutions, businesses, governments and campuses, that seems to be, we think, given some good tailwinds behind us there. Ken, anything you'd add on that? No?

[Kenneth Hahn, executive]

Yes, nothing to add there.

[Operator]

For our next question, we have Yun Kim from Loop Capital Markets.

[Yun Suk Kim, analyst]

Congrats on a solid start to the year, Jeff and Ken. Jeff, just a high-level strategic question around the international market opportunity. I am assuming that you are seeing a different user dynamics or learner dynamics on conversion rate and preferences between U.S. and the international users. And I am also assuming there's a considerable difference in LTV, lifetime value, between U.S. and international learners. Can you just talk about how you are balancing the different economics and dynamics between those 2 different types of learners in your business, especially in regard to the acquisition model?

[Jeffrey Maggioncalda, executive]

Yes, absolutely. Thanks, Yun. So a simple high level kind of first principal way that we think about this is at different stages in someone's life, and also if you think regionally at the stock of human capital, if you will, in a given region, it's about creating human capital and then through employability, turn those human capital skills and knowledge, et cetera, into financial capital. And if, obviously, you don't have a lot of financial capital, you're not going to see very high conversion rates and not a lot of money paid. But in the longer term, we see that a young person in high school or college, say, an undergrad in college, although they cannot buy a lot of stuff right now, in fact, they often go into debt when they fund their education, over their lifetime, there might be reasonable economic value to us if we can supply their lifelong learning needs.

So when they're building human capital, they will be a little bit harder to monetize. But as they start developing that human capital, start making some income and then reinvest some of that income into -- in future human capital development, that's when they buy a bachelor's degree or that's when they buy a master's degree, or that's where they buy an advanced specialization, we think that the conversion could be better. So similarly, when you think about it as a region, if you think about China, if you think about India, if you think about Latin America and in still early stages, but Africa, regions are building stocks of human capital. And as the middle class rises, typically, they start putting more of their disposable income into education. But it's a long process. I mean this is not an overnight thing.

So today, what we see is the highest conversion rates and the highest percentage of revenue across every segment of our business coming from North America and Europe. Those are the developed economies. They have the disposable income. They're making the money to spend it. Over the longer term, though, we are working on building the funnel at low acquisition costs, like almost free acquisition costs because that's the only way you can really do it, in these emerging markets often through government and institutional partnerships to really keep our acquisition costs low. And then we hope to build LTV and conversion as those regions mature, as the middle classes grow, as disposable income rises and a greater attention is focused on not only learning but also learning credentials. That's at a really high level the way we think about it. Today, I'd say we're still in the early stages where higher conversion and higher [ activity ] is coming from developed economies, but we think the long-term play is more global than that.

[Kenneth Hahn, executive]

And [ I think kind of ] just one minor increment -- Yun, this is Ken. So [ one tech and ] one minor increment on the consumer piece itself. Beyond the institutions, which have been great, also, we're getting credit for SEO search, right? As we build the rest of it, the reason we have so much traffic is the quality of the content we have and the links to the universities. So when these topics come up in SEO search, consumers are naturally drawn to the site. So once again, building on free content, SEO search as well as general brand awareness, word of mouth. That's a secondary piece of the building of that funnel...

[Yun Suk Kim, analyst]

That's great, Ken. So along that line, Ken, was there any material change in the paid versus organic new learner acquisition mix this quarter? And how do you expect that to trend for the remaining of the year?

[Kenneth Hahn, executive]

There were not any notable differences this quarter. We haven't provided projections. It's an independent efforts and -- that the marketing group primarily kicks off. So not much to say on future plans, but it's been consistent historically the last couple of quarters.

[Operator]

And for our next question, we have Jason Celino from KeyBanc.

[Jason Celino, analyst]

Maybe a follow-up to a previous question. As enterprise budgets recover this year and spending for a new version of hybrid work emerges, are you seeing any uptick from any customer budget tailwinds for the Enterprise business right now?

[Jeffrey Maggioncalda, executive]

Yes. Jason, this is Jeff. I would say that not necessarily. It seems like in EMEA right when COVID happened, there's a lot of emergency government action, like don't fire people, don't furlough people. Like, here's money, train people, keep them engaged, do what you need to do. I don't know that, that budget was necessarily coming from the employers, but it was subsidized by mostly EMEA governments. That is starting to now taper off, it seems. And now companies are stepping back in and saying, okay, we're getting -- we're reopening. We're getting back to business, and we need to be skilling our folks. So I don't want to say it's [ awash ] because that would make it sound too precise. I just would say that, overall, we haven't seen like a big opening of the wallets as businesses have been coming back online. I think it's been pretty steady.

[Jason Celino, analyst]

Okay. And then your academic partners, they likely know your learner base comes -- like 80% comes from outside the U.S., or at least I hope. But for your U.S. colleges that you work with, if they do, in fact, look to digital learning as a way to diversify and tap new markets of students, will they look to international students for these digital offerings? Or is that more -- or how do we think about that opportunity?

[Jeffrey Maggioncalda, executive]

Yes, for sure. I would say one of the primary -- well, the primary, the biggest value proposition that we offer to educator partners is reaching a global audience, both individuals and institutions, but frankly, a lot of it is individuals. And so they're really thinking about -- and I'd say pre-pandemic, it was sort of just, "I want to reach a lot of people." There was a little bit of an emphasis towards the global. In a world with a pandemic where travel has been curtailed and time zones have been really hurting people, the idea that you can reach a global population builds your brand also if you look at demographics.

I mean there's much more favorable demographics in Lat Am, Africa and especially in India, where you've got a lot of young people who are going to be growing the rows of enrolled students in colleges. The U.S. demographics don't look so attractive. So we definitely see reach to a global audience as the #1 value proposition. And within that, increasingly, post-COVID, reaching international students primarily in developing economies where there's a lot of younger people who are going to be getting college degrees seems to be a big part of the value proposition that they're resonating with.

[Operator]

And for the next one, we have Brian Peterson from Raymond James.

[Brian Peterson, analyst]

Congrats on a really strong results. So just one question for me, and it's actually a follow-up to Jason's question. But Jeff, as you think about the Degrees business and how maybe some of your partners would be looking to utilize that solution post-pandemic, when do you think we'll start to see an inflection point? I know the growth is really impressive, but I'm curious if those decisions are being made now or this year. I'm kind of curious to get a higher-level comment on when people would really be looking to deploy that.

[Jeffrey Maggioncalda, executive]

Sure. Thanks, Brian. Yes. I think it kind of -- it's kind of a wide variety of responses. If you look at the degrees that we have announced in the last 6 months with our university partners, they have been disproportionately international. So we have been seeing a quicker uptake from international universities who want to move degrees online. Another thing that we've been seeing is that degree partners who've already done one degree -- offered one degree on Coursera are more likely to do multiple degrees on Coursera. So I do think that if there's going to be an inflection, I think part of it is the globalization of online degrees where if you look at just our chronology of university partners putting degrees on Coursera, it was generally English-speaking, U.S.-based, North America, Europe. If you look in the last 6 to 12 months, it has diversified quite a bit in Latin America, Russia and India. I think that that's going to continue. I think that's going to continue.

I think one of the reasons is, to Jason's question that you linked into, Brian, I just think demographics and the appetite and the need for this is important. The other thing, too, is that the OPM market is much more mature in the U.S. than it is in international markets. And because back in the day, Andrew and Daphne wisely signed up 100-plus universities internationally right out of the gate, we've had relationships with international universities for many, many years, almost a decade in many cases.

So we think -- I think that if there's going to be an inflection point and things -- if you said I have a crystal ball, and I'm telling you, Jeff -- or some genie is telling me, you're going to have a lot of degrees quickly, how did it happen, I would say things went global quickly, and partners who already did one degree started putting on additional degrees more quickly because they can mix, match and reuse. That's what I would say. And I'm not saying that right now, we're at that inflection point. But I'm saying that our experience suggests that if there were an inflection point, that might be kind of a reason why that would happen.

[Operator]

We have time for one last question. It's from Brett Knoblauch from Berenberg Capital.

[Brett Knoblauch, analyst]

I have one on just, I guess, student outcomes. I was just curious maybe what you guys do different in the Degrees segment to keep engagement high and if you could offer any quantitative or qualitative data about student engagement and outcomes regarding the Degrees segment.

[Jeffrey Maggioncalda, executive]

Sure. Brett, this is Jeff. So one of the things that is useful about degree credentials as compared to, say, specializations or open courses or lots of other types of content that's on Coursera and also just out there in the world is that degree credentials are pretty well known. I mean people have a pretty good idea of what a college degree is, and different degrees from different schools have certain outcome rates [ associated with ] job placement and things like that. Because the degrees that our university partners offer on Coursera are generally identical to the on-campus program, employers don't know whether you've got it on Coursera or whether you got it on campus.

Our best guess, as we hear from university partners, the outcomes are generally the same. The recognition of the degree credential if you get it on Coursera versus on campus is the same. And I think that the outcomes you'd expect, we would expect and we've not heard anything different, that they would generally be the same as well. Obviously, the more elite universities teaching -- who are more selective and teaching in domains that are in high demand, business, technology and data science and health care, which are the 4 categories that we really focus on for degrees, will have better student outcomes generally.

When we think about how students engage and retention rates, we do see term-to-term retention rates about the same as on-campus programs. The demographics, though, are slightly different. So on degree programs delivered on Coursera, typically, the average age is about 10 years older than on campus. And I'd say 75% to 90% of the students, depending on the degree program, are working already. So the employability piece is a little bit already baked in because most of the people taking degrees are already working. So they have a job. The question really is, will this help them advance in their job? I think there's a lot of evidence that suggest having a master's degree as opposed to just a bachelor's or having a bachelor's as opposed to no college degree really helps with career advancement. So we've heard only positive things from students and our university partners, and that's kind of how we're seeing it so far.

[Brett Knoblauch, analyst]

Understood. And then maybe just one quick follow-up. As I think about the Consumer segment progressing throughout the year, should we think about that potentially improving on a revenue base as we progress throughout the year? Or is there difficult comps that we should watch out for?

[Jeffrey Maggioncalda, executive]

Yes. Well, so when you say progressing, in absolute dollars or do you mean year-on-year percentage? I think on the year-on-year percentage side, I would say, no, because I don't think we'll -- we're not expecting to do 59% year-on-year revenue growth in the Consumer segment in 2021, which is what we did in 2020. In absolute dollars, Ken, generally speaking, how are you expecting us to play out over the next 3 quarters?

[Kenneth Hahn, executive]

Yes. So we -- I think -- we don't guide to the individual segments, firstly, of course. We provide overall guidance for people to have an understanding. There's a mix within that, to state the obvious. And what we've talked about is we have no reason not to expect it to continue in the low single digits as it did before COVID, which is the commentary we've made on the road show and on an ongoing basis.

[Cam Carey, executive]

Thanks, everyone. That wraps the Q&A. A replay of this webcast will be available on our Investor Relations website along with the transcript in the next 24 hours. Thanks for joining us today.

[Operator]

This concludes today's conference call. You may now disconnect.