COURSERA, INC. The following discussion ofCoursera, Inc.'s and its subsidiaries' ("Coursera", the "Company", "we", "us", or "our") financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included in Item 1 of Part I of this report, and together with our audited consolidated financial statements and the related notes and the discussions under the heading "Management's Discussions and Analysis of Financial Condition and Results of Operations" for the year endedDecember 31, 2021 included in the Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC") onMarch 3, 2022 . This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements in this report other than statements of historical fact, including statements identified by words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," and similar expressions, are forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
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trends in the higher education market and the market for online education, including expectations for growth in those markets;
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the acceptance, adoption, and growth of online learning and credentialing by businesses, organizations, governments, educational institutions, faculty, learners, employers, accreditors, and state and federal licensing bodies;
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the demand for, and market acceptance of, our platform;
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the potential benefits of our solutions to partners and learners;
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anticipated launch dates of new partner programs;
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our business model;
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our future financial performance, including our expectations regarding our revenue and expenses, and our ability to achieve and maintain future profitability;
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our ability to successfully develop, launch, maintain, and scale new programs, offerings, and features;
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our ability to expand the content and credentialing programs available on our platform and our ability to develop new platform offerings and features;
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our ability to manage or sustain our growth and to effectively expand our customer base and operations, including internationally;
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our ability to acquire new partners and expand program offerings with existing partners;
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our ability to acquire prospective learners and to affect or increase learner enrollment, sales, and retention;
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our growth strategies, plans, objectives, and goals;
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our ability to compete and the future competitive landscape;
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our ability to attract and retain key employees;
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the scalability of our platform and operations;
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our ability to develop and protect our brand;
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the increased expenses, including regulatory compliance costs, associated with being a public company;
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the size of our addressable markets, market share, and market trends;
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the affordability and convenience of our platform;
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the effect of COVID-19 on our business and operations, including the demand for online learning following the COVID-19 pandemic;
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our ability to obtain, maintain, protect, and enforce our intellectual property and proprietary rights and successfully defend against claims of infringement, misappropriation, or other violations of third-party intellectual property;
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the availability of capital to grow our business;
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our ability to successfully defend any future litigation brought against us;
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our ability to implement, maintain, and improve effective internal controls;
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potential changes in laws and regulations applicable to us or our partners and our partners' ability to comply therewith; and
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the amount of time for which we expect our cash balances and other available financial resources to be sufficient to fund our operations.
In addition, any statements contained herein that are not statements of historical facts are deemed to be forward-looking statements. These forward-looking statements reflect our management's beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this report and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by our forward-looking statements. These risks and uncertainties include, but are not limited to, those risks discussed in Part II, Item 1A "Risk Factors" of this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We qualify all of the forward-looking statements in this report by these cautionary statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.
Overview
As shifts in the digital economy are increasing the need for new skills,Coursera's online learning offerings can meet this global demand and provide access to world-class education to learners, organizations, and institutions worldwide. We partner with over 275 leading global university and industry partners to create and distribute content that is modular, stackable, flexible, and affordable. As ofSeptember 30, 2022 , approximately 113 million learners are registered on our platform to engage with a wide range of offerings from industry microcredentials, including entry-level Professional Certificates, to bachelor's and master's degree programs.Coursera serves learners where they want to learn-in their homes, through their employers, through their colleges and universities, and through government-sponsored programs. We provide a range of stackable learning content and credentials, including Clips, Guided Projects, Specializations, courses, and certificates that can build towards a broader course of study such as a degree or postgraduate diploma. Our go-to-market strategy centers on efficiently attracting learners to our platform and connecting them to stackable content and degree programs tailored to them, after which our data-driven learner experience identifies potential Enterprise prospects, complemented by our direct sales team, which finds and engages with potential business, academic, government, and other institutional customers. For the three months endedSeptember 30, 2022 and 2021, we generated a net loss of$36.0 million and$32.5 million , respectively, which included stock-based compensation expense of$26.4 million and$23.4 million , respectively, and a net loss margin as a percentage of revenue of 26% and 30%, respectively. For the nine months endedSeptember 30, 2022 and 2021, we generated a net loss of$123.6 million and$97.5 million , respectively, which included stock-based compensation expense of$75.9 million and$67.9 million , respectively, and a net loss margin as a percentage of revenue of 32% for both of the periods presented.
Expense Reduction Initiative
We are undertaking a plan to reduce our overall expenses, focus our efforts, and prioritize investments in key initiatives that are expected to drive long-term, sustainable growth. In connection with this effort, onNovember 9, 2022 , we enacted a plan to reduce our global workforce to better align our cost structure and personnel needs with our business objectives, growth opportunities, and operational priorities. 19
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As a result of this reduction, we expect to recognize incremental expenses, primarily within operating expenses, of$10 million to$12 million in the fourth quarter of 2022, mainly related to personnel expenses, such as employee severance and benefits costs. Cash payments related to these expenses will be spread relatively evenly between the fourth quarter of 2022 and the first quarter of 2023. We also expect the reversal of stock-based compensation expense of$7 million to$9 million , the majority of which will be recognized in the first quarter of 2023, when the forfeiture of unvested restricted stock units ("RSUs") and stock options is expected to occur. As a result of the foregoing, the net effect on operating expenses is estimated to be$1 million to$5 million .
Factors Affecting Our Performance
We believe that the growth of our business and our future success are dependent upon many factors. While each of these factors present significant opportunities for us, these factors also pose challenges that we must successfully address in order to sustain the growth of our business and enhance our results of operations. Ability to attract and engage new learners, Enterprise customers, and Degrees students-In order to grow our business, we must attract new learners, Enterprise customers, and Degrees students efficiently and increase engagement on our platform over time. Our Consumer learners are the most important source of our overall learner base, as they contribute to our Enterprise and Degrees revenue. Ability to source in-demand content from our educator partners-We believe that learners and enterprises are attracted toCoursera largely because of the high quality and wide selection of content provided by our educator partners, and that continuing to source in-demand content and credentials from our educator partners-from courses to degrees-will be an important factor in attracting learners and increasing our revenue over time. We believe that our reach, scale, and reputation provide an attractive value proposition for leading organizations and institutions to partner withCoursera to develop and distribute content and credentials. To be the platform of choice for educator partners, we continue to invest in increasing the size and engagement of our learner base, developing a suite of academic integrity features (e.g., identity verification and anti-plagiarism detection), improving recommendation and personalization features, developing marketing capabilities that drive higher conversion into paid offerings, and improving the analytics tools available for learners, educators, organizations, and institutions. Impact of mix shift over time-Our mix of business amongst our Consumer, Enterprise, and Degrees channels shifts from time to time, and these shifts will affect our financial performance. We incur content costs generally in the form of a fee paid to our university and industry partners, determined as a percentage of total revenue generated from their content. We incur no content costs for our Degrees offerings, since our university partners pay us a percentage of learner tuition. Ability to convert free learners to paid learners-New learners to our platform typically begin to engage with our free courses, which serve as a funnel to grow our total learner base and drive referrals to our other offerings, including our paid offerings. Through both our on-platform and off-platform marketing efforts, we engage our free learners by highlighting key features that encourage conversion to our paid offerings, including paid subscriptions. These efforts include campaigns targeting existing learners, personalized recommendations, and performance marketing across leading social media platforms. Ability to expand our international footprint-We see a significant opportunity to expand our offerings into other regions, particularly in regions with large, underserved adult learning populations. We have invested, and plan to continue to invest, in personnel and marketing efforts to support our international growth as part of our strategy to grow our customer and learner base. Ability to retain and expand our Enterprise customer relationships-Our efforts to grow our Enterprise segment are focused primarily on business, academic, government, and other institutional customers. We believe a significant opportunity exists for us to expand our existing customers' use of our platform by identifying new use cases to increase the size of deployments. Our business and results of operations will depend in part on our ability to retain and expand usage of our platform within our existing customer base. Our measured investment in growth-We are actively managing our investments to support the future growth of our business using a measured approach. With indications of a global economic slowdown, we are focusing our investments in select markets, offerings, technologies, and solutions that we believe will provide the best opportunity to grow our revenue and improve our operating results in the long term. 20
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Components of Results of Operations
Revenue
We derive revenue from contracts with customers for access to the learning content hosted on our platform and related services. We derive our revenue from three sources: Consumer, Enterprise, and Degrees.
Consumer and Enterprise revenue both consist primarily of subscriptions with terms varying from 30 days for certain Consumer subscriptions to one to three years for Enterprise license subscription contracts. Consumer subscriptions are paid in advance, generally after a 7-day free trial period. Enterprise subscriptions are generally invoiced in advance in quarterly or annual installments. Access to our platform represents a series of distinct services, as we continually provide access to, and fulfill our obligation to, our customer over the contract term. As a result, revenue is recognized ratably over the contract term. We are generally the principal with respect to revenue generated from sales to Consumer and Enterprise customers as we control the performance obligation and are the primary obligor with respect to delivering access to content. Degrees revenue is generated from contracts with university partners for the delivery of online bachelor's and master's degrees or postgraduate diplomas awarded by the university. We earn a Degrees service fee that is determined as a percentage of the total tuition collected from Degrees students, net of refunds. University partners generally collect the tuition from Degrees students; however, in the case of some MasterTrack Certificate offerings, this obligation can be our responsibility. We have a stand-ready obligation to perform services continually throughout the period that the degree content is hosted on our platform. Service fees are paid by the university partner for each university term. As a result, revenue generated from each term is recognized ratably from the start of a term through the start of the following term. There is no direct contractual revenue arrangement betweenCoursera and Degrees students, who contract directly with our university partners. University partners typically have additional performance obligations to the Degrees students in the form of designing the curriculum, setting admission criteria, real-time teaching, making admissions and financial aid decisions, independently awarding credits, certificates, or degrees, and academic or career counseling. For these reasons, the university partners control the delivery of degrees, postgraduate diplomas, and MasterTrack Certificates hosted on our platform. As a result, our Degrees revenue is comprised of the service fees we earn from our contracts with university partners.
Cost of Revenue
Cost of revenue consists of content costs in the form of fees paid to educator partners and expenses associated with the operation and maintenance of our platform. These expenses include the cost of servicing both paid learner and educator partner support requests, content translation and captioning, hosting and bandwidth costs, amortization of acquired technology, internal-use software and content assets, customer payment processing fees, allocated depreciation, and facilities costs. Content costs only apply to Consumer and Enterprise offerings; there is no content cost attributable to our Degrees offering. Content costs payable to educator partners are lower as a percentage of revenue for our Enterprise offerings, due to a lower effective percentage, when compared with our Consumer segment. Content costs as a percentage of revenue for Enterprise and Consumer vary based on the content mix of each segment.
Operating Expenses
Operating expenses consist of research and development, sales and marketing, and
general and administrative expenses. Personnel costs are the most significant
component of our operating expenses and consist of salaries, stock-based
compensation expense, payroll taxes, commissions, bonus, and benefits. Our
operating expenses also include marketing and advertising expenses, consulting
and services expenses, office expenses, depreciation and amortization, and
allocated facilities costs.
Research and development. Our research and development expenses consist
primarily of personnel and personnel-related costs, including stock-based
compensation expense, and costs related to the ongoing management, maintenance,
and expansion of content, features, and services offered on our platform. We
believe that continued investment in our platform is important to our future
growth and to maintain and attract partners and learners to our platform. As a
result, we expect research and development expenses to increase in absolute
dollars. In addition, we expect research and development expenses as a
percentage of revenue to vary from period to period but generally decrease over
the long term.
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Sales and marketing. Our sales and marketing expenses consist primarily of personnel and personnel-related costs, including stock-based compensation expense, and costs related to learner and partner acquisition, support efforts, and brand marketing. Sales and marketing expenses also consist of hosting and bandwidth costs and support costs related to the provisioning of services to free learners. We expect sales and marketing expenses to increase in absolute dollars as our business grows. In addition, we expect sales and marketing expenses as a percentage of revenue to vary from period to period but generally decrease over the long term.
General and administrative. Our general and administrative expenses consist primarily of personnel and personnel-related costs, including stock-based compensation expense, and costs related to our legal, finance, and human resources departments, as well as certain indirect taxes, professional fees, and other corporate expenses.
We have incurred and expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance and professional services. We expect general and administrative expenses to increase in absolute dollars as our business grows. In addition, we expect general and administrative expenses as a percentage of revenue to vary from period to period but generally decrease over the long term.
Interest Income
Interest income consists primarily of interest income earned on our cash, cash equivalents, and marketable securities. It also includes amortization of premiums and accretion of discounts related to our marketable securities. Interest income varies each reporting period based on our average balance of cash, cash equivalents, and marketable securities during the period and market interest rates. Other Expense, Net
Other expense, net consists primarily of foreign exchange (losses) gains.
Income Tax Expense
Income tax expense consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. We have a full valuation allowance against ourU.S. federal and state deferred tax assets as the realization of the full amount of these deferred tax assets is uncertain, including net operating loss carryforwards and tax credits related primarily to research and development. We expect to maintain this full valuation allowance until it becomes more likely than not that the deferred tax assets will be realized.
Results of Operations
The following table summarizes our results of operations for the periods presented. The results below are not necessarily indicative of results to be expected for future periods.
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands)
Revenue $ 136,389 $ 109,880 $ 381,576 $ 300,331
Cost of revenue(1) 48,821 42,162 137,972 122,149
Gross profit 87,568 67,718 243,604 178,182
Operating expenses:
Research and development(1) 39,415 33,935 122,299 97,079
Sales and marketing(1) 58,504 45,268 165,757 121,743
General and administrative(1) 25,998 19,942 76,902 54,933
Total operating expenses 123,917 99,145 364,958 273,755
Loss from operations (36,349 ) (31,427 ) (121,354 ) (95,573 )
Other income (expense):
Interest income 2,301 62 3,473 227
Other expense, net (976 ) (286 ) (2,574 ) (251 )
Loss before income taxes (35,024 ) (31,651 ) (120,455 ) (95,597 )
Income tax expense 1,014 800 3,185 1,880
Net loss $ (36,038 ) $ (32,451 ) $ (123,640 ) $ (97,477 )
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(1) Includes stock-based compensation expense as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands)
Cost of revenue $ 683 $ 527 $ 2,072 $ 1,537
Research and development 11,675 11,259 34,037 31,650
Sales and marketing 7,630 6,846 21,952 19,504
General and administrative 6,382 4,776 17,792 15,176
Total stock-based compensation expense
The following table summarizes our results of operations as a percentage of revenue for each of the periods indicated:
Three Months Ended September 30 ,
Nine Months Ended
2022 2021 2022 2021
Revenue 100 % 100 % 100 % 100 %
Cost of revenue 36 38 36 41
Gross profit 64 62 64 59
Operating expenses:
Research and development 29 31 33 32
Sales and marketing 43 42 43 41
General and administrative 19 18 20 18
Total operating expenses 91 91 96 91
Loss from operations (27 ) (29 ) (32 ) (32 )
Other income (expense):
Interest income 2 - 1 -
Other expense, net (1 ) - (1 ) -
Loss before income taxes (26 ) (29 ) (32 ) (32 )
Income tax expense - 1 - -
Net loss (26 )% (30 )% (32 )% (32 )%
Comparison of the Three and Nine Months Ended
Revenue
Three Months Ended Nine Months Ended September
September 30, Change 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands, except percentages)
Revenue:
Consumer $ 78,002 $ 66,482 $ 11,520 17 % $ 215,786 $ 180,432 $ 35,354 20 %
Enterprise 48,044 31,840 16,204 51 % 130,794 84,518 46,276 55 %
Degrees 10,343 11,558 (1,215 ) (11 )% 34,996 35,381 (385 ) (1 )%
Total revenue $ 136,389 $ 109,880 $ 26,509 24 % $ 381,576 $ 300,331 $ 81,245 27 %
Revenue for the three months ended September 30, 2022 was $136.4 million
compared to $109.9 million for the three months ended September 30, 2021 .
Revenue increased by $26.5 million , or 24%, compared to the three months ended
September 30, 2021 . The increase was primarily driven by a 23% increase in
registered learners, which resulted in more paid learners, and by the addition
of 375 Paid Enterprise Customers, partially offset by lower revenue per student
in our Degrees segment.
Our future revenue growth is expected to slow compared to recent results due to
macroeconomic headwinds, particularly in Europe . In our Degrees business, we
experienced a slowdown in new student growth during the three months ended
September 30, 2022 , which is consistent with National Clearinghouse Data
regarding graduate enrollments in the U.S. and, we believe, likely influenced by
tight U.S. labor markets that could persist in future periods. Global and
regional, macroeconomic, and geopolitical conditions have impacted overall
student engagement and may continue to have a lingering impact on total student
enrollments.
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For the three months endedSeptember 30, 2022 , total Consumer revenue increased by$11.5 million , or 17%, compared to the three months endedSeptember 30, 2021 . New learners that registered afterSeptember 30, 2021 contributed$36.3 million to total Consumer revenue of$78.0 million for the three months endedSeptember 30, 2022 . The remaining Consumer revenue in the three months endedSeptember 30, 2022 of$41.7 million is attributable to learners that were registered on our platform as ofSeptember 30, 2021 , thus retaining 63% of the revenue from those registered learners. For the three months endedSeptember 30, 2022 , total Enterprise revenue increased by$16.2 million , or 51%, compared to the three months endedSeptember 30, 2021 . Approximately$10.4 million of the increase in revenue was attributable to new customers, and the remaining increase of$5.8 million was attributable to growth from existing customers. For the three months endedSeptember 30, 2022 , total Degrees revenue decreased by$1.2 million , or 11%, compared to the three months endedSeptember 30, 2021 . The$1.2 million decrease in revenue was primarily attributable to a decrease of$2.4 million due to lower revenue per student, partially offset by$1.2 million in revenue from an increase in the number of Degrees students. Revenue for the nine months endedSeptember 30, 2022 was$381.6 million compared to$300.3 million for the nine months endedSeptember 30, 2021 . Revenue increased by$81.2 million , or 27%, compared to the nine months endedSeptember 30, 2021 . The increase was primarily driven by a 23% increase in registered learners, which resulted in more paid learners, and by the addition of 375 Paid Enterprise Customers, partially offset by lower revenue per student in our Degrees segment. For the nine months endedSeptember 30, 2022 , total Consumer revenue increased by$35.4 million , or 20%, compared to the nine months endedSeptember 30, 2021 . New learners that registered afterSeptember 30, 2021 contributed$82.0 million to total Consumer revenue of$215.8 million for the nine months endedSeptember 30, 2021 . The remaining Consumer revenue in the nine months endedSeptember 30, 2022 of$133.8 million is attributable to learners that were registered on our platform as ofSeptember 30, 2021 , thus retaining 74% of the revenue from those registered learners. For the nine months endedSeptember 30, 2022 , total Enterprise revenue increased by$46.3 million , or 55%, compared to the nine months endedSeptember 30, 2021 . Approximately$22.1 million of the increase in revenue was attributable to new customers, and the remaining increase of$24.2 million was attributable to growth from existing customers. For the nine months endedSeptember 30, 2022 , total Degrees revenue decreased by$0.4 million , or 1%, compared to the nine months endedSeptember 30, 2021 . The$0.4 million decrease in revenue was primarily attributable to a decrease of$6.4 million due to lower revenue per student, partially offset by$6.0 million in revenue from an increase in the number of Degrees students.
Cost of Revenue, Gross Profit, and Gross Margin
Three Months Ended September Nine Months Ended September
30, Change 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands, except percentages)
Cost of revenue $ 48,821 $ 42,162 $ 6,659 16 % $ 137,972 $ 122,149 $ 15,823 13 %
Gross profit $ 87,568 $ 67,718 $ 19,850 29 % $ 243,604 $ 178,182 $ 65,422 37 %
Gross margin 64 % 62 % 64 % 59 %
Cost of revenue for the three months ended September 30, 2022 was $48.8 million
compared to $42.2 million for the three months ended September 30, 2021 . The
increase in revenue, partially offset by a lower blended content cost rate,
resulted in a net increase of $3.6 million in costs related to partner fees.
Paid learner usage on our platform increased resulting in a $1.9 million cost
increase for other expenses including hosting, credit card fees and support
services. Other costs, including amortization and translations, increased by
$1.2 million .
Content costs for the Consumer and Enterprise segments were $20.9 million and
$14.1 million , respectively, for the three months ended September 30, 2022
compared to $21.0 million and $10.4 million , respectively, for the three months
ended September 30, 2021 . Content costs as a percentage of revenue for the
Consumer and Enterprise segments were 27% and 29% for the three months ended
September 30, 2022 , respectively, compared to 32% and 33% for the three months
ended September 30, 2021 , respectively.
Gross margin was 64% for the three months ended September 30, 2022 , compared to
62% for the three months ended September 30, 2021 . The increase in gross margin
was driven by a lower revenue content cost rate in both our Consumer and
Enterprise segments.
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Cost of revenue for the nine months endedSeptember 30, 2022 was$138.0 million compared to$122.1 million for the nine months endedSeptember 30, 2021 . Paid learner usage on our platform increased, resulting in a$5.5 million cost increase for hosting fees, support services, and credit card processing fees. The increase in revenue combined with improved content costs as a percentage of revenue resulted in a net increase of$5.4 million in costs related to partner fees. Amortization expense, primarily from internal-use software, increased$3.0 million . Also, partner content translation costs increased$2.0 million . Content costs for the Consumer and Enterprise segments were$59.7 million and$37.7 million , respectively, for the nine months endedSeptember 30, 2022 compared to$64.5 million and$27.5 million , respectively, for the nine months endedSeptember 30, 2021 . Content costs as a percentage of revenue for the Consumer and Enterprise segments were 28% and 29% for the nine months endedSeptember 30, 2022 , respectively, compared to 36% and 33% for the nine months endedSeptember 30, 2021 , respectively. Gross margin was 64% for the nine months endedSeptember 30, 2022 , compared to 59% for the nine months endedSeptember 30, 2021 . The increase in gross margin was driven by a lower revenue content cost rate in both our Consumer and Enterprise segments.
Operating Expenses
Three Months Ended Nine Months Ended September
September 30, Change 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands, except percentages)
Operating
expenses:
Research and
development $ 39,415 $ 33,935 $ 5,480 16 % $ 122,299 $ 97,079 $ 25,220 26 %
Sales and
marketing 58,504 45,268 13,236 29 % 165,757 121,743 44,014 36 % General and administrative 25,998 19,942 6,056 30 %
76,902 54,933 21,969 40 % Total operating expenses$ 123,917 $ 99,145 $ 24,772 25 %$ 364,958 $ 273,755 $ 91,203 33 % Total operating expenses for the three and nine months endedSeptember 30, 2022 were$123.9 million and$365.0 million , respectively, compared to$99.1 million and$273.8 million for the three and nine months endedSeptember 30, 2021 , respectively. Research and development expenses for the three months endedSeptember 30, 2022 were$39.4 million compared to$33.9 million for the three months endedSeptember 30, 2021 . The increase was primarily due to higher personnel-related expenses of$3.8 million driven by additional headcount as well as an increase in content creation fees of$1.4 million . Research and development expenses for the nine months endedSeptember 30, 2022 were$122.3 million compared to$97.1 million for the nine months endedSeptember 30, 2021 . The increase was primarily due to headcount growth contributing to higher personnel-related expenses of$13.9 million , higher stock-based compensation expense of$2.4 million , and higher recruitment fees of$1.2 million . In addition, content creation fees increased$5.7 million and a one-time impairment charge of$1.5 million was recognized due to a partial sublease of our office space. Sales and marketing expenses for the three months endedSeptember 30, 2022 were$58.5 million compared to$45.3 million for the three months endedSeptember 30, 2021 . The increase was primarily due to higher personnel-related expenses of$6.8 million driven by headcount growth. In addition, marketing and advertising expenses increased$4.5 million . Sales and marketing expenses for the nine months endedSeptember 30, 2022 were$165.8 million compared to$121.7 million for the nine months endedSeptember 30, 2021 . The increase was primarily due to higher personnel-related expenses of$21.2 million driven by headcount growth and stock-based compensation expense of$2.4 million , as well as marketing and advertising expenses of$15.5 million . In addition, travel-related costs increased$2.3 million , software related expenses increased$1.5 million , and we recognized a one-time impairment charge of$1.2 million resulting from a partial sublease of our office space. General and administrative expenses for the three months endedSeptember 30, 2022 were$26.0 million compared to$19.9 million for the three months endedSeptember 30, 2021 . The increase was primarily due to higher personnel-related expenses of$4.2 million driven by headcount growth. During the three months endedSeptember 30, 2022 , we recognized a non-recurring impairment charge of$1.0 million relating to deferred partner fees associated with content from Russian educator partners that we do not expect to recover. 25
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General and administrative expenses for the nine months endedSeptember 30, 2022 were$76.9 million compared to$54.9 million for the nine months endedSeptember 30, 2021 . The increase was primarily due to headcount growth contributing to higher personnel-related expenses of$12.4 million , higher stock-based compensation expense of$2.6 million , and higher recruitment fees of$1.0 million . During the nine months endedSeptember 30, 2022 , we recognized non-recurring impairment charges of$3.5 million relating to deferred partner fees associated with content from Russian educator partners that we do not expect to recover and to a partial sublease of our office space. In addition, we had increases of$2.3 million in indirect taxes and$1.2 million each in software-related expenses and consulting fees.
Other Income (Expense)
Three Months Ended September 30, Change Nine Months Ended September 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands, except percentages)
Interest
income $ 2,301 $ 62 $ 2,239 3,611 % $ 3,473 $ 227 $ 3,246 1,430 %
Other
expense, net (976 ) (286 ) (690 ) 241 % (2,574 ) (251 ) (2,323 ) 925 %
Total other
income
(expense),
net $ 1,325 $ (224 ) $ 1,549 nm $ 899 $ (24 ) $ 923 nm
Total other income (expense), net for the three and nine months ended September
30, 2022 primarily reflected interest income earned on cash, cash equivalents,
and marketable securities offset by unrealized net foreign exchange losses.
Interest income was higher during the three and nine months ended September 30,
2022 compared to the 2021 periods due to a rise in interest rates and our
average rate of return on investments in U.S. Treasury securities. Other
expense, net was higher during the three and nine months ended September 30,
2022 compared to the 2021 periods due to unfavorable foreign exchange rates
resulting from the strengthening of the U.S. dollar to other currencies. Our
operating expenses are typically denominated in the local currencies of the
countries in which our operations are located and are subject to fluctuations
due to changes in foreign currency exchange rates. We also hold cash and cash
equivalents in foreign currencies, primarily in our foreign entities to support
their ongoing operations.
Income Tax Expense
Three Months Ended September Nine Months Ended September
30, Change 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands, except percentages)
Income tax
expense $ 1,014 $ 800 $ 214 27 % $ 3,185 $ 1,880 $ 1,305 69 %
Income tax expense for the three and nine months ended
Liquidity and Capital Resources
Overview
Since our inception, we have financed our operations primarily through proceeds from our redeemable convertible preferred stock issuances, as well as from cash generated from our business operations. InApril 2021 , we received cash proceeds of$525.3 million from our initial public offering ("IPO"), net of underwriting discounts and commissions, but before deducting other offering expenses. As ofSeptember 30, 2022 , our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling$785.8 million . Our investments consist ofU.S. Treasury securities. 26
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Our principal uses of cash in recent periods include the funding of our business operations and investments in our internal-use software. We believe that our existing cash, cash equivalents, and marketable securities and our expected cash flows from operations will be sufficient to meet our cash needs for at least the next 12 months. Over the longer term, our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our sales and marketing and research and development expenditures, the continuing market acceptance of our offerings, and any investments or acquisitions we may choose to pursue in the future. In the event that we need to borrow funds or issue additional equity, we cannot assure you that any such additional financing will be available on terms acceptable to us, if at all. In addition, any future borrowings may result in additional restrictions on our business and any issuance of additional equity would result in dilution to investors. If we are unable to raise additional capital when desired and on terms acceptable to us, our business, results of operations, and financial condition could be materially and adversely affected.
Contractual Obligations and Commitments
Except as discussed in Note 11, Leases, and Note 12, Commitments and Contingencies, in the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no material changes outside of the ordinary course of business in our commitments and contractual obligations for the three and nine months endedSeptember 30, 2022 from the commitments and contractual obligations in "Management's Discussion and Analysis of Financial Condition and Results of Operations", set forth in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , which was filed with theSEC onMarch 3, 2022 .
Cash Flows
The following table summarizes our cash flows for the periods presented (in
thousands):
Nine Months Ended September 30,
2022 2021Net cash (used in) provided by operating activities $ (32,609 )
$ 941
Net cash (used in) provided by investing activities (135,402 ) 178,272
Net cash provided by financing activities 12,149 541,983
Net (decrease) increase in cash, cash equivalents,
and restricted cash $ (155,862 ) $ 721,196
Operating Activities
Cash used in operating activities mainly consists of our net loss adjusted for
certain non-cash items, including stock-based compensation expense and
depreciation and amortization, as well as the effect of changes in operating
assets and liabilities during each period.
Our main source of operating cash is payments received from our customers. Our
primary use of cash from operating activities is for personnel-related expenses,
partner fees, marketing and advertising expenses, indirect taxes, and
third-party cloud infrastructure expenses.
For the nine months ended September 30, 2022 , net cash used in operating
activities was $32.6 million , primarily consisting of our net loss of $123.6
million , adjusted for non-cash charges of $97.6 million and net cash outflows of
$6.6 million used in changes in our operating assets and liabilities. The main
drivers of the changes in operating assets and liabilities were a $21.1 million
increase in accounts receivables due to timing of invoicing for Enterprise and
Degrees customers, a $19.5 million increase in prepaid expenses and other assets
due to timing of deferred partner fees and an increase in deferred commissions
and prepayments to vendors, resulting from business growth, offset by a $21.3
million increase in deferred revenue, resulting primarily from our Enterprise
business growth, and a $18.2 million increase in accounts payable and accrued
expenses due to timing of payments.
For the nine months ended September 30, 2021 , net cash provided by operating
activities was $1.0 million , primarily consisting of our net loss of $97.5
million , adjusted for non-cash charges of $79.0 million and net cash inflows of
$19.4 million provided by changes in our operating assets and liabilities. The
main drivers of the changes in operating assets and liabilities were a $14.1
million increase in deferred revenue, resulting primarily from our business
growth from Enterprise, a $7.3 million increase in accrued compensation and
other liabilities mainly due to ESPP contributions from employees, and a $4.5
million decrease in accounts receivable due to timing of billings, partially
offset by a $5.7 million increase in prepaid expenses and other assets primarily
due to deferred partner fees and increase in deferred commissions.
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Cash used in operating activities increased by$33.6 million during the nine months endedSeptember 30, 2022 , compared to the nine months endedSeptember 30, 2021 , primarily due to increased spending to support business growth, and timing of invoicing and cash collections.
Investing Activities
For the nine months endedSeptember 30, 2022 , net cash used in investing activities was$135.4 million , primarily as a result of purchases of marketable securities, capitalized internal-use software costs, capital expenditures of property, equipment and software, and purchases of content assets, partially offset by proceeds from maturities of marketable securities. For the nine months endedSeptember 30, 2021 , net cash provided by investing activities was$178.3 million , primarily as a result of proceeds from maturities of marketable securities, partially offset by capitalized internal-use software costs, capital expenditures of property, equipment and software, and purchases of content assets. Financing Activities For the nine months endedSeptember 30, 2022 , net cash provided by financing activities was$12.1 million , primarily as a result of proceeds from issuance of common stock from employee stock option exercises and proceeds from the employee stock purchase plan, offset by employee payroll taxes paid for vesting of restricted stock units and payment of deferred offering costs. For the nine months endedSeptember 30, 2021 , net cash provided by financing activities was$542.0 million , primarily as a result of net proceeds from our IPO, and proceeds from issuance of common stock following employee stock option exercises, offset by payment of deferred offering costs and employee payroll taxes paid for vesting of restricted stock units.
Key Business Metrics and Non-GAAP Financial Measures
We monitor the key business metrics and non-GAAP financial measures set forth
below to help us evaluate our business and growth trends, establish budgets,
measure the effectiveness of our sales and marketing efforts, and assess
operational efficiencies. These key business metrics and non-GAAP financial
measures are presented for supplemental informational purposes only, should not
be considered a substitute for financial information presented in accordance
with GAAP, and may differ from similarly titled metrics or measures presented by
other companies. A reconciliation of each non-GAAP financial measure to the most
directly comparable GAAP financial measure is provided in "Non-GAAP Financial
Measures" below.
Key Business Metrics
Registered Learners
We count the total number of registered learners at the end of each period. For
purposes of determining our registered learner count, we treat each customer
account that registers with a unique email as a registered learner and adjust
for any spam, test accounts, and cancellations. Our registered learner count is
not intended as a measure of active engagement. New registered learners are
individuals that register in a particular period. We believe that the number of
registered learners is an important indicator of the growth of our business and
future revenue trends.
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in millions, except percentages)
New Registered Learners 6.2 5.5 16.4 15.9
Total Registered Learners 113.0 92.1 113.0 92.1
Total Registered Learners
year-over-year ("YoY") growth 23 % 23 %
Number of Degrees Students
We count the total number of Degrees students for each period. For purposes of
determining our Degrees student count, we include all the students that are
matriculated in a bachelor's, master's, or postgraduate diploma and who are
enrolled in one or more courses in such a degree program during the period. If a
degree term spans across multiple quarters, the student is counted as active in
all quarters of the degree term. For purposes of determining our Degrees student
count, we do not include students who are matriculated in the degree but are not
enrolled in a course in that period. We believe that the number of Degrees
students is an important indicator of the growth of our Degrees business and
future Degrees segment revenue trends.
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The Degrees student count is affected by the seasonality of the school class
cycles, combined with the underlying growth interacting with those trends. The
number of Degrees students fluctuates in part because the academic terms for
each degree program often begins and/or ends within different calendar quarters,
and the frequency with which each degree program is offered within a given year
varies.
Three Months Ended September 30,
2022 2021
Number of Degrees Students 17,723 16,068
YoY growth 10 %
Paid Enterprise Customers
We count the total number of Paid Enterprise Customers that are active on our
platform at the end of each period. For purposes of determining our customer
count, we treat each customer account that has a corresponding contract as a
unique customer, and a single organization with multiple divisions, segments, or
subsidiaries may be counted as multiple customers. We define a "Paid Enterprise
Customer" as a customer who purchases Coursera via our direct sales force. For
purposes of determining our Paid Enterprise Customer count, we exclude our
Enterprise customers who do not purchase Coursera via our direct sales force,
which include organizations engaging on our platform through our Coursera for
Teams offering or through our channel partners. For the nine months ended
September 30, 2022 , approximately 87% of our total Enterprise segment revenue
was generated from our Paid Enterprise Customers. We believe that the number of
Paid Enterprise Customers and our ability to increase this number is an
important indicator of the growth of our Enterprise business and future
Enterprise segment revenue trends.
September 30,
2022 2021
Paid Enterprise Customers 1,086 711
YoY growth 53 %
Net Retention Rate for Paid Enterprise Customers
We disclose Net Retention Rate for Paid Enterprise Customers as a supplemental
measure of our Enterprise revenue growth. We believe Net Retention Rate for Paid
Enterprise Customers is an important metric that provides insight into the
long-term value of our subscription agreements and our ability to retain and
grow revenue from our Paid Enterprise Customers.
We calculate annual recurring revenue ("ARR") by annualizing each customer's
monthly recurring revenue ("MRR") for the most recent month at period end. We
calculate "Net Retention Rate" as of a period end by starting with the ARR from
all Paid Enterprise Customers as of the 12 months prior to such period end, or
Prior Period ARR. We then calculate the ARR from these same Paid Enterprise
Customers as of the current period end, or Current Period ARR. Current Period
ARR includes expansion within Paid Enterprise Customers and is net of
contraction or attrition over the trailing 12 months but excludes revenue from
new Paid Enterprise Customers in the current period. We then divide the total
Current Period ARR by the total Prior Period ARR to arrive at our Net Retention
Rate for Paid Enterprise Customers. Our Net Retention Rate for Paid Enterprise
Customers decreased to 111% as of September 30, 2022 from 113% as of September
30, 2021 . Our Net Retention Rate for Paid Enterprise Customers is expected to
fluctuate in future periods due to a number of factors, including the growth of
our revenue base, the penetration within our Paid Enterprise Customer base,
expansion of products and features, and our ability to retain our Paid
Enterprise Customers.
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Table of Contents Segment Revenue
Our revenue is generated from three sources: Consumer, Enterprise, and Degrees, each of which is an individual segment of our business.
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands, except percentages)
Consumer revenue $ 78,002 $
66,482
17 % 20 %
Enterprise revenue $ 48,044 $ 31,840 $ 130,794 $ 84,518
YoY growth 51 % 55 %
Degrees revenue $ 10,343 $ 11,558 $ 34,996 $ 35,381
YoY growth (11 )% (1 )%
Total revenue $ 136,389 $ 109,880 $ 381,576 $ 300,331
YoY growth 24 % 27 %
Segment Gross Profit
We monitor segment gross profit as a key metric to help us evaluate the
financial performance of our individual segments. Segment gross profit
represents segment revenue less content costs paid to educator partners; segment
gross margin is the quotient of segment gross profit and segment revenue.
Content costs apply only to the Consumer and Enterprise segments as there is no
content cost attributable to the Degrees segment. Instead, in the Degrees
segment, we earn a Degrees service fee based on a percentage of the total online
student tuition collected by the university partner. Given that content costs
are the largest individual cost of our revenue, and contractually vary as a
percentage of revenue between our Consumer and Enterprise offerings, and the
fact that no content costs are payable in our Degrees offering, shifts in mix
between our three segments is expected to be a significant driver of our overall
financial performance and profitability.
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands, except percentages)
Consumer gross profit $ 57,078 $ 45,499 $ 156,090 $ 115,891
Consumer segment gross margin % 73 % 68 % 72 % 64 %
Enterprise gross profit $ 33,993 $ 21,414 $ 93,059 $ 57,011
Enterprise segment gross margin % 71 % 67 % 71 % 67 %
Degrees gross profit $ 10,343 $ 11,558 $ 34,996 $ 35,381
Degrees segment gross margin % 100 % 100 % 100 % 100 %
Consumer segment gross margin increased to 73% in the three months ended
September 30, 2022 from 68% in the three months ended September 30, 2021 due to
a greater proportion of Consumer revenue generated from subscription sales with
no associated content cost. Enterprise segment gross margin increased to 71%
from 67% when comparing the same periods due to a higher proportion of
Enterprise revenue generated from subscription licenses where learners enrolled
in content with no associated content cost.
Consumer segment gross margin increased to 72% in the nine months ended
September 30, 2022 from 64% in the nine months ended September 30, 2021 due to a
greater proportion of Consumer revenue generated from subscription sales with no
associated content cost. Enterprise segment gross margin increased to 71% from
67% when comparing the same periods due to a higher proportion of Enterprise
revenue generated from subscription licenses where learners enrolled in content
with no associated content cost.
Non-GAAP Financial Measures
Non-GAAP Gross Profit and Non-GAAP Net Loss
We define non-GAAP gross profit and non-GAAP net loss as GAAP gross profit and
GAAP net loss excluding the impact of stock-based compensation expense and
payroll tax expense related to stock-based activities. We believe the
presentation of operating results that exclude these non-cash items provides
useful supplemental information to investors and facilitates the analysis of our
operating results and comparison of operating results across reporting periods.
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The following tables provide a reconciliation of GAAP gross profit and GAAP net
loss, the most directly comparable GAAP financial measure, to non-GAAP gross
profit and non-GAAP net loss (in thousands):
Three Months Ended September 30 ,
Nine Months Ended
2022 2021 2022 2021
Gross profit $ 87,568 $
67,718
Stock-based compensation expense 683 527 2,072 1,537
Payroll tax expense related to
stock-based activities 3 37 16 53 Non-GAAP gross profit$ 88,254 $ 68,282 $ 245,692 $ 179,772 Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net loss$ (36,038 ) $
(32,451 )
Stock-based compensation expense 26,370 23,408 75,853 67,867
Payroll tax expense related to
stock-based activities 158 1,029 891 1,313 Non-GAAP net loss $ (9,510 ) $ (8,014 )$ (46,896 ) $ (28,297 )
Adjusted EBITDA and Adjusted EBITDA Margin
"Adjusted EBITDA" and "Adjusted EBITDA Margin", which are non-GAAP financial measures, are key measures used by our management to help us analyze our financial results, establish budget and operational goals for managing our business, evaluate our performance, and make strategic decisions.
We define Adjusted EBITDA as our net loss excluding: (1) depreciation and amortization; (2) interest income, net; (3) other expense, net; (4) stock-based compensation expense; (5) income tax expense; and (6) payroll tax expense related to stock-based activities. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue.
The following table provides a reconciliation of net loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA (in thousands, except percentages).
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net loss $ (36,038 ) $ (32,451 ) $ (123,640 ) $ (97,477 )
Depreciation and amortization 4,886 4,137 13,507 10,508
Interest income, net (2,301 ) (62 ) (3,473 ) (227 )
Other expense, net 976 286 2,574 251
Stock-based compensation expense 26,370 23,408 75,853 67,867
Income tax expense 1,014 800 3,185 1,880
Payroll tax expense related to
stock-based activities 158 1,029 891 1,313
Adjusted EBITDA $ (4,935 ) $ (2,853 ) $ (31,103 ) $ (15,885 )
Net loss margin (26 )% (30 )% (32 )% (32 )%
Adjusted EBITDA Margin (4 )% (3 )% (8 )% (5 )%
Free Cash Flow
"Free Cash Flow" is a non-GAAP financial measure that we calculate as net cash
(used in) provided by operating activities, less cash used for purchases of
property, equipment, and software and capitalized internal-use software costs as
we consider these capital expenditures necessary to support our ongoing
operations.
We consider Free Cash Flow to be a liquidity measure that provides useful
information to management and investors in understanding and evaluating our
liquidity and future ability to generate cash that can be used for strategic
opportunities, including investing in our business and strengthening our balance
sheet, but it is not intended to represent the residual cash flow available for
discretionary expenditures.
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The following table provides a reconciliation of net cash (used in) provided by
operating activities, the most directly comparable GAAP financial measure, to
Free Cash Flow (in thousands):
Nine Months
Ended
2022 2021
Net cash (used in) provided by operating activities $ (32,609 )
$ 941
Less: purchases of property, equipment, and software (1,386 ) (1,228 )
Less: capitalized internal-use software costs (10,082 ) (9,712 )
Free Cash Flow $ (44,077 ) $ (9,999 )
Net cash (used in) provided by investing activities $ (135,402 ) $ 178,272
Net cash provided by financing activities $ 12,149 Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles inthe United States ("GAAP"). The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.
There have been no material changes to our critical accounting policies and
estimates as compared to those described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" set forth in our
Annual Report on Form 10-K for the year ended
Recent Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding recently issued accounting pronouncements.
JOBS Act Transition Period
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act for the adoption of certain accounting standards until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our unaudited condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. As ofJune 30, 2022 , the last business day of our most recently completed second fiscal quarter, the Company's aggregate worldwide public float was greater than$700 million . As a result of exceeding this threshold and meeting the time and reporting requirements established by theSEC , we will become a large accelerated filer and will no longer qualify as an emerging growth company onDecember 31, 2022 , the end of our current fiscal year. Accordingly, at that time we will cease to be eligible for the emerging growth company provisions of the JOBS Act.
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