COURSERA, INC. The following discussion of our financial condition and results of operations should be read in conjunction with our 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 included in the final prospectus for our
initial public offering filed with the
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, and
expectations for growth in those markets;
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the acceptance, adoption, and growth of online learning and credentialing by
businesses, 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 expand the content and credentialing programs available on our
platform and our ability to develop new platform 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 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 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. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expected or referenced in these 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 to 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 learning to learners and institutions worldwide. We partner with over 200 leading global university and industry partners to create and distribute content that is modular, stackable, flexible, and affordable. As ofJune 30, 2021 , approximately 87 million learners are registered on our platform to engage with a wide range of offerings from Guided Projects to bachelor's and master's degree programs.Coursera is a platform that enables a global ecosystem of educators, learners, and institutions.Coursera serves learners in their homes, through their employers, through their colleges and universities, and through government-sponsored programs. We provide a broad range of learning offerings: Guided Projects, courses, Specializations, certificates, and degrees. Our go-to-market strategy centers on efficiently attracting learners to our platform and connecting them to 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, and government customers. For the three months endedJune 30, 2020 and 2021, we generated a net loss of$13.9 million and$46.4 million , respectively, which included$3.6 million and$39.2 million , respectively, of stock-based compensation expense, and a net loss margin as a percentage of revenue for the three months endedJune 30, 2020 and 2021 of (19)% and (45)%, respectively. Our Adjusted EBITDA and Adjusted EBITDA Margin as a percentage of revenue were$(7.9) million and (11)%, and$(2.9) million and (3)%, for the three months endedJune 30, 2020 and 2021, respectively. For the six months endedJune 30, 2020 and 2021, we generated a net loss of$28.2 million and$65.0 million , respectively, which included$6.6 million and$44.5 million , respectively, of stock-based compensation expense, and a net loss margin as a percentage of revenue for the six months endedJune 30, 2020 and 2021of (22)% and (34)%, respectively. Our Adjusted EBITDA and Adjusted EBITDA Margin as a percentage of revenue were$(17.8) million and (14)%, and$(13.0) million and (7)%, for the six months endedJune 30, 2020 and 2021, respectively. See "Non-GAAP Financial Measures" for more information and for a reconciliation of net loss and net loss margin, the most directly comparable GAAP financial measures, to Adjusted EBITDA and Adjusted EBITDA Margin. Initial Public Offering OnApril 5, 2021 , we completed our initial public offering ("IPO") of common stock, in which we sold 14,664,776 shares. The shares were sold at a price to the public of$33.00 per share for net proceeds of$452.5 million after deducting underwriting discounts and commissions of$31.5 million . Additionally, offering costs incurred by us were approximately$6.4 million . Upon the closing of our IPO, all outstanding shares of our redeemable convertible preferred stock automatically converted into 75,305,400 shares of common stock on a one-for-one basis. 17
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OnApril 19, 2021 , the underwriters exercised in full the right to purchase 2,359,500 additional shares of common stock from us, resulting in additional net proceeds of$72.8 million after deducting underwriting discounts and commissions of$5.1 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 presents 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 our educator partners offer, 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 free and paid customers and increasing our revenue over time. We believe that our reach, scale, and reputation provide an attractive value proposition for leading 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, improving recommendation and personalization features, developing marketing capabilities that drive higher conversion into paid offerings, and improving the analytics tools available for learners, educators, and institutions.
Impact of mix shift over time
Our mix of business amongst our Consumer, Enterprise, and Degrees channels is shifting, and this shift will affect our financial performance. We incur content costs 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. If either our Degrees or Enterprise revenue grow faster than our Consumer revenue, which we presently expect, our overall margins will benefit from this shift in revenue mix.
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. 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 and expand our international operations as part of our strategy to grow our customer and learner base, particularly among our Enterprise customers.
Ability to retain and expand our Enterprise customer relationships
Our efforts to grow our Enterprise business are focused primarily on business,
academic and government customers. We believe a significant opportunity exists
for us to expand our existing customers' use of our platform by identifying new
use cases in additional departments and divisions and increasing 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.
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Our investment in growth
We are actively investing in our business. In order to support our future growth and expanding set of offerings, we expect this investment to continue. We anticipate that our operating expenses will increase as we continue to build our sales and marketing efforts, expand our employee base, and invest in our technology development. The investments we make in our platform are designed to grow our revenue opportunity and to improve our operating results in the long term. Impact of COVID-19
The COVID-19 pandemic has resulted, and is likely to continue to result, in significant global, social, and business disruption.
As of the date of this filing, significant uncertainty continues to exist concerning the magnitude of the impact and duration of the COVID-19 pandemic. While some restrictions on travel and activities have been lifted, the current rise in cases due to a variant of the virus may result in restrictions being reinstated. While the impact of the ongoing COVID-19 pandemic is severe, widespread, and continues to evolve, it has accelerated the need for online-delivered education. Both individuals and institutions have relied and are continuing to rely on online learning to navigate change and disruption. As a result, our revenue significantly increased due primarily to an increase in the number of enrollments during the COVID-19 pandemic. Likewise, we have experienced a significant increase in our operating costs associated with our services, primarily driven by our freemium offerings and marketing efforts. As the pandemic made remote work and online learning more widespread, it is uncertain what impact the tapering of the COVID-19 pandemic could have on our operating results. Once COVID-19 wanes, our growth rates may increase or decrease. The full extent of the impact of the pandemic and its aftermath on our operations, key metrics, and financial performance depends on future developments that are uncertain and unpredictable, including the duration and spread of the pandemic, its impact on capital and financial markets, and any new information that may emerge concerning the severity of the COVID-19 virus. We will continue to actively monitor the situation, including progress made through vaccinations, and we will make further changes to our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders.
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 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, the customer over the contract term. As a result, revenue is recognized ratably over the contract term. We are 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 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, by the university partner. We have a stand ready obligation to perform degree services continually throughout the period that the degree content is hosted on our platform. Degrees revenue is received and 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 arrangement betweenCoursera and Degrees students, who contract directly with the university partners. University partners typically have additional performance obligations to the Degrees students in the form of real-time teaching, financial aid, and academic or career counseling. For these reasons, we have determined that the university partners control the delivery of degrees hosted on our platform. As a result, we recognize Degrees revenue as the service fee we receive from the university partner.
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 of our platform. These
expenses include the cost of servicing both paid learner and educator partner
support requests, hosting and bandwidth costs, amortization of acquired
technology, internal-use software and content assets, customer payment
processing fees, and allocated depreciation and facilities costs.
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Content costs only apply to Consumer and Enterprise offerings; there is no content cost attributable to our Degrees offering. Content costs as a percentage of revenue are lower for our Enterprise offerings, due to a lower effective percentage payable to educator partners compared with sales to Consumer customers. We expect Enterprise and Degrees to become a larger portion of the overall business, and as our mix changes, content costs will decrease as a percentage of total revenue.
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, benefits, bonuses, stock-based compensation, commissions, and payroll taxes. Our operating expenses also include allocated costs of facilities, information technology, depreciation, and amortization. Although our operating expenses may fluctuate from period to period, we currently expect our operating expenses to increase in absolute dollars over time. Research and development. Our research and development expenses consist primarily of personnel and personnel-related costs, including stock-based compensation 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. Sales and marketing. Our sales and marketing expenses consist primarily of personnel and personnel-related costs, including stock-based compensation 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 learner 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 and costs related to our legal, finance, and human resources departments, as well as indirect taxes, professional fees, and other corporate expenses.
We expect 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 Income (Expense), Net
Other income (expense), net consists primarily of foreign exchange gains (losses).
Income Tax Expense
Our income tax provision 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. 20
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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 June 30, Six Months Ended June 30,
2020 2021 2020 2021
(in thousands)
Revenue $ 73,728 $ 102,089 $ 127,575 $ 190,451
Cost of revenue(1) 35,161 41,162 60,112 79,987
Gross profit 38,567 60,927 67,463 110,464
Operating expenses:
Research and development(1) 18,046 41,004 33,829 63,144
Sales and marketing(1) 25,414 43,862 46,110 76,475
General and administrative(1) 8,943 21,846 16,029 34,991
Total operating expenses 52,403 106,712 95,968 174,610
Loss from operations (13,836 ) (45,785 ) (28,505 ) (64,146 )
Other income:
Interest income 265 85 961 165
Interest expense (12 ) - (12 ) -
Other income (expense), net 34 42 (218 ) 35
Loss before income taxes (13,549 ) (45,658 ) (27,774 ) (63,946 )
Income tax expense 367 705 456 1,080
Net loss $ (13,916 ) $ (46,363 ) $ (28,230 ) $ (65,026 ) (1) Includes stock-based compensation expense as follows:
Three Months Ended June 30, Six Months Ended June 30,
2020 2021 2020 2021
(in thousands)
Cost of revenue $ 115 $ 903 $ 225 $ 1,010
Research and development 1,492 18,363 2,769 20,391
Sales and marketing 833 11,310 1,542 12,658
General and administrative 1,123 8,599 2,041 10,400
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 June 30, Six Months Ended June 30,
2020 2021 2020 2021
Revenue 100 % 100 % 100 % 100 %
Cost of revenue 48 40 47 42
Gross profit 52 60 53 58
Operating expenses:
Research and development 25 40 27 33
Sales and marketing 34 43 36 40
General and administrative 12 22 13 18
Total operating expenses 71 105 76 91
Loss from operations (19 ) (45 ) (23 ) (33 )
Other income:
Interest income - - 1 -
Interest expense - - - -
Other income (expense), net - - - -
Loss before income taxes (19 ) (45 ) (22 ) (33 )
Income tax expense - - - 1
Net loss (19 )% (45 )% (22 )% (34 )%
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Comparison of the Three and Six Months Ended
Revenue
Three Months Ended June 30, Change Six Months Ended June 30, Change
2020 2021 $ % 2020 2021 $ %
(dollars in thousands)
Revenue:
Consumer $ 50,381 $ 62,041 $ 11,660 23 % $ 82,611 $ 113,950 $ 31,339 38 %
Enterprise 16,693 28,186 11,493 69 % 31,719 52,678 20,959 66 %
Degrees 6,654 11,862 5,208 78 % 13,245 23,823 10,578 80 %
Total revenue
Revenue for the three months endedJune 30, 2020 was$73.7 million , compared to$102.1 million for the three months endedJune 30, 2021 . Revenue increased by$28.4 million , or 38%, compared to the three months endedJune 30, 2020 . For the three months endedJune 30, 2020 , Consumer, Enterprise, and Degrees revenue were$50.4 million ,$16.7 million , and$6.6 million , or approximately 68%, 23%, and 9% of total revenue, respectively, compared to$62.0 million ,$28.2 million , and$11.9 million , or approximately 61%, 28%, and 11% of total revenue, respectively, for the three months endedJune 30, 2021 . The increase in revenue was primarily driven by a 36% increase in registered learners, which resulted in an increase in paying Consumer customers, the addition of 305 Paid Enterprise Customers, and an increase in the number of Degrees students. These trends accelerated in 2020 in part due to the effects of the COVID-19 pandemic and its continued impact into 2021. For the three months endedJune 30, 2021 , total Consumer revenue increased by$11.7 million , or 23%, compared to the three months endedJune 30, 2020 . The new learners that registered afterJune 30, 2020 added$30.0 million in revenue to the total revenue of$62.0 million for the three months endedJune 30, 2021 . The remaining Consumer revenue in the three months endedJune 30, 2021 of$32.0 million is attributable to learners that were registered in our platform as ofJune 30, 2020 , thus retaining 63% of the revenue from those registered learners. For the three months endedJune 30, 2021 , total Enterprise revenue increased by$11.5 million , or 69%, compared to the three months endedJune 30, 2020 . Approximately$9.9 million of the increase in revenue was attributable to new customers, and the remaining increase of$1.6 million was attributable to growth from existing customers. For the three months endedJune 30, 2021 , total Degrees revenue increased by$5.2 million , or 78%, compared to the three months endedJune 30, 2020 . The increase in the number of Degrees students added$5.4 million in revenue; this was partially offset by a decrease in revenue per student per quarter. Revenue for the six months endedJune 30, 2020 was$127.6 million , compared to$190.5 million for the six months endedJune 30, 2021 . Revenue increased by$62.9 million , or 49%, compared to the six months endedJune 30, 2020 . For the six months endedJune 30, 2020 , Consumer, Enterprise, and Degrees revenue were$82.6 million ,$31.7 million , and$13.2 million , or approximately 65%, 25%, and 10% of total revenue, respectively, compared to$114.0 million ,$52.7 million , and$23.8 million , or approximately 60%, 28%, and 12% of total revenue, respectively, for the six months endedJune 30, 2021 . The increase in revenue was primarily driven by a 36% increase in registered learners, which resulted in an increase in paying Consumer customers, the addition of 305 Paid Enterprise Customers, and an increase in the number of Degrees students. These trends accelerated in 2020 in part due to the effects of the COVID-19 pandemic and its continued impact into 2021. For the six months endedJune 30, 2021 , total Consumer revenue increased by$31.3 million , or 38%, compared to the six months endedJune 30, 2020 . The new learners that registered afterJune 30, 2020 added$50.7 million in revenue to the total revenue of$114.0 million for the six months endedJune 30, 2021 . The remaining Consumer revenue in six months endedJune 30, 2021 of$63.3 million is attributable to learners that were registered in our platform as ofJune 30, 2020 , thus retaining 77% of the revenue from those registered learners. For the six months endedJune 30, 2021 , total Enterprise revenue increased by$21.0 million , or 66%, compared to the six months endedJune 30, 2020 . Approximately$16.2 million of the increase in revenue was attributable to new customers, and the remaining increase of$4.8 million was attributable to growth from existing customers. For the six months endedJune 30, 2021 total Degrees revenue increased by$10.6 million , or 80%, compared to the six months endedJune 30, 2020 . The increase in the number of Degrees students added$11.2 million in revenue; this was partially offset by a decrease in revenue per student per quarter. 22
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Cost of Revenue, Gross Profit and Gross Margin
Three Months Ended June 30, Change Six Months Ended June 30, Change
2020 2021 $ % 2020 2021 $ %
(dollars in thousands) (dollars in thousands)Cost of revenue$ 35,161 $ 41,162 $ 6,001 17 %$ 60,112 $ 79,987 $ 19,875 33 % Gross profit$ 38,567 $ 60,927 $ 22,360 58 %$ 67,463 $ 110,464 $ 43,001 64 % Gross margin 52 % 60 % 53 % 58 % Cost of revenue for the three months endedJune 30, 2020 was$35.2 million , compared to$41.2 million for the three months endedJune 30, 2021 . The increase in revenue resulted in an increase of$2.4 million in costs related to partner fees. Content costs for the Consumer and Enterprise segments were$23.1 million and$5.0 million for the three months endedJune 30, 2020 , respectively, compared to$21.3 million and$9.2 million for the three months endedJune 30, 2021 , respectively. Content costs as a percentage of revenue for the Consumer and Enterprise segments were 46% and 30% for the three months endedJune 30, 2020 , respectively, compared to 34% and 33% for the three months endedJune 30, 2021 , respectively. We experienced a significant increase in usage by paid learners on our platform which resulted in a$2.7 million cost increase from credit card processing, hosting costs, and support services. Additionally, there was an increase of$0.9 million in amortization expense. Gross margin was 52% for the three months endedJune 30, 2020 , compared to 60% for the three months endedJune 30, 2021 . The increase in gross margin was due to a shift in mix of revenue toward Enterprise and Degrees and a lower revenue content cost rate for our Consumer segment revenue. Cost of revenue for the six months endedJune 30, 2020 was$60.1 million , compared to$80.0 million for the six months endedJune 30, 2021 . The increase in revenue resulted in an increase of$13.5 million in costs related to partner fees. Content costs for the Consumer and Enterprise segments were$37.7 million and$9.4 million for the six months endedJune 30, 2020 , respectively, compared to$43.6 million and$17.1 million for the six months endedJune 30, 2021 , respectively. Content costs as a percentage of revenue for Consumer and Enterprise segments were 46% and 30% for the six months endedJune 30, 2020 , respectively, compared to 38% and 32% for the six months endedJune 30, 2021 , respectively. We experienced a significant increase in usage by paid learners on our platform which resulted in a$4.7 million cost increase from credit card processing, hosting costs, and support services. Additionally, there was an increase of$1.6 million in amortization expense. Gross margin was 53% for the six months endedJune 30, 2020 , compared to 58% for the six months endedJune 30, 2021 . The increase in gross margin was due to a shift in mix of revenue toward Enterprise and Degrees and a lower revenue content cost rate for our Consumer segment revenue. Operating Expenses Three Months Ended June 30, Change Six Months Ended June 30, Change 2020 2021 $ % 2020 2021 $ % (dollars in thousands) (dollars in thousands) Operating expenses: Research and development$ 18,046 $ 41,004 $ 22,958 127 %$ 33,829 $ 63,144 $ 29,315 87 % Sales and marketing 25,414 43,862 18,448 73 % 46,110 76,475 30,365 66 % General and administrative 8,943 21,846 12,903 144 % 16,029 34,991 18,962 118 % Total operating expenses$ 52,403 $ 106,712 $ 54,309 104 %$ 95,968 $ 174,610 $ 78,642 82 %
Total operating expenses for the three and six months ended
compared to$106.7 million and$174.6 million for the three and six months endedJune 30, 2021 , respectively. For the three and six months endedJune 30, 2021 , the total operating expenses included stock-based compensation expenses related to RSUs granted prior to the IPO. RSUs granted prior to the IPO had service-based and performance-based vesting conditions, both of which must be satisfied in order for RSUs to vest. The service-based vesting condition for these awards is typically satisfied over four years with a cliff vesting period of one year and continued vesting quarterly thereafter. The performance-based vesting condition is satisfied on the earlier of (i) a change in control event or (ii) the first sale of our common stock pursuant to an initial public offering. Both events were not deemed probable until consummated. Upon the first sale of our common stock pursuant to the IPO onApril 5, 2021 , the performance-based vesting condition was satisfied, and therefore, we recognized cumulative stock-based compensation expense using the accelerated attribution method for the portion of the awards for which the service-based vesting condition had been satisfied. 23
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Research and development expenses for the three months endedJune 30, 2020 were$18.0 million , compared to$41.0 million for the three months endedJune 30, 2021 . The increase was primarily due to higher personnel-related expenses of$21.0 million , driven by additional headcount, and additional stock-based compensation expense of$16.9 million . Consulting and services expenses increased by$1.4 million . Research and development expenses for the six months endedJune 30, 2020 were$33.8 million , compared to$63.1 million for the six months endedJune 30, 2021 . The increase was primarily due to higher personnel-related expenses of$25.5 million , driven by additional headcount, and additional stock-based compensation expense of$17.6 million . Consulting and services expenses increased by$2.7 million . Other research and development expenses including facilities allocation, software subscription fees, and recruiting fees increased by$1.1 million . Sales and marketing expenses for the three months endedJune 30, 2020 were$25.4 million , compared to$43.9 million for the three months endedJune 30, 2021 . The increase in sales and marketing expenses was primarily due to higher personnel-related expenses of$17.0 million , driven by additional headcount, and stock-based compensation expense of$10.5 million . Other sales and marketing expenses including consulting and services, software subscription fees, and general overhead expenses increased by$1.5 million . Sales and marketing expenses for the six months endedJune 30, 2020 were$46.1 million , compared to$76.5 million for the six months endedJune 30, 2021 . The increase in sales and marketing expenses was primarily due to higher personnel-related expenses of$24.3 million , driven by additional headcount, and additional stock-based compensation expense of$11.1 million . Other sales and marketing program expenses, which included advertising costs, freemium costs and consulting fees, increased by$4.4 million and software subscription fees by$1.0 million . General and administrative expenses for the three months endedJune 30, 2020 were$8.9 million , compared to$21.8 million for the three months endedJune 30, 2021 . The increase in general and administrative expenses was primarily due to higher personnel-related expenses of$9.3 million , driven by additional headcount, and additional stock-based compensation expense of$7.5 million . There was also an increase of$1.7 million in consulting and services and$1.4 million in insurance expense. General and administrative expenses for the six months endedJune 30, 2020 were$16.0 million , compared to$35.0 million for the six months endedJune 30, 2021 . The increase in general and administrative expenses was primarily due to higher personnel-related expenses of$11.9 million , mainly driven by additional headcount, and additional stock-based compensation expense of$8.4 million . There was also an increase of$3.5 million in consulting and professional services,$1.4 million in insurance expense, and$1.2 million related to indirect taxes. Other general and administrative expenses including recruiting fees, depreciation and amortization, and software subscription fees increased by$1.0 million . Other Income Three Months Ended June 30, Change Six Months Ended June 30, Change 2020 2021 $ % 2020 2021 $ % (dollars in thousands) (dollars in thousands) Interest income $ 265 $ 85$ (180 ) (68 )% $ 961$ 165 $ (796 ) (83 )% Interest expense (12 ) - 12 (100 )% (12 ) - 12 (100 )% Other income (expense), net 34 42 8 24 % (218 ) 35 253 (116 )% Total other income $ 287 $ 127$ (160 ) (56 )% $ 731$ 200 $ (531 ) (73 )% Total other income for the three months endedJune 30, 2020 was$0.3 million , compared to$0.1 million for the three months endedJune 30, 2021 . Total other income for the three months endedJune 30, 2020 and 2021 primarily reflected interest income earned on invested cash balances. Interest income was lower during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 due to lower interest rates. Total other income for the six months endedJune 30, 2020 was$0.7 million , compared to$0.2 million for the six months endedJune 30, 2021 . Total other income for the six months endedJune 30, 2020 primarily reflected interest income earned on invested cash balances, offset by foreign exchange gains and losses. Total other income for the six months endedJune 30, 2021 primarily reflected interest income earned on invested cash balances. Interest income was lower during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 due to lower interest rates. 24
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Income Tax Expense
Three Months Ended June 30, Change Six Months Ended June 30, Change
2020 2021 $ % 2020 2021 $ %
(dollars in thousands) (dollars in thousands)
Income tax expense $ 367 $ 705 $ 338 92 % $ 456 $ 1,080 $ 624 137 %
For the three months ended June 30, 2020 , we recognized income tax expense of
$0.4 million , compared to $0.7 million for the three months ended June 30, 2021 .
Income tax expense for the three months ended June 30, 2020 and 2021 was
primarily related to foreign taxes.
For the six months ended June 30, 2020 , we recognized income tax expense of
$0.5 million , compared to $1.1 million for the six months ended June 30, 2021 .
Income tax expense for the six months ended June 30, 2020 and 2021 was primarily
related to foreign taxes.
Liquidity and Capital Resources
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. As ofJune 30, 2021 , our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling$800.7 million . Our investments consist of commercial paper securities andU.S. government treasury bills. InApril 2021 , we received cash proceeds of$525.3 million from our IPO, net of underwriting discounts and commissions but before deducting other offering expenses. We believe that our existing cash and cash equivalents and marketable securities and our expected cash flows from operations will be sufficient to meet our cash needs for at least the next 12 months. Over the longer term, our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our sales and marketing and research and development expenditures, the continuing market acceptance of our offerings, and any investments or acquisitions we may choose to pursue in the future. In the event that we need to borrow funds or issue additional equity, we cannot assure you that any such additional financing will be available on terms acceptable to us, if at all. In addition, any future borrowings may result in additional restrictions on our business and any issuance of additional equity would result in dilution to investors. If we are unable to raise additional capital when desired and on terms acceptable to us, our business, results of operations, and financial condition could be materially and adversely affected.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Six Months Ended June 30,
2020 2021
(in thousands)
Net cash (used in) provided by operating activities
57,395 146,113
Net cash provided by financing activities 2,073
533,458
Net increase in cash, cash equivalents, and restricted cash$ 63,313 $ 669,771 Operating Activities Cash (used in) provided by operating activities mainly consists of our net loss adjusted for certain non-cash items, including stock-based compensation 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 six months endedJune 30, 2020 , net cash provided by operating activities was$3.8 million , primarily consisting of our net loss of$28.2 million , adjusted for non-cash charges of$10.8 million , and net cash inflows of$21.3 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a$28.0 million increase in deferred revenue, resulting primarily from our Consumer business growth, a$13.2 million increase in educator partners and other accounts payable mainly due to timing of partner fee payments, partially offset by a$11.5 million increase in accounts receivable due to our business growth, and a$7.7 million increase in prepaid expenses and other assets mainly due to deferred partner fees. 25
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For the six months endedJune 30, 2021 , net cash used in operating activities was$9.8 million , primarily consisting of our net loss of$65.0 million , adjusted for non-cash charges of$51.3 million and net cash inflows of$4.0 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a$20.6 million increase in deferred revenue, resulting primarily from our business growth from Enterprise and Consumer, a$4.3 million increase in accrued and other liabilities mainly due to accrued compensation, partially offset by a$11.1 million increase in accounts receivable mainly due to business growth, a$5.3 million decrease in educator partners and other accounts payable due to timing of vendor payments, and a$4.1 million increase in prepaid expenses and other assets resulting primarily due to deferred partner fees and increase in deferred commissions.
Cash used in operating activities increased by
Investing Activities
For the six months endedJune 30, 2020 , net cash provided by investing activities was$57.4 million , primarily as a result of proceeds from maturities of marketable securities, partially offset by purchase of marketable securities, capital expenditures of property and equipment, and capitalized internal-use software costs. For the six months endedJune 30, 2021 , cash provided by investing activities was$146.1 million , primarily as a result of proceeds from maturities of marketable securities, partially offset by capital expenditures of property and equipment, and capitalized internal-use software costs.
Financing Activities
For the six months ended
For the six months endedJune 30, 2021 , net cash provided by financing activities was$533.5 million , primarily as a result of net proceeds from our IPO, and proceeds from issuance of common stock following employee stock option exercises.
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 June 30, Six Months Ended June 30,
2020 2021 2020 2021
(in millions, except percentages)
New Registered Learners 11.4 5.4 17.5 10.4
Total Registered Learners 63.7 86.7 63.7 86.7
Total Registered Learners YoY Growth 36 % 36 %
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 degree program and who are enrolled in one or more courses in
such a degree program during
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the period. If a degree term spans across multiple quarters, the said 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.
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.
As of June 30,
2020 2021
Number of Degrees Students 8,079 14,630
YoY Growth 81 %
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 six months ended
June 30, 2021 , approximately 84% 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.
As of June 30,
2020 2021
Paid Enterprise Customers 279 584
YoY Growth 109 %
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 twelve 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 twelve months but excludes revenue
from new Paid 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
increased from 102% as of June 30, 2020 to 114% as of June 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.
Segment Revenue
Our revenue is generated from three sources: Consumer, Enterprise, and Degrees, each of which is an individual segment of our business. "Segment Revenue" represents the revenue recognized from each of these three sources.
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Three Months Ended June 30, Six Months Ended June 30,
2020 2021 2020 2021
(in thousands, except percentages)
Consumer Revenue $ 50,381 $ 62,041 $ 82,611 $ 113,950
YoY Growth 23 % 38 %
Enterprise Revenue $ 16,693 $ 28,186 $ 31,719 $ 52,678
YoY Growth 69 % 66 %
Degrees Revenue $ 6,654 $ 11,862 $ 13,245 $ 23,823
YoY Growth 78 % 80 %
Total Revenue $ 73,728 $ 102,089 $ 127,575 $ 190,451
YoY Growth 38 % 49 %
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" is
defined as Segment Revenue less content costs paid to educator partners;
"Segment Gross Margin" is the quotient of Segment Gross Profit and Segment
Revenue. Content costs only apply 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 June 30, Six Months Ended June 30,
2020 2021 2020 2021
(in thousands, except percentages)
Consumer Gross Profit $ 27,316 $ 40,737 $ 44,880 $ 70,392
Segment Gross Margin % 54 % 66 % 54 % 62 %
Enterprise Gross Profit
22,302$ 35,596 Segment Gross Margin % 70 % 67 % 70 % 68 %
Degrees Gross Profit
13,245$ 23,823 Segment Gross Margin % 100 % 100 % 100 % 100 % Consumer Segment Gross Margin increased from 54% in the three months endedJune 30, 2020 to 66% in the three months endedJune 30, 2021 due to a greater proportion of Consumer Revenue generated from sales of subscriptions with no associated content cost. Conversely, Enterprise Segment Gross Margin decreased from 70% to 67% when comparing the same periods due to a lower proportion of Enterprise Revenue generated from subscription licenses where learners enrolled in content with no associated content cost. Consumer Segment Gross Margin increased from 54% in the six months endedJune 30, 2020 to 62% in the six months endedJune 30, 2021 due to a greater proportion of Consumer Revenue generated from sales of subscriptions with no associated content cost. Conversely, Enterprise Segment Gross Margin decreased from 70% to 68% when comparing the same periods due to a lower 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 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.
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, except number of shares and per
share amounts):
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Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
Payroll tax Payroll tax
expense expense
related to related to
Stock-based stock-based Stock-based stock-based
GAAP compensation activities Non-GAAP GAAP compensation activities Non-GAAP
Revenue $ 73,728 $ - $ - $ 73,728 $ 127,575 $ - $ - $ 127,575
Cost of revenue 35,161 (115 ) - 35,046 60,112 (225 ) - 59,887
Gross profit 38,567 115 - 38,682 67,463 225 - 67,688
Operating expenses:
Research and
development 18,046 (1,492 ) (3 ) 16,551 33,829 (2,769 ) (3 ) 31,057
Sales and marketing 25,414 (833 ) (12 ) 24,569 46,110 (1,542 ) (12 ) 44,556 General and administrative 8,943 (1,123 ) - 7,820 16,029 (2,041 ) - 13,988 Total operating expenses 52,403 (3,448 ) (15 ) 48,940 95,968 (6,352 ) (15 ) 89,601 Loss from operations (13,836 ) 3,563 15 (10,258 ) (28,505 ) 6,577 15 (21,913 ) Interest income 265 - - 265 961 - - 961 Interest expense (12 ) - - (12 ) (12 ) - - (12 ) Other income (expense), net 34 - - 34 (218 ) - - (218 ) Loss before income taxes (13,549 ) 3,563 15 (9,971 ) (27,774 ) 6,577 15 (21,182 ) Income tax expense 367 - - 367 456 - - 456 Net loss$ (13,916 ) $ 3,563 $ 15$ (10,338 ) $ (28,230 ) $ 6,577 $ 15$ (21,638 ) Net loss per share attributable to common stockholders-basic and diluted$ (0.38 ) $ (0.29 ) $ (0.79 ) $ (0.60 ) Weighted-average shares used in computing net loss per share attributable to common stockholders-basic and diluted 36,185,155 36,185,155 35,925,639 35,925,639 29
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Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
Payroll tax Payroll tax
expense expense
related to related to
Stock-based stock-based Stock-based stock-based
GAAP compensation activities Non-GAAP GAAP compensation activities Non-GAAP
Revenue $ 102,089 $ - $ - $ 102,089 $ 190,451 $ - $ - $ 190,451
Cost of revenue 41,162 (903 ) (15 ) 40,244 79,987 (1,010 ) (16 ) 78,961
Gross profit 60,927 903 15 61,845 110,464 1,010 16 111,490
Operating expenses:
Research and development 41,004 (18,363 ) (101 ) 22,540 63,144 (20,391 ) (124 ) 42,629
Sales and marketing 43,862 (11,310 ) (34 ) 32,518 76,475 (12,658 ) (35 ) 63,782
General and
administrative 21,846 (8,599 ) (106 ) 13,141 34,991 (10,400 ) (109 ) 24,482
Total operating expenses 106,712 (38,272 ) (241 ) 68,199 174,610 (43,449 ) (268 ) 130,893
Loss from operations (45,785 ) 39,175 256 (6,354 ) (64,146 ) 44,459 284 (19,403 )
Interest income 85 - - 85 165 - - 165
Other income, net 42 - - 42 35 - - 35
Loss before income taxes (45,658 ) 39,175 256 (6,227 ) (63,946 ) 44,459 284 (19,203 )
Income tax expense 705 - - 705 1,080 - - 1,080
Net loss$ (46,363 ) $ 39,175 $ 256$ (6,932 ) $ (65,026 ) $ 44,459 $ 284$ (20,283 ) Net loss per share attributable to common stockholders-basic and diluted$ (0.35 ) $ (0.05 ) $ (0.75 ) $ (0.23 ) Weighted-average shares used in computing net loss per share attributable to common stockholders-basic
and diluted 131,804,121 131,804,121 86,761,169 86,761,169
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) stock-based compensation; (4) income tax expense; and (5) 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.
Three Months Ended June 30, Six Months Ended June 30,
2020 2021 2020 2021
(in thousands, except percentages)
Net loss $ (13,916 ) $
(46,363 )
Depreciation and amortization 2,371 3,440 4,364 6,371 Interest income, net (253 ) (85 ) (949 ) (165 ) Stock-based compensation 3,563 39,175 6,577 44,459 Income tax expense 367 705 456 1,080 Payroll tax expense related to stock-based activities 15 256 15 284 Adjusted EBITDA$ (7,853 ) $ (2,872 ) $ (17,767 ) $ (12,997 ) Adjusted EBITDA Margin (11 )% (3 )% (14 )% (7 )% 30
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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. We exclude purchases of property, equipment and software, and capitalized internal-use software costs as we consider these capital expenditures to be a necessary component of 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.
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.
Six Months Ended June 30,
2020 2021
(in thousands)
Net cash (used in) provided by operating activities
(1,737 ) (739 )
Less: capitalized internal-use software costs (3,669 ) (6,598 )
Free Cash Flow $ (1,561 ) $ (17,137 )
Net cash provided by investing activities $ 57,395 $ 146,113
Net cash provided by financing activities $ 2,073 Contractual Obligations and Commitments
Except as discussed in Note 11, Leases and Note 12, Commitments and Contingencies, of 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 six months endedJune 30, 2021 from the commitments and contractual obligations in "Management's Discussion and Analysis of Financial Condition and Results of Operations", set forth in our Prospectus.
Off-Balance Sheet Arrangements
During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
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 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 Prospectus.
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.
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JOBS Act Transition Period
We are an emerging growth company as defined in 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 consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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