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 theSecurities and Exchange Commission , pursuant to Rule 424(b)(4) onMarch 31, 2021 . Historic results are not necessarily indicative of future results. This report contains forwardlooking 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 forwardlooking statements. Forwardlooking statements include, but are not limited to, statements about: ? trends in the higher education market and the market for online education, and expectations for growth in those markets; ? 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; ? the demand for, and market acceptance of, our platform; ? the potential benefits of our solutions to partners and learners; ? anticipated launch dates of new partner programs; ? our business model; ? our future financial performance, including our expectations regarding our revenue and expenses, and our ability to achieve and maintain future profitability; ? our ability to expand the content and credentialing programs available on our platform and our ability to develop new platform features; ? our ability to manage or sustain our growth and to effectively expand our customer base and operations, including internationally; ? our ability to acquire new partners and expand program offerings with existing partners; ? our ability to acquire prospective learners and to affect or increase learner enrollment and retention; ? our growth strategies, plans, objectives, and goals; ? our ability to compete and the future competitive landscape; ? our ability to attract and retain key employees; ? the scalability of our platform and operations; ? our ability to develop and protect our brand; ? the increased expenses associated with being a public company; ? the size of our addressable markets, market share, and market trends; ? the affordability and convenience of our platform; ? the effect of COVID-19 on our business and operations, including the demand for online learning following the COVID-19 pandemic; ? 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; ? the availability of capital to grow our business; ? our ability to successfully defend any future litigation brought against us; ? our ability to implement, maintain, and improve effective internal controls; 17
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? potential changes in laws and regulations applicable to us or our partners and our partners' ability to comply therewith; and ? 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. Forwardlooking 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 ofMarch 31, 2021 , approximately 82 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 endedMarch 31, 2020 and 2021, we generated a net loss of$14.3 million and$18.7 million , respectively, which included$3.0 million and$5.3 million , respectively, of stock-based compensation expense, and a net loss margin as a percentage of revenue for the three months endedMarch 31, 2020 and 2021 of (27)% and (21)%, respectively. Our Adjusted EBITDA and Adjusted EBITDA Margin as a percentage of revenue were$(9.9) million and (18)%, and$(10.1) million and (11)%, for the three months endedMarch 31, 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 expected to total approximately$6.2 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. 18
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On
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 InDecember 2019 , an outbreak of the COVID-19 virus was first identified and began to spread across the globe. InMarch 2020 , theWorld Health Organization declared COVID-19 a pandemic, impacting many countries around the world. Governments have instituted lockdown or other similar measures to slow infection rates. Many organizations have resorted to mandating employees to work from home, and schools, colleges, and universities globally have also closed as a result of the COVID-19 pandemic. 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.
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 the content cost 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 Expense, Net
Other expense, net consists primarily of foreign exchange 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. 21
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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 March 31,
2020 2021
(in thousands)
Revenue $ 53,847 $ 88,362
Cost of revenue(1) 24,951 38,826
Gross profit 28,896 49,536
Operating expenses:
Research and development(1) 15,783 22,140
Sales and marketing(1) 20,696 32,613
General and administrative(1) 7,086 13,144
Total operating expenses 43,565 67,897
Loss from operations (14,669 ) (18,361 )
Other expense:
Interest income 696 80
Other expense, net (252 ) (7 )
Loss before income taxes (14,225 ) (18,288 )
Income tax expense 89 375
Net loss $ (14,314 ) $ (18,663 ) (1) Includes stock-based compensation expense as follows:
Three Months Ended March 31,
2020 2021
(in thousands)
Cost of revenue $ 110 $ 107
Research and development 1,277 2,028
Sales and marketing 709 1,347
General and administrative 918 1,802
Total stock-based compensation expense $ 3,014 $ 5,284 The following table summarizes our results of operations as a percentage of revenue for each of the periods indicated:
Three Months Ended March 31,
2020 2021
Revenue 100 % 100 %
Cost of revenue 46 44
Gross profit 54 56
Operating expenses:
Research and development 30 25
Sales and marketing 38 37
General and administrative 13 15
Total operating expenses 81 77
Loss from operations (27 ) (21 )
Other expense:
Interest income 1 -
Other expense, net (1 ) -
Loss before income taxes (27 ) (21 )
Income tax expense - -
Net loss (27 )% (21 )%
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Comparison of the Three Months Ended
Revenue
Three Months Ended March 31, Change
2020 2021 $ %
(dollars in thousands)
Revenue:
Consumer $ 32,230 $ 51,908 $ 19,678 61 %
Enterprise 15,026 24,493 9,467 63 %
Degrees 6,591 11,961 5,370 81 %
Total revenue $ 53,847 $ 88,362 $ 34,515 64 %
Revenue for the three months ended March 31, 2020 was $53.8 million , compared to
$88.4 million for the three months ended March 31, 2021 . Revenue increased by
$34.5 million , or 64% compared to the three months ended March 31, 2020 . For the
three months ended March 31, 2020 , Consumer, Enterprise, and Degrees revenue
were $32.2 million , $15.0 million , and $6.6 million , or approximately 60%, 28%,
and 12% of total revenue, respectively, compared to $51.9 million , $24.5
million , and $12.0 million , or approximately 59%, 28%, and 13% of total revenue,
respectively, for the three months ended March 31, 2021 . The increase in revenue
was primarily driven by a 56% increase in registered learners, which resulted in
an increase in paying Consumer customers, the addition of 219 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 ended March 31, 2021 , total Consumer revenue increased by
$19.7 million , or 61%, compared to the three months ended March 31, 2020 . The
new learners that registered after March 31, 2020 added $25.7 million in revenue
to the total revenue of $51.9 million for the three months ended March 31, 2021 .
The remaining Consumer revenue in the first quarter of 2021, $26.2 million , is
attributable to learners that were registered in our platform as of March 31,
2020 , thus retaining 81% of the revenue from those registered learners.
For the three months ended March 31, 2021 , total Enterprise revenue increased by
$9.5 million , or 63%, compared to the three months ended March 31, 2020 .
Approximately $8.3 million of the increase in revenue was attributable to new
customers, and the remaining increase of $1.1 million was attributable to growth
from existing customers.
For the three months ended March 31, 2021 , total Degrees revenue increased by
$5.4 million , or 81%, compared to the three months ended March 31, 2020 . The
increase in the number of Degrees students added $4.9 million in revenue; this
was augmented by $0.5 million attributable to an increase in revenue per student
per quarter.
Cost of Revenue, Gross Profit and Gross Margin
Three Months Ended March 31, Change
2020 2021 $ %
(dollars in thousands)
Cost of revenue $ 24,951 $ 38,826 $ 13,875 56 %
Gross profit $ 28,896 $ 49,536 $ 20,640 71 %
Gross margin 54 % 56 %
Cost of revenue for the three months ended March 31, 2020 was $25.0 million ,
compared to $38.8 million for the three months ended March 31, 2021 . The
increase in revenue resulted in an increase of $11.1 million in costs related to
partner fees. Content costs for the Consumer and Enterprise segments were
$14.7 million and $4.4 million for the three months ended March 31, 2020 ,
respectively, compared to $22.3 million and $7.9 million for the three months
ended March 31, 2021 , respectively. Content costs as a percentage of revenue for
Consumer and Enterprise segments were 46% and 30% for the three months ended
March 31, 2020 , respectively, compared to 43% and 32% for the three months ended
March 31, 2021 , respectively. We experienced a significant increase in usage by
paid learners on our platform which resulted in a $2.1 million increase from
credit card processing, hosting costs, and support services. Additionally, there
was an increase of $0.7 million in amortization expense of internal-use
software.
Gross margin was 54% for the three months ended March 31, 2020 , compared to 56%
for the three months ended March 31, 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.
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Operating Expenses
Three Months Ended March 31, Change
2020 2021 $ %
(dollars in thousands)
Operating expenses:
Research and development $ 15,783 $ 22,140 $ 6,357 40 %
Sales and marketing 20,696 32,613 11,917 58 %
General and administrative 7,086 13,144 6,058 85 %
Total operating expenses $ 43,565 $ 67,897 $ 24,332 56 %
Research and development expenses for the three months ended March 31, 2020 were
$15.8 million , compared to $22.1 million for the three months ended March 31,
2021 . The increase was primarily due to higher personnel-related expenses of
$4.5 million , mainly driven by additional headcount. Other research and
development expenses including consulting fees, recruiting fees, and software
subscription fees, increased by $1.9 million .
Sales and marketing expenses for the three months ended March 31, 2020 were
$20.7 million , compared to $32.6 million for the three months ended March 31,
2021 . The increase in sales and marketing expenses was primarily due to higher
personnel-related expenses of $7.3 million , mainly driven by both additional
headcount in our sales force to support increased demand for our platform and an
increase in commissions resulting from our increase in revenue. Other sales and
marketing program expenses, which include advertising costs, freemium costs and
contractors fees, increased by $4.2 million . The remaining increase of $0.5
million includes increases in facilities allocation and software subscription
costs offset by a decrease in travel and entertainment.
General and administrative expenses for the three months ended March 31, 2020
were $7.1 million , compared to $13.1 million for the three months ended
March 31, 2021 . The increase in general and administrative expenses was
primarily due to an increase of $2.6 million in personnel-related expenses,
mainly driven by additional headcount, $1.8 million in consulting and
professional services and $1.1 million related to indirect taxes. Other general
and administrative expenses, including software subscription fees and
depreciation and amortization increased by $0.5 million .
Other Income
Three Months Ended March 31, Change
2020 2021 $ %
(dollars in thousands)
Interest income $ 696 $ 80 $ (616 ) (89 )%
Other expense, net (252 ) (7 ) 245 (97 )%
Total other income $ 444 $ 73 $ (371 ) (84 )%
Total other income for the three months ended March 31, 2020 was $0.4 million ,
compared to $0.1 million for the three months ended March 31, 2021 . Total other
income for the three months ended March 31, 2020 primarily reflected interest
income earned on invested cash balances, offset by foreign exchange gains and
losses. Total other income for the three months ended March 31, 2021 primarily
reflected interest income earned on invested cash balances. Interest income was
lower during the three months ended March 31, 2021 compared to the three months
ended March 31, 2020 due to lower interest rates.
Income Tax Expense
Three Months Ended March 31, Change
2020 2021 $ %
(dollars in thousands)
Income tax expense $ 89 $ 375 $ 286 321 %
For the three months ended March 31, 2020 , we recognized income tax expense of
$0.1 million , compared to $0.4 million for the three months ended March 31,
2021 . Income tax expense for the three months ended March 31, 2020 and March 31,
2021 was primarily due to foreign taxes.
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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 ofMarch 31, 2021 , our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling$280.8 million . Our investments consist of corporate debt, 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:
Three Months Ended March 31,
2020 2021
(in thousands)
Net cash used in operating activities $ (7,536 ) $ (4,347 )
Net cash provided by investing activities 55,064 78,038
Net cash provided by financing activities 421
4,503
Net increase in cash, cash equivalents, and restricted cash$ 47,949 $ 78,194 Operating Activities Cash used in operating activities mainly consists of our net loss adjusted for certain non-cash items, including stock-based compensation, 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 three months endedMarch 31, 2020 , net cash used in operating activities was$7.5 million , primarily consisting of our net loss of$14.3 million , adjusted for non-cash charges of$4.9 million , and net cash inflows of$1.9 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were an$9.4 million increase in deferred revenue, resulting primarily from our Consumer business growth, a$2.1 million increase in educator partners and other accounts payable, partially offset by a$7.1 million decrease in accrued and other liabilities resulting from payments of indirect taxes and payout of accrued compensation, and a$3.4 million increase in accounts receivable due to our business growth. For the three months endedMarch 31, 2021 , net cash used in operating activities was$4.3 million , primarily consisting of our net loss of$18.7 million , adjusted for non-cash charges of$8.5 million and net cash inflows of$5.8 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a$8.1 million increase in deferred revenue, resulting primarily from our Consumer business growth, a$5.0 million decrease in accounts receivable due to timing of invoicing and cash receipts from Enterprise customers, partially offset by a$4.3 million decrease in accrued and other liabilities resulting primarily from payout of accrued compensation, and a$3.0 million decrease in educator partners and other accounts payable due to timing of vendor payments.
Cash used in operating activities decreased
primarily due to our business growth.
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Investing Activities
For the three months endedMarch 31, 2020 , net cash provided by investing activities was$55.1 million , primarily as a result of purchases of marketable securities, proceeds from maturities of marketable securities, capital expenditures of property and equipment, and capitalized internal-use software costs.
For the three months ended
Financing Activities
For the three months ended
For the three months ended
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 March 31,
2020 2021
(in millions, except percentages)
New Registered Learners 6.1 5.0
Total Registered Learners 52.4 81.5
Total Registered Learners YoY Growth 56 %
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 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.
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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 March 31,
2020 2021
Number of Degrees Students 7,184 13,493
YoY Growth 88 %
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 three months ended on
March 31, 2021 , approximately 82% 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.
Three Months Ended March 31,
2020 2021
Paid Enterprise Customers 260 479
YoY Growth 84 %
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 108% as of March 31, 2020 to 113% as of March 31, 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.
Three Months Ended March 31,
2020 2021
(in thousands, except percentages)
Consumer Revenue $ 32,230 $ 51,908
YoY Growth 61 %
Enterprise Revenue $ 15,026 $ 24,493
YoY Growth 63 %
Degrees Revenue $ 6,591 $ 11,961
YoY Growth 81 %
Total Revenue $ 53,847 $ 88,362
YoY Growth 64 %
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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 March 31,
2020 2021
(in thousands, except percentages)
Consumer Gross Profit $ 17,564 $ 29,655
Segment Gross Margin % 54 % 57 %
Enterprise Gross Profit $ 10,586 $ 16,581
Segment Gross Margin % 70 % 68 %
Degrees Gross Profit $ 6,591 $ 11,961
Segment Gross Margin % 100 % 100 %
Consumer Segment Gross Margin increased from 54% in the three months ended March
31, 2020 to 57% in the three months ended March 31, 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.
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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, except number of shares and per
share amounts):
Three Months Ended March 31, 2020
Payroll tax
expense
related to
Stock-Based stock-based
GAAP Compensation activities Non-GAAP
Revenue $ 53,847 $ - $ - $ 53,847
Cost of revenue 24,951 (110 ) - 24,841
Gross profit 28,896 110 - 29,006
Operating expenses:
Research and development 15,783 (1,277 ) - 14,506
Sales and marketing 20,696 (709 ) - 19,987
General and administrative 7,086 (918 ) - 6,168
Total operating expenses 43,565 (2,904 ) - 40,661
Loss from operations (14,669 ) 3,014 - (11,655 )
Interest income 696 - - 696
Other expense, net (252 ) - - (252 )
Loss before income taxes (14,225 ) 3,014 - (11,211 )
Income tax expense 89 - - 89
Net loss $ (14,314 ) $ 3,014 $ - $ (11,300 )
Net loss per share attributable to common
stockholders-basic and diluted $ (0.40 ) $ (0.32 )
Weighted average shares used in computing
net loss per share attributable to common
stockholders-basic and diluted 35,666,172 35,666,172
Three Months Ended March 31, 2021
Payroll tax
expense
related to
Stock-Based stock-based
GAAP Compensation activities Non-GAAP
Revenue $ 88,362 $ - $ - $ 88,362
Cost of revenue 38,826 (107 ) (1 ) 38,718
Gross profit 49,536 107 1 49,644
Operating expenses:
Research and development 22,140 (2,028 ) (23 ) 20,089
Sales and marketing 32,613 (1,347 ) (1 ) 31,265
General and administrative 13,144 (1,802 ) (2 ) 11,340
Total operating expenses 67,897 (5,177 ) (26 ) 62,694
Loss from operations (18,361 ) 5,284 27 (13,050 )
Interest income 80 - - 80 Other expense, net (7 ) - - (7 ) Loss before income taxes (18,288 ) 5,284 27 (12,977 ) Income tax expense 375 - - 375 Net loss$ (18,663 ) $ 5,284 $ 27$ (13,352 ) Net loss per share attributable to common stockholders-basic and diluted$ (0.45 ) $ (0.32 ) Weighted average shares used in computing net loss per share attributable to common stockholders-basic and diluted 41,218,355 41,218,355
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.
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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 March 31,
2020 2021
(in thousands)
Net loss $ (14,314 ) $ (18,663 )
Depreciation and amortization 1,993 2,931
Interest income, net (696 ) (80 )
Stock-based compensation 3,014 5,284
Income tax expense 89 375
Payroll tax expense related to stock-based activities - 27
Adjusted EBITDA $ (9,914 ) $ (10,126 )
Adjusted EBITDA Margin (18 )% (11 )%
Free Cash Flow
"Free Cash Flow" is a non-GAAP financial measure that we calculate as net cash
used in 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 cash flow used in operating activities, the most directly comparable GAAP
financial measure, to Free Cash Flow.
Three Months Ended March 31,
2020 2021
(in thousands)
Net cash used in operating activities $ (7,536 ) $ (4,347 )
Less: purchases of property, equipment, and software (582 ) (307 )
Less: capitalized internal-use software costs (1,774 ) (3,985 )
Free Cash Flow $ (9,892 ) $ (8,639 )
Net cash provided by investing activities $ 55,064 $ 78,038
Net cash provided by financing activities $ 421 $ 4,503 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 months endedMarch 31, 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.
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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.
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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