UDEMY, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the sections titled "Special Note Regarding Forward-Looking Statements" for a discussion of forward-looking statements and in Part I, Item 1A, "Risk Factors" for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Form 10-K. A discussion regarding our financial condition and results of operations for the fiscal year endedDecember 31, 2022 compared to the fiscal year endedDecember 31, 2021 is presented below. A discussion regarding our financial condition and results of operations for the fiscal year endedDecember 31, 2021 compared to the fiscal year endedDecember 31, 2020 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our prior year Form 10-K, which was originally filed with theSEC onMarch 25, 2022 .
Overview
Our mission is to improve lives through learning.
We believe traditional education and training methods are fast becoming outdated. Technological advancements and novel industries have significantly altered the types of skills required of workers, and lifelong training and continuous skills acquisition are becoming the norm. There is a clear need to expand access to learning across traditional barriers such as geography and social demographics. Our online platform empowers organizations and individuals with flexible and effective skill acquisition and development, connecting global learners with relevant and up-to-date knowledge from experts and practitioners around the world.Udemy's consumer marketplace has attracted 59 million learners in over 180 countries who are looking for the knowledge and skills they need to attain in-demand jobs, further their career, and improve their well-being. We curate the highest-quality content from our marketplace forUdemy's enterprise SaaS platform, Udemy Business, which enables companies around the world to offer effective on-demand learning for employees, immersive laboratory-style learning for tech teams, and cohort-based learning focused on leadership development. Our network of over 70,000 instructors have created over 200,000 courses in nearly 75 languages that cover a wide range of topics, including technology, business, soft skills, and personal development.
Workforce reduction
InFebruary 2023 , in response to current macroeconomic conditions and to further streamline our operations and cost structure, we enacted a plan to reduce our global workforce by approximately 10%. As a result, we expect to recognize restructuring charges of$9.0 million to$11.0 million in the first quarter of 2023, primarily consisting of personnel expenses such as salaries and wages, one-time severance payments, and other benefits, as well as stock-based compensation expense. Cash payments related to these expenses will occur primarily in the first and second quarters of 2023.
Key factors impacting 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.
48--------------------------------------------------------------------------------
Table of Contents
Ability to attract and engage new learners and Udemy Business customers
To grow our business, we must attract new learners and UB customers efficiently and increase engagement on our platform over time. We acquire a substantial portion of our learners via organic channels and also use paid marketing to further enhance the growth of our learner base. Our organic channels include those outside of our paid market efforts, such as a Udemy brand name internet search. Once we bring new learners onto our platform, we work to create a best-in-class experience to encourage engagement and drive learning and career outcomes.
Ability to retain and expand our existing learner and customer relationships
Our business and results of operations will depend on our ability to continue to drive higher usage of our platform within our existing customer base and our ability to add new customers. Our efforts to grow our existing relationships with our consumer learners are focused on increasing their engagement and converting free learners into buyers. 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 paid other offerings. Our efforts to grow our UB offering are focused primarily on corporate and government customers. Historically, we have expanded from individual to department to multi-department to enterprise-wide sales as our value is proven. Building upon this success, we believe a significant opportunity exists for us to acquire new UB customers and expand our existing UB customers' use of our platform by identifying new use cases and increasing the size of existing deployments. We often enter into customized contractual arrangements with our UB customers in which we offer more favorable pricing terms in exchange for larger total contract values that accompany larger deployments. As we drive a greater portion of our revenue through our deployments with UB customers, we expect that our revenue will continue to grow significantly, but the price we charge UB customers per seat may decline, which could reduce margins in the future.
Ability to source in-demand content from our instructors
We believe that learners and UB customers are attracted toUdemy largely because of the high quality and wide selection of content our instructors offer. Continuing to source in-demand content and credentials from our instructors will be an important factor in attracting learners and UB customers and growing our revenue over time. When we offer content as part of the UB and consumer subscription offerings, our instructors agree to contribute such content exclusively through our platform, which we believe demonstrates our ability to increase the value of our platform through unique content. Although we view the breadth and diverse expertise of our instructor base and the content they create as one of our competitive advantages, a significant portion of the most popular content on our platform, and as a result a significant portion of our revenue, is attributable to a limited number of our instructors. We experienced minimal turnover among top instructors during the fiscal year endedDecember 31, 2022 .
Impact of mix of Consumer and Enterprise segments
Our mix of business among our Consumer and Enterprise segments is shifting, and
this shift will affect our financial performance. Content costs for our
Enterprise segment are lower relative to our Consumer segment. The mix of
customer acquisition methods in our Consumer segment will substantially impact
our financial performance. We presently expect that revenue from our Enterprise
segment will grow faster than our Consumer segment, which will be beneficial to
our overall margins.
49
--------------------------------------------------------------------------------
Table of Contents
Ability to expand our international footprint
We currently generate a significant portion of our revenue outside North
America . We see a significant opportunity to expand our offerings into 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 UB
customers. We also plan to continue investing in strategic partnerships that
either extend our marketing reach or the capabilities and reach of our global
go-to-market sales team.
Our investment in growth
We are actively investing in our business as we believe that we are only
beginning to penetrate our market opportunity, and we intend to continue to
invest in our future growth. We anticipate that our operating expenses will
increase as we continue to build our sales and marketing efforts, expand our
course catalog, develop our immersive learning capabilities, and invest in our
technology development. Any investments we make in our sales and marketing
organization, in encouraging the development of new content, and in expanding
our platform offerings and capabilities, whether organically or through
acquisitions, will occur in advance of the benefits from such investments,
making it difficult to determine if we are efficiently allocating our resources
in these areas.
Pace of adoption of cloud-based skill development solutions
Our ability to grow our learner base and drive market adoption of our platform is affected by the overall demand for cloud-based skill development solutions. The market for cloud-based skill development is less mature than the market for in-person, instructor-led-training, and potential customers may be slow or unwilling to migrate from these legacy approaches. We believe that as technology becomes increasingly critical to business operations, the need for cloud-based skill development solutions, particularly an integrated enterprise-grade platform such as ours, will increase, and our customer base and the breadth and deployment of usage in our customer base will also increase. However, it is difficult to predict customer adoption rates and demand, the future growth rate and size of the market for cloud-based skill development solutions, or the entry of competitive solutions.
Components of results of operations
Revenue
We recognize revenue from contracts with paid consumer learners and UB customers by delivering access to our online learning platform.
Consumer revenue consists of individual course content purchases made by individual learners, as well as our consumer subscription offerings. Consumer revenue includes the gross transaction value paid by the learner at checkout, net of (a) actual and estimated refunds and (b) passthrough taxes collected from learners and remitted to governmental authorities. After a successful checkout, consumer learners receive a non-exclusive license to the digital course content in addition to stand-ready access to theUdemy platform hosting services needed to access the content. Access to the online content on theUdemy platform represents a series of distinct services as we continually provide access to and fulfill our hosting obligation to the learner. This series of distinct services represents a single performance obligation that is satisfied over time. Revenue from single course purchases is recognized ratably over the estimated service period, which is four months from the date of enrollment, while revenue from consumer subscriptions is recognized ratably over the contractual subscription term. 50
--------------------------------------------------------------------------------
Table of Contents
Enterprise revenue primarily relates to enterprise license subscription contracts with annual or multi-year subscription terms. Enterprise license subscriptions include Team Plan, Enterprise Plan, Udemy Business Pro, and Cohort Learning. Enterprise subscriptions are generally billed in advance on a quarterly or annual basis. Subscription revenue excludes any taxes to be remitted to governmental authorities. Access to theUdemy platform represents a series of distinct services as we continually provide access to course content and fulfill our obligation to the UB customer over the subscription term. Because the series of distinct services represents a single performance obligation that is satisfied over time, we recognize revenue ratably over the contractual subscription term. Enterprise revenue recognized from professional services were immaterial for the periods presented. We are the principal with respect to revenue generated from sales to consumer and UB customers as we control the performance obligation and are the primary obligor with respect to delivering our customers access to the course content.
Cost of revenue
Cost of revenue primarily consists of content costs, which are the payments to our instructors. Content costs are driven by the means by which we acquired the learner consuming the content. For courses offered onUdemy's consumer marketplace, instructors earn a specific percentage of the net sale amount when a learner purchases the instructor's course. For courses offered throughUdemy Business or a consumer subscription offering, instructors earn a pro-rata share of a monthly instructor payments pool for that subscription offering. Each month,Udemy calculates the revenue for each subscription offering, with a fixed percentage allocated as an instructor payments pool. Instructors whose content is included in the collection earn a prorated portion of this pool based on the number of minutes of consumption their courses achieved that month. Content costs as a percentage of revenue for our UB and consumer subscription offerings are lower relative to individual course content purchases in our consumer offering. As a result, shifts in the mix between our two offerings is expected to be a significant driver of future changes in gross margin. Content costs are recorded as cost of revenue in the period earned by our instructors. For consumer single course purchases, content costs are incurred at the time of purchase. As consumer course content revenue is recognized ratably over an estimated service period of four months, consumer gross margins are lower in the period of purchase, and higher in the remaining periods of the estimated service period over which revenue is recognized. For our subscription based UB offering, content costs are incurred based on monthly subscription fees, and margins are more stable from period to period. Cost of revenue also includes payment and mobile processing fees, costs associated with hosting digital content, employee related expenses for our customer support organization, including salaries, benefits, stock-based compensation, facilities and other expenses, depreciation of network equipment, amortization of capitalized software, amortization of vendor relationships and developed technologies acquired through business combinations, and the portion of fees paid to certain reseller partners attributable to their providing customer support services to UB customers. We expect cost of revenue to generally decrease as a percentage of revenue as we increase the percentage of revenue derived from our UB offering.
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, and commissions. 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.
51--------------------------------------------------------------------------------
Table of Contents
Sales and marketing
Our sales and marketing expenses consist primarily of personnel-related costs, including stock-based compensation, as well as marketing costs, costs related to customer and instructor acquisition, amortization of deferred contract costs, amortization of tradenames and customer relationships acquired through business combinations, and brand marketing. Sales and marketing expenses also consist of costs incurred for hosting and customer support services related to providing our platform 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.
Research and development
Our research and development expenses consist primarily of personnel-related costs, including stock-based compensation, costs related to the ongoing management, maintenance, and expansion of features and services offered on our platform. Research and development costs also include contracted services, supplies, and other miscellaneous expenses. We believe that continued investment in our platform is important to our future growth and to maintain and attract 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.
General and administrative
Our general and administrative expenses consist primarily of personnel-related costs, including stock-based compensation, costs related to our executive, legal, finance, and human resources departments, as well as charges for indirect tax reserves, allowance for credit losses, professional fees, and other corporate expenses. As a result of our IPO, we have incurred and expect to continue to incur additional expenses to operate 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, investor relations, 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 (expense), net
Interest income consists primarily of interest income earned on our cash equivalents and short-term and long-term investments, including amortization of premiums and accretion of discounts related to our available-for-sale marketable securities, net of associated fees. Interest expense consists primarily of interest expense recorded related to certain indirect tax reserves. Interest income and interest expense were each immaterial for the periods presented.
Other income (expense), net
Other income (expense), net consists primarily of foreign currency transaction gains and losses, as well as changes in the valuation of strategic investments, if any. Income tax provision 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. The valuation allowance is driven by our overall loss position, and we will not be able to utilize any of these favorable tax attributes until we are in a taxable income position. When we begin to consistently operate in a taxable income position, we may release portions of the valuation allowance to recognize and use those tax attributes. Until then, we expect to maintain this full valuation allowance until it becomes more likely than not that the deferred tax assets will be realized. 52
--------------------------------------------------------------------------------
Table of Contents
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. Results are as follows (in thousands):
Fiscal Year Ended December 31,
2022 2021 2020
Revenue $ 629,097 $ 515,657 $ 429,899
Cost of revenue (1)(2) 275,320 236,024 209,253
Gross profit 353,777 279,633 220,646
Operating expenses (1)(2)
Sales and marketing 301,347 227,023 192,600
Research and development 104,556 66,107 50,643
General and administrative 99,064 64,410 50,783
Total operating expenses 504,967 357,540 294,026
Loss from operations (151,190) (77,907) (73,380)
Other income (expense)
Interest income (expense), net 4,297 (16) (1,146)
Other income (expense), net (4,696) (920) 55
Total other expense, net (399) (936) (1,091)
Net loss before taxes (151,589) (78,843) (74,471)
Income tax provision (2,286) (1,183) (3,149)
Net loss attributable to common stockholders
(80,026)$ (77,620) Net loss per share attributable to common stockholders Basic and diluted$ (1.09) $ (1.46) $ (2.33) Weighted-average shares used in computing net loss per share attributable to common stockholders Basic and diluted 140,873,504 54,972,827 33,384,438
(1)Includes stock-based compensation expense as follows (in thousands):
Fiscal Year Ended December 31,
2022 2021 2020
Cost of revenue $ 5,360 $ 1,623 $ 418
Sales and marketing 29,054 8,637 7,518
Research and development 20,850 6,816 5,232
General and administrative 26,029 17,604 18,450
Total stock-based compensation expense $ 81,293 $ 34,680 (2) Includes amortization of intangible assets as follows (in thousands):
Fiscal Year Ended December 31,
2022 2021 2020
Cost of revenue $ 2,900 $ 1,022 $ -
Sales and marketing 1,366 481 -
Total amortization of intangible assets $ 4,266
53--------------------------------------------------------------------------------
Table of Contents
The following table summarizes our results of operations as a percentage of revenue for each of the periods indicated:
Fiscal Year Ended December 31,
2022 2021 2020
Revenue 100 % 100 % 100 %
Cost of revenue 44 46 49
Gross profit 56 54 51
Operating expenses
Sales and marketing 48 44 45
Research and development 17 13 12
General and administrative 15 12 11
Total operating expenses 80 69 68
Loss from operations (24) (15) (17)
Other income (expense)
Interest income (expense), net 1 - -
Other income (expense), net (1) - -
Total other expense, net - - -
Net loss before taxes (24) (15) (17)
Income tax provision - - (1)
Net loss attributable to common stockholders (24) % (15) % (18) %
Comparison of the fiscal years ended
Revenue
Fiscal Year Ended December 31, Change
2022 2021 $ %
Revenue (in thousands, except percentages)
Consumer $ 315,059 $ 328,703 $ (13,644) (4) %
Enterprise 314,038 186,954 127,084 68 %
Total revenue $ 629,097 $ 515,657 $ 113,440 22 %
Revenue for the fiscal year ended December 31, 2022 was $629.1 million , compared
to $515.7 million for the same period in the prior year, which represents an
increase of $113.4 million , or 22%. For the fiscal year ended December 31, 2022 ,
Consumer and Enterprise revenue were $315.1 million and $314.0 million ,
respectively, representing 50% and 50% of total revenue, respectively, compared
to $328.7 million and $187.0 million , respectively, representing 64% and 36% of
total revenue, respectively, for the same period in the prior year. The increase
in revenue for the fiscal year ended December 31, 2022 was primarily driven by
the significant growth in our UB customer base, which was partially offset by a
decrease in Consumer revenue during the same period.
For the fiscal year ended December 31, 2022 , total Consumer revenue decreased by
$13.6 million , or 4%, compared to the same period in the prior year. The
decrease in Consumer revenue is primarily due to negative impacts from foreign
currency exchange rates. Monthly average buyers were flat for the comparative
periods.
For the fiscal year ended December 31, 2022 , total Enterprise revenue increased
by $127.1 million , or 68%, compared to the same period in the prior year. The
increase in Enterprise revenue was primarily driven by an increase in the number
of UB customers, as well as an increase in the average deal size per new
customer and net expansions in our existing UB customer base. Pricing was not a
significant driver of the increase in revenue.
54--------------------------------------------------------------------------------
Table of Contents
Cost of revenue, gross profit and gross margin
Fiscal Year Ended December 31, Change
2022 2021 $ %
(in thousands, except percentages)
Cost of revenue $ 275,320 $ 236,024 $ 39,296 17 %
Gross profit 353,777 279,633 74,144 27 %
Gross margin 56 % 54 %
Cost of revenue for the fiscal year ended December 31, 2022 was $275.3 million ,
compared to $236.0 million for the same period in the prior year, which
represents an increase of $39.3 million , or 17%. Content costs for the Consumer
and Enterprise segments were $118.8 million and $73.7 million for the fiscal
year ended December 31, 2022 , respectively, compared to $131.9 million and $45.0
million for the same period in the prior year, respectively. Content costs as a
percentage of segment revenue for the Consumer and Enterprise segments were 38%
and 23% for the fiscal year ended December 31, 2022 , respectively, compared to
40% and 24% for the same period in the prior year, respectively.
In our Consumer segment, customer support costs increased by $1.7 million , and
hosting and platform costs increased by $2.0 million for the fiscal year ended
December 31, 2022 , as compared to the same period in the prior year. In our
Enterprise segment, customer support costs increased by $11.5 million in the
fiscal year ended December 31, 2022 , as compared to the same period in the prior
year. On a consolidated basis, there was an increase of $3.3 million in
amortization of capitalized software, an increase of $1.9 million of
amortization of intangible assets, and an increase of $3.7 million related to
stock-based compensation expense for the fiscal year ended December 31, 2022 ,
when compared to the same period in the prior year.
Gross margin was 56% for the fiscal year ended December 31, 2022 , compared to
54% for the same period in the prior year. The increase in gross margin was
primarily due to a shift in mix of revenue toward our Enterprise segment, which
has comparatively lower content costs as a percentage of revenue than the
Consumer segment.
Operating expenses
Fiscal Year Ended December 31, Change
2022 2021 $ %
Operating expenses (in thousands, except percentages)
Sales and marketing $ 301,347 $ 227,023 $ 74,324 33 %
Research and development 104,556 66,107 38,449 58 %
General and administrative 99,064 64,410 34,654 54 %
Total operating expenses $ 504,967 $ 357,540 $ 147,427 41 %
Sales and marketing. Sales and marketing expenses for the fiscal year ended
December 31, 2022 were $301.3 million , compared to $227.0 million for the same
period in the prior year. The $74.3 million increase in sales and marketing
expense was primarily due to higher personnel-related expenses of $32.5 million ,
driven by headcount growth in our sales force to support additional demand for
our platform; increased stock-based compensation expense of $20.4 million ;
increased amortization expense related to deferred contract acquisition costs of
$14.5 million , driven by an expansion of our UB customer base over time; a $5.0
million increase in travel and employee activities due to additional in-person
sales events and the easing of COVID-19 travel restrictions; a $7.4 million
increase in software subscriptions and allocated costs to support the growth in
our sales force; and a $1.7 million increase in professional services to support
the growth of our business. These increases were partially offset by a decrease
in marketing costs of $8.3 million .
55--------------------------------------------------------------------------------
Table of Contents
Research and development. Research and development expenses for the fiscal year endedDecember 31, 2022 were$104.6 million , compared to$66.1 million for the same period in the prior year. The$38.4 million increase was primarily due to higher personnel-related expenses of$17.9 million , mainly driven by additional headcount; increased stock-based compensation expense of$14.0 million ; and an additional$6.5 million of software subscriptions and allocated costs to support the growth of our business. General and administrative. General and administrative expenses for the fiscal year endedDecember 31, 2022 were$99.1 million , compared to$64.4 million for the same period in the prior year. The$34.7 million increase in general and administrative expense was primarily due to an increase of$12.1 million in personnel-related expenses, mainly driven by additional headcount; an increase in stock-based compensation of$8.4 million ; a$4.4 million increase in business related insurance, due to our status as a public company; and an additional$1.7 million of software subscriptions and allocated costs to support the growth of our business. We recorded a$1.2 million reduction in our Instructor Withholding tax reserve during the fiscal year endedDecember 31, 2022 , based on revisions of certain key assumptions prior to settling the outstanding principal balance with the Internal Revenue Service (the "IRS") in the fourth quarter of 2022. During the fiscal year endedDecember 31, 2021 , we recorded a$5.6 million reduction to the reserve based on revisions of certain key assumptions. We also recorded$2.1 million in other indirect tax reserves during the fiscal year endedDecember 31, 2022 , compared to an immaterial amount for the same period in the prior year. Total other expense, net Fiscal Year Ended December 31, Change 2022 2021 $ % Other income (expense) (in thousands, except percentages) Interest income (expense), net$ 4,297 $ (16) $ 4,313 n/m Other expense, net (4,696) (920) (3,776) n/m Total other expense, net$ (399) $ (936) $ 537 (57) % n/m - not meaningful We recorded$0.4 million of total other expense, net for the fiscal year endedDecember 31, 2022 , compared to$0.9 million for the same period in the prior year. The$4.3 million increase in interest income (expense), net was primarily attributable to interest earned on our existing cash and cash equivalents balances and accretion income from marketable securities portfolio, totaling$5.5 million , partially offset by$1.3 million of interest incurred, primarily related to indirect tax reserves. The$3.8 million increase in other expense, net is primarily attributable to an impairment loss of$2.9 million on our strategic investments recorded during the fiscal year endedDecember 31, 2022 . Income tax provision Fiscal Year Ended December 31, Change 2022 2021 $ % (in thousands, except percentages) Income tax provision $ (2,286)$ (1,183) $ (1,103) 93 % For the fiscal year endedDecember 31, 2022 , we recognized income tax expense of$2.3 million , compared to$1.2 million for the same period in the prior year. Income tax expense for the fiscal years endedDecember 31, 2022 and 2021, was primarily comprised of foreign taxes.
Certain key business metrics and non-GAAP financial metrics
In addition to the measures presented in our consolidated financial statements,
we use the key business metrics and non-GAAP financial metrics identified below
to help us assess the health of our community, evaluate our business, identify
trends affecting our business, formulate business plans, and make strategic
decisions.
56--------------------------------------------------------------------------------
Table of Contents
Monthly average buyers
A buyer is a consumer who purchases a course or subscription through our
direct-to-consumer offering. The number of monthly average buyers is calculated
as the average of monthly buyers during a particular period, such as a fiscal
year. Our monthly average buyer count is not intended as a measure of active
engagement, as not all buyers are active at any given time or over any given
period. We believe that the number of monthly average buyers in a given period
is an important indicator of the growth of our business and potential future
revenue trends. Our monthly average buyers count is expected to fluctuate in
future periods due to a number of factors, including the growth of our customer
base, expansion of products and features, and our ability to retain our Consumer
customers.
Fiscal Year Ended December 31,
2022 2021 2020
(in thousands)
Monthly average buyers 1,336 1,345 1,439
Udemy Business customers
We count the total number of UB customers at the end of each period. To do so, we generally count unique customers using the concept of a domestic ultimate parent, defined as the highest business in the family tree that is in the same country as the contracted entity. In some cases, we deviate from this methodology, defining the contracted entity as a unique customer despite existence of a domestic ultimate parent. This often occurs where the domestic ultimate parent is a financial owner, government entity, or acquisition target where we have contracted directly with the subsidiary. We define a UB customer as a customer who purchasesUdemy via our direct sales force, reseller partnerships or through our self-service platform. We believe that the number of UB customers and our ability to increase this number is an important indicator of the growth of our UB and future revenue trends. The increase in UB customers is primarily attributable to the continued pursuit of our global land and expand strategy, as well as growth of our enterprise sales force. December 31, 2022 2021 2020 Udemy Business customers 13,920 10,515 7,300
Udemy Business Annual Recurring Revenue
We disclose our UB Annual Recurring Revenue ("ARR") as a measure of our
Enterprise revenue growth. ARR represents the annualized value of our UB
customer contracts on the last day of a given period. Only revenue from closed
UB contracts with active seats as of the last day of the period are included.
The increase in UB ARR was primarily driven by an increase in the number of UB
customers, as well as an increase in the average deal size per new customer and
net expansions in our existing UB customer base. Pricing was not a significant
driver of the increase in UB ARR .
December 31,
2022 2021 2020
(in thousands)
Udemy Business annual recurring revenue
57--------------------------------------------------------------------------------
Table of Contents
Udemy Business Net Dollar Retention Rate and Udemy Business Large Customer Net Dollar Retention Rate
We disclose UB Net Dollar Retention Rate, or UB NDRR, as a measure of revenue
growth for all UB customers within our Enterprise segment, including UB Large
Customers, which we define as companies with at least 1,000 employees. We
believe UB NDRR is an important metric that provides insight into the long-term
value of our UB subscription agreements and our ability to retain and grow
revenue from our UB customers. We believe UB Large Customer NDRR reflects our
ability to retain and expand our footprint with larger organizations, who
present greater opportunities for us to retain and grow revenue given the wider
range of potential use cases and land-and-expand opportunities.
We calculate UB NDRR as the total ARR at the end of a trailing twelve-month
period divided by the total ARR at the beginning of a trailing twelve-month
period for the cohort of all UB customers active at the beginning of the
trailing twelve-month period. We calculate UB Large Customer NDRR as the total
UB Large Customer ARR at the end of a trailing twelve-month period divided by
the total Large Customer ARR at the beginning of a trailing twelve-month period
for the cohort of UB customers with at least 1,000 employees active at the
beginning of the trailing twelve-month period. Total ARR and Large Customer ARR
at the end of a trailing twelve-month period are calculated as ARR and Large
Customer ARR, respectively, at the beginning of a trailing twelve-month period
that are then adjusted for upsells, downsells, and churns for the same cohort of
customers during that period. Large Customer ARR represents the annualized value
of contracts for UB customers with active seats and having at least 1,000
employees on the last day of a given period.
Our UB NDRR and UB Large Customer NDRR are expected to fluctuate in future
periods due to a number of factors, including the growth of our revenue base,
the penetration within our learner base, expansion of products and features, and
our ability to retain our UB customers.
2022 2021 2020
Udemy Business net dollar retention rate 115 % 118 % 118 %
Udemy Business Large Customer net dollar retention rate 123 % 124 % 121 %
Segment revenue and segment gross profit
Our revenue is generated from our Consumer and UB offerings, each of which is an
individual segment of our business. Segment revenue represents the revenue
recognized from each of these offerings and is a key measure of the performance
of our platform, and in turn drives our financial performance. We also monitor
segment gross profit as a key metric to help evaluate the financial performance
of our individual segments and our business as a whole. Segment gross profit is
defined as segment revenue less segment cost of revenue, which include content
costs, hosting and platform costs, customer support services, and payment
processing fees that are allocable to each segment. Segment gross profit
excludes amortization of capitalized software, amortization of intangible
assets, depreciation, and stock-based compensation allocated to cost of revenue
as our chief operating decision maker does not include the information in his
measurement of the performance of the operating segments. Content costs, which
are payments made to our instructors, are the largest individual component of
segment cost of revenue. We expect to increase the percentage of our revenue
derived from our Enterprise segment over time, which we expect will improve our
gross margins.
58--------------------------------------------------------------------------------
Table of Contents
Fiscal Year Ended December 31,
2022 2021 2020
(in thousands, except percentages)
Consumer segment revenue $ 315,059 $ 328,703 $ 326,454
Consumer segment gross profit $ 165,805 $ 169,361 $ 160,650
Consumer segment gross margin 53 % 52 % 49 %
Enterprise segment revenue $ 314,038 $ 186,954 $ 103,445
Enterprise segment gross profit $ 209,461 $ 122,970 $ 67,926
Enterprise segment gross margin 67 % 66 % 66 %
For the fiscal year endedDecember 31, 2022 , the increase in Consumer segment gross margin was primarily due to a decrease in content costs as a percentage of Consumer revenue and the timing of revenue recognition relative to content costs. Otherwise, the mix of hosting costs, payment processing fees, and customer support services remained a consistent percentage of Consumer revenue when compared to the prior year. For the fiscal year endedDecember 31, 2022 , the increase in Enterprise segment gross margin was primarily due to a decrease in content costs as a percentage of Enterprise revenue. Otherwise, the mix of hosting costs, payment processing fees, and customer support services remained a consistent percentage of Enterprise revenue when compared to the prior year.
Non-GAAP financial metrics
In addition to the measures presented in our consolidated financial statements, we use the following non-GAAP financial metrics identified below to help us evaluate our business, formulate business plans, and make strategic decisions.
Adjusted EBITDA and adjusted EBITDA margin
As adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. In addition, it provides a useful measure for period-to-period comparisons of our business, as it removes the effect of certain non-cash expenses and certain variable charges. We define adjusted EBITDA as net loss attributable to common stockholders, adjusted to exclude: •interest expense (income), net; •provision for income taxes; •depreciation and amortization; •stock-based compensation expense; and •other expense (income), net.
We define adjusted EBITDA margin as adjusted EBITDA divided by revenue for the same period.
59--------------------------------------------------------------------------------
Table of Contents
The following table provides a reconciliation of net loss, the most directly comparable GAAP financial measure, to adjusted EBITDA (in thousands):
Fiscal Year Ended December 31,
2022 2021 2020
Net loss $ (153,875) $ (80,026) $ (77,620)
Adjusted to exclude the following:
Interest (income) expense, net (4,297) 16 1,146
Income tax provision 2,286 1,183
3,149
Depreciation and amortization 21,216 15,297
11,055
Stock-based compensation expense 81,293 34,680
31,618
Other (income) expense, net 4,696 920 (55) Adjusted EBITDA$ (48,681) $ (27,930) $ (30,707)
The following table provides a reconciliation of net loss margin, the most directly comparable GAAP financial measure, to adjusted EBITDA margin (in thousands, except percentages):
Fiscal Year Ended December 31,
2022 2021 2020
Revenue $ 629,097 $ 515,657 $ 429,899
Net loss $ (153,875) $ (80,026) $ (77,620)
Net loss margin (24) % (16) % (18) %
Revenue $ 629,097 $ 515,657 $ 429,899
Adjusted EBITDA $ (48,681) $ (27,930) $ (30,707)
Adjusted EBITDA margin (8) % (5) % (7) %
Net loss increased by $73.8 million in the fiscal year ended December 31, 2022
compared to the same period in the prior year, and adjusted EBITDA decreased by
$20.8 million in the fiscal year ended December 31, 2022 compared to the same
period in the prior year. The increase in net loss was primarily driven by
increase in stock-based compensation of $46.6 million , as well as other
increased operating expenses as we scale and grow our business. The decrease in
adjusted EBITDA was primarily due to increased operating expenses as we scale
and grow our business.
Liquidity and capital resources
As ofDecember 31, 2022 , our principal sources of liquidity were cash, cash equivalents and restricted cash of$317.3 million and marketable securities of$151.7 million . Cash and cash equivalents includes money market funds, certainU.S. government securities purchased with original maturities of less than 90 days, on demand deposits, and amounts in transit from certain payment processors for credit and debit card transactions. Restricted cash totaled$3.6 million and consists of cash deposited with financial institutions held as collateral for our obligations under various facility leases. Marketable securities are comprised of investments inU.S. government securities with an original maturity greater than 90 days at the date of purchase. Our non-U.S. cash and cash equivalents have been earmarked for indefinite investment in our operations outside theU.S. , and consequently noU.S. current or deferred taxes have been accrued on such amounts. We believe that our existing cash and cash equivalents and our expected cash flows from operations will be sufficient to meet our cash needs for at least the next 12 months. Over the long term, we plan to continue investing in the growth and development of our platform. If our available funds are insufficient to fund these future activities or execute on our business strategies, we may raise additional capital through equity, equity-linked or debt financing, to the extent such funding sources are available. Alternatively, we may be required to reduce expenses to manage liquidity; however, any such reductions could adversely impact our business and competitive position. 60
--------------------------------------------------------------------------------
Table of Contents
Sources of funds
We have historically financed our operations primarily through revenue, as well as proceeds from issuances of our capital stock. InOctober 2021 , we received net proceeds of$397.4 million , after deducting underwriting discounts and commissions of$23.1 million , from our IPO. InNovember 2021 , the underwriters exercised their option to purchase additional shares of our common stock, resulting in net proceeds of$17.8 million after deducting underwriting discounts and commissions of$1.0 million . From time to time, we may explore additional financing sources, which could include equity, equity-linked or debt financing. In addition, in connection with any future acquisitions or strategic investments, we may pursue additional funding, which could include debt, equity or equity-linked financings, or a combination of these methods. We can provide no assurance that any additional financing will be available to us on acceptable terms.
Use of funds
Our principal uses of cash are funding our operations, capital expenditures and working capital requirements. We have generated significant net losses from our operations as reflected in our accumulated deficit of$612.4 million as ofDecember 31, 2022 . We have generally incurred operating losses and generated negative cash flows from operations as we have invested in growing our business. Our operating cash requirements may increase in the future as we continue to invest in the development of our platform and the growth of our business. We cannot be certain our revenue will grow sufficiently to offset our operating expense increases. As a result, we may need to raise additional funds to support our operations, and such funding may not be available to us on acceptable terms, if at all. The following table summarizes our cash flows for the periods indicated (in thousands): Fiscal Year Ended December 31, 2022 2021 2020 Net cash provided by (used in): Operating activities$ (60,957) $ (7,104) $ 9,624 Investing activities (173,227) (52,693) (14,537) Financing activities 14,755 418,634 131,093 Effect of foreign exchange rates on cash flows (25) - - Net increase (decrease) in cash, cash$ (219,454) $ 358,837 $ 126,180 equivalents and restricted cash
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, amortization of deferred sales commissions, 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 are for personnel-related expenses, instructor payments, advertising expenses, indirect taxes, and third-party cloud infrastructure expenses.
For the fiscal year endedDecember 31, 2022 , cash used in operating activities was$61.0 million , primarily consisting of our net loss of$153.9 million , adjusted for non-cash charges of$144.6 million and net cash outflows of$51.7 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a$67.7 million increase in deferred revenue, resulting primarily from our enterprise business growth, offset by a$32.3 million increase in accounts receivable, a$28.6 million decrease in accounts payable, accrued expenses and other current liabilities, which includes a$13.7 million one-time payment to settle our instructor withholding tax reserve, and a$53.4 million increase in deferred contract costs. 61
--------------------------------------------------------------------------------
Table of Contents
For the fiscal year endedDecember 31, 2021 , cash used in operating activities was$7.1 million , primarily consisting of our net loss of$80.0 million , adjusted for non-cash charges of$68.1 million and net cash outflows of$4.8 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a$66.6 million increase in deferred revenue, resulting primarily from our enterprise business growth, which was offset by a$27.0 million increase in accounts receivable, a$36.5 million increase in deferred contract costs, and a$9.9 million increase in prepaid expenses and other assets. For the fiscal year endedDecember 31, 2020 cash provided by operating activities was$9.6 million , primarily consisting of our net loss of$77.6 million , adjusted for non-cash charges of$50.4 million and net cash inflows of$36.9 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a$54.7 million increase in deferred revenue, resulting primarily from our enterprise business growth and an increase of$17.5 million in accounts payable, accrued expenses and other current liabilities, which were offset by a$19.6 million increase in accounts receivable, and a$18.9 million increase in deferred contract costs.
Investing activities
For the fiscal year ended
For the fiscal year endedDecember 31, 2021 , net cash used in investing activities was$52.7 million , primarily as a result of our$24.5 million acquisition of CorpU, as well as$10.0 million for the purchase of strategic investments,$5.3 million of capital expenditures for property and equipment, and$12.9 million related to capitalized software costs. For the fiscal year endedDecember 31, 2020 , cash used in investing activities was$14.5 million , primarily as a result of$5.2 million of capital expenditures for property and equipment and$9.4 million related to capitalized software costs.
Financing activities
For the fiscal year endedDecember 31, 2022 , net cash provided by financing activities was$14.8 million , primarily driven by proceeds from issuance of common stock via stock option exercises of$7.1 million and issuances of common stock under our employee stock purchase plan of$9.2 million , which was partially offset by a$1.6 million payment of deferred offering costs associated with our IPO. For the fiscal year endedDecember 31, 2021 , net cash provided by financing activities was$418.6 million , primarily as a result of proceeds of$415.2 million from our initial public offering, as well as proceeds of$10.9 million from the issuance of common stock following employee stock option exercises, offset by payments of$2.3 million for redeemable convertible preferred stock issuance costs and$5.2 million for deferred offering costs.
For the fiscal year ended
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.
62
--------------------------------------------------------------------------------
Table of Contents
Contractual obligations and commitments
Our estimated future obligations as of December 31, 2022 include both current
and long term obligations. Under our operating leases, as noted in the
consolidated financial statements included in Part II, Item 8, "Financial
Statements and Supplementary Data", we have a current obligation of $7.0 million
and a long-term obligation of $6.5 million .
Our purchase obligations as of
Critical accounting policies and estimates
Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of these 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. The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described below. See Note 2 to our consolidated financial statements for a description of our other significant accounting policies.
Revenue recognition
We recognize revenue using the five steps outlined in Accounting Standards
Codification ("ASC") 606. We derive revenue from contracts with consumer and UB
customers for access to our online learning platform and related services. We
offer a single, combined performance obligation, which is the customer's access
to the online content on the Udemy platform, representing a series of distinct
services as we continually fulfill our stand-ready obligation to provide the
customer access to the online licensed content with the functionality of the
Udemy platform. As such, we recognize revenue on a straight-line basis using an
estimated service period for consumer single course purchases and the
contractual subscription term for UB and consumer subscription customers.
We believe the following are the significant estimates and judgments impacting
our revenue recognition, and any changes to these estimates and judgments could
impact the timing and amount of revenue recognized.
Estimated service period for consumer single course purchases- Consumers who
purchase an individual course receive a non-exclusive lifetime license to the
digital course content in addition to stand-ready access to the Udemy platform
hosting services needed to access the content. Because consumers who purchase an
individual course receive lifetime access to their purchased content, we believe
an estimated service period best represents the time period during which
learners access the online course content on the platform. Determining the
estimated service period requires us to make certain judgments about the
expected period over which a consumer benefits from their purchase. We consider
quantitative and qualitative data in determining our estimate, including, but
not limited to, the average time period between a learner's purchase date and
the last date the learner accesses the purchased content, the average total
hours consumed for a given purchase, the time period over which learner activity
stabilizes, known online trends, and, to the extent publicly available, service
periods for competitors with similar online content. The estimated service
period for single course purchases is four months from the date of enrollment.
Principal versus agent- In order to determine whether revenue should be reported
as gross or net of either payments to third-party instructors or amounts
retained by reseller partners who sell access to Enterprise subscription
offerings, we evaluated whether we are the principal for sales of our consumer
and UB offerings.
63
--------------------------------------------------------------------------------
Table of Contents
Determining whether we are the principal involves making key judgments about
whether Udemy controls the contracted services before being transferred to the
end customer. We have determined that we are the principal to customers who
purchase access to online individual course content or through our subscription
offerings, as we control the promised goods or services (i.e., access to course
content via the Udemy platform) before it is transferred to the customer and are
primarily responsible for fulfillment with respect to delivering access to
course content. We also have substantial discretion to determine the pricing of
our offerings. We therefore report revenue related to these arrangements based
on the gross purchase price paid by customers.
Stock-based compensation
We account for stock-based compensation from stock-based awards using the
estimated fair value of the awards on the date of grant. Stock-based awards that
may be granted to employees, directors, and non-employees include restricted
stock units ("RSUs"), stock options, stock appreciation rights ("SARs"),
restricted stock, and stock purchase rights granted to employees under the
Employee Stock Purchase Plan ("ESPP Rights").
We estimate the fair value of RSUs based on our common stock price on the date
of grant or modification. We estimate the fair value of stock options, SARs, and
ESPP Rights using the Black-Scholes option-pricing model, which requires the use
of the following subjective and complex assumptions:
Expected Term- For stock options and SARs, we use the midpoint of the vesting
term and contractual expiration period to compute the expected term, as we do
not have sufficient historical information to develop reasonable expectations
about future exercise patterns and post-vesting employment termination behavior.
For ESPP Rights, the expected term is equal to the purchase periods in a given
offering period.
Risk-Free Interest Rate- The risk-free interest rate is based on the
Expected Volatility- We estimate future expected volatility by considering both the average volatility of a peer group of representative public companies with sufficient trading history and, to the extent available, our historical volatility over the expected term.
Dividend Yield- The expected dividend was assumed to be zero as we have never paid dividends and have no current plans to do so.
During the fiscal year endedDecember 31, 2022 , we launched an equity exchange program (the "Equity Exchange") in which eligible employees and executives were able to exchange certain outstanding stock options and SARs for RSUs on a one-for-one basis. We considered the Equity Exchange a modification event because it simultaneously canceled the existing equity-classified Eligible Awards and concurrently granted new RSUs as replacement awards. The incremental modification value was calculated as the excess of the fair value of each new RSU awarded, as measured immediately after closing of the exchange, over the fair value of the corresponding exchanged options and SARs, as measured immediately prior to closing of the exchange using the Black Scholes model described above. The incremental modification value and remaining unrecognized expense from the exchanged stock options and SARs at the time of the exchange will be recognized as stock-based compensation expense over the requisite service period for the new RSUs. We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. Future grants or modifications of stock-based awards that require the use of complex valuation models may cause us to alter or refine the estimates and assumptions described above, which could impact future stock-based compensation expense.
Income taxes
We are subject to income taxes in
64--------------------------------------------------------------------------------
Table of Contents
We utilize the asset and liability method under which deferred tax assets and liabilities arise from the temporary differences between the tax basis of an asset or liability and our reported amount in the consolidated financial statements, as well as from net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided for under currently enacted tax law. A valuation allowance is established if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations, and risks associated with estimates of future taxable income in assessing the need for a valuation allowance.
Business combinations
Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed. We use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Significant estimates we've made in valuing certain acquired intangible assets include, but are not limited to, future expected cash flows from acquired customer bases, acquired technology and acquired trade names, useful lives, royalty rates, and discount rates. The estimates are inherently uncertain and subject to revision as additional information is obtained during the measurement period for an acquisition, which may last up to one year from the acquisition date. Unanticipated events and circumstances in future periods may affect the accuracy or validity of such assumptions, estimates or actual results.
We evaluate and test the recoverability of goodwill for impairment annually, during the fourth quarter, or more often if and when circumstances indicate that goodwill may not be recoverable. We also evaluate the estimated remaining useful life of intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. In order to identify potential impairment, we consider a variety of judgmental qualitative factors, which may include financial performance; legal, regulatory, contractual, political, or business factors; entity specific events; industry and market considerations; and macroeconomic conditions. To the extent we determine that it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative test would be performed.
Recent accounting pronouncements
See Note 2 to our consolidated financial statements included in Part II, Item 8
of this Annual Report on Form 10-K for information regarding recently issued
accounting pronouncements.
65--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
