Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Special Note Regarding Forward-Looking Statements" in this Annual Report on Form 10-K. You should review the disclosure under the heading "Risk Factors" under Part I, Item 1A in this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Organization of Information
Management’s Discussion and Analysis provides a narrative on our financial performance and condition that should be read in conjunction with the accompanying financial statements. It includes the following sections:
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Overview
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Initial Public Offering
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Factors Affecting Our Performance
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Impact of COVID-19
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Components of Results of Operations
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Results of Operations
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Liquidity and Capital Resources
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Key Business Metrics and Non-GAAP Financial Measures
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Off-Balance Sheet Arrangements
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Critical Accounting Estimates
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Recent Accounting Pronouncements
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JOBS Act Transition Period
In this Item 7, we discuss our financial condition and results of operations for the years ended December 31, 2020 and 2021. Our financial condition and results of operations for the years ended December 31, 2019 and 2020 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the final prospectus for our initial public offering filed with the Securities and Exchange Commission, pursuant to Rule 424(b)(4) on March 31, 2021 (the "Prospectus").
Overview
Coursera is one of the largest online learning destinations in the world, connecting an ecosystem of learners, educators, organizations, and institutions with a platform of high-quality content and credentials, data, and technology.
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, organizations, and institutions worldwide. We partner with over 250 leading global university and industry partners to create and distribute content that is modular, stackable, flexible, and affordable. As of December 31, 2021, approximately 97 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, organizations, 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, postgraduate diplomas 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 years ended December 31, 2020 and 2021, we generated a net loss of $66.8 million and $145.2 million, respectively, which included $16.8 million and $91.2 million, respectively, of stock-based compensation expense, and a net loss margin as a percentage of revenue for the years ended December 31, 2020 and 2021 of (23)% and (35)%, respectively.
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Initial Public Offering
On April 5, 2021, we completed our IPO of common stock, in which we sold 14,664,776 shares and certain selling stockholders sold 1,065,224 shares. The shares were sold at a price to the public of $33.00 per share for net proceeds of $452.5 million to us after deducting underwriting discounts and commissions of $31.5 million. Additionally, offering costs incurred by us were approximately $6.4 million. Net proceeds to the selling stockholders were $32.9 million after deducting underwriting discounts and commissions. We did not receive any of the proceeds from the sale of our common stock by the selling stockholders. 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.
On April 19, 2021, the underwriters exercised in full the right to purchase 2,359,500 additional shares of common stock from us, resulting in additional net proceeds of $72.8 million after deducting underwriting discounts and commissions of $5.1 million.
Factors Affecting Our Performance
We believe that the growth of our business and our future success are dependent upon many factors. While each of these factors present significant opportunities for us, these factors also pose challenges that we must successfully address in order to sustain the growth of our business and enhance our results of operations.
Ability to attract and engage new learners, Enterprise customers, and Degrees students
In order to grow our business, we must attract new learners, Enterprise customers and Degrees students efficiently and increase engagement on our platform over time. Our Consumer learners are the most important source of our overall learner base, as they contribute to our Enterprise and Degrees revenue.
Ability to source in-demand content from our educator partners
We believe that learners and enterprises are attracted to Coursera 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 organizations and institutions to partner with Coursera 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, organizations, 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.
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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 segment 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.
Our investment in growth
We are actively investing in our business. In order to support our future growth and expanding set of offerings, we expect this investment to continue. We anticipate that our operating expenses will increase as we continue to build our sales and marketing efforts, expand our employee base, and invest in our technology development. The investments we make in our platform are designed to grow our revenue opportunity and to improve our operating results in the long term.
Impact of COVID-19
The COVID-19 pandemic has resulted, and is likely to continue to result, in significant global, social, and business disruption. As of the date of this filing, significant uncertainty continues to exist concerning the magnitude of the impact and duration of the COVID-19 pandemic. While some restrictions on travel and activities have been lifted, the rise in cases due to a variant of the virus resulted in restrictions being reinstated. While the impact of the ongoing COVID-19 pandemic is severe, widespread, and continues to evolve, it has accelerated the need for online-delivered education. Individuals, organizations, 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 COVID-19 pandemic and its aftermath on our operations, key metrics, and financial performance in the United States and worldwide depends on future developments that are uncertain and unpredictable, including the duration and spread of the pandemic, the impact of new strains or variants of the virus, the effectiveness and availability of vaccines and boosters, future and ongoing actions that may or may not be taken by governmental authorities, the impact on the businesses of our customers and partners, the impact on capital and financial markets, and any new information that may emerge concerning the virus or vaccines or other efforts to control the virus. We will continue to actively monitor the situation, including progress made through vaccinations, and we will make further changes to our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders.
Components of Results of Operations
Revenue
We derive revenue from contracts with customers for access to the learning content hosted on our platform and related services. We derive our revenue from three sources: Consumer, Enterprise, and Degrees.
Consumer and Enterprise revenue both consist primarily of subscriptions with terms varying from 30 days for certain Consumer subscriptions to one to three years for Enterprise license subscription contracts. Consumer subscriptions are paid in advance, generally after a 7-day free trial period. Enterprise subscriptions are generally invoiced in quarterly or annual installments. Access to our platform represents a series of distinct services, as we continually provide access to, and fulfill our obligation to, the customer over the contract term. As a result, revenue is recognized ratably over the contract term.
We are the principal with respect to revenue generated from sales to Consumer and Enterprise customers as we control the performance obligation and are the primary obligor with respect to delivering access to content.
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Degrees revenue is generated from contracts with university partners for the delivery of online bachelor’s and master’s degrees or postgraduate diplomas awarded by the university. We earn a Degrees service fee that is determined as a percentage of the total tuition collected from Degrees students, net of refunds. University partners generally collect the tuition from Degrees students, however in the case of some MasterTrack Certificate offerings this obligation can be our responsibility. We have a stand ready obligation to perform 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 revenue arrangement between Coursera 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 designing the curriculum, setting admission criteria, real-time teaching, making admissions and financial aid decisions, independently awarding credits, certificates or degrees and academic or career counseling. Although some MasterTrack Certificate learners are required to accept our terms and conditions prior to tuition payment, our core performance obligations remain similar to the services provided to university partners for their online bachelor’s and master’s degrees or postgraduate diplomas. For these reasons, the university partners control the delivery of degrees, postgraduate diplomas and MasterTrack Certificates hosted on our platform. As a result, we recognize Degrees revenue as the service fee we earn from our contracts with university partners.
Cost of Revenue
Cost of revenue consists of content costs in the form of fees paid to educator partners and expenses associated with the operation and maintenance of our platform. These expenses include the cost of servicing both paid learner and educator partner support requests, hosting and bandwidth costs, amortization of acquired technology, internal-use software and content assets, customer payment processing fees, and allocated depreciation and facilities costs.
Content costs only apply to Consumer and Enterprise offerings; there is no content cost attributable to our Degrees offering. Content costs 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 to the extent our mix changes as we expect, content costs will decrease as a percentage of total revenue.
Operating Expenses
Operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of our operating expenses and consist of salaries, benefits, bonuses, stock-based compensation, commissions, and payroll taxes. Our operating expenses also include allocated costs of facilities, information technology, depreciation, and amortization. Although our operating expenses may fluctuate from period to period, we currently expect our operating expenses to increase in absolute dollars over time.
Research and development. Our research and development expenses consist primarily of personnel and personnel-related costs, including stock-based compensation and costs related to the ongoing management, maintenance, and expansion of content, features, and services offered on our platform. We believe that continued investment in our platform is important to our future growth and to maintain and attract partners and learners to our platform. As a result, we expect research and development expenses to increase in absolute dollars. In addition, we expect research and development expenses as a percentage of revenue to vary from period to period but generally decrease over the long term.
Sales and marketing. Our sales and marketing expenses consist primarily of personnel and personnel-related costs, including stock-based compensation and costs related to learner and partner acquisition, support efforts, and brand marketing. Sales and marketing expenses also consist of hosting and bandwidth costs and 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.
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We have incurred and expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance and professional services. We expect general and administrative expenses to increase in absolute dollars as our business grows. In addition, we expect general and administrative expenses as a percentage of revenue to vary from period to period but generally decrease over the long term.
Interest Income
Interest income consists primarily of interest income earned on our cash, cash equivalents, and marketable securities. It also includes amortization of premiums and accretion of discounts related to our marketable securities. Interest income varies each reporting period based on our average balance of cash, cash equivalents, and marketable securities during the period and market interest rates.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign exchange gains (losses).
Income Tax Expense
Our income tax provision consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. We have a full valuation allowance against our U.S. federal and state deferred tax assets as the realization of the full amount of these deferred tax assets is uncertain, including net operating loss carryforwards and tax credits related primarily to research and development. We expect to maintain this full valuation allowance until it becomes more likely than not that the deferred tax assets will be realized.
Results of Operations
The following table summarizes our results of operations for the periods presented. The results below are not necessarily indicative of results to be expected for future periods.
Year Ended December 31,
(in thousands)
Operating expenses:
Other income (expense):
Interest expense (625 ) (12 ) —
(1) Includes stock-based compensation expense as follows:
Year Ended December 31,
(in thousands)
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The following table summarizes our results of operations as a percentage of revenue for each of the periods indicated:
Year ended December 31,
Operating expenses:
Research and development 30 26 32
General and administrative 16 13 19
Total operating expenses 77 76 94
Loss from operations (26 ) (23 ) (34 )
Other income (expense):
Interest income 2 1 —
Interest expense (1 ) — —
Other income (expense), net — — —
Loss before income taxes (25 ) (22 ) (34 )
Income tax expense — 1 1
Comparison of the Years Ended December 31, 2020 and 2021
Revenue
Year Ended December 31, Change
(dollars in thousands)
Revenue:
Revenue for the year ended December 31, 2020 was $293.5 million, compared to $415.3 million for the year ended December 31, 2021. Revenue increased by $121.8 million, or 41%, compared to the year ended December 31, 2020. For the year ended December 31, 2020, Consumer, Enterprise, and Degrees revenue were $192.9 million, $70.8 million, and $29.8 million, or approximately 66%, 24%, and 10% of total revenue, respectively, compared to $246.2 million, $120.4 million, and $48.7 million, or approximately 59%, 29%, and 12% of total revenue, respectively, for the year ended December 31, 2021. The increase in revenue was primarily driven by a 26% increase in registered learners, which resulted in an increase in paying Consumer customers, the addition of 416 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 impact continued into 2021.
For the year ended December 31, 2021, total Consumer revenue increased by $53.3 million, or 28%, compared to the year ended December 31, 2020. The new learners that registered after December 31, 2020 added $84.0 million in revenue to the total revenue of $246.2 million for the year ended December 31, 2021. The remaining Consumer revenue in the year ended December 31, 2021 of $162.2 million is attributable to learners that were registered in our platform as of December 31, 2020, thus retaining 84% of the revenue from those registered learners.
For the year ended December 31, 2021, total Enterprise revenue increased by $49.6 million, or 70%, compared to the year ended December 31, 2020. Approximately $25.9 million of the increase in revenue was attributable to new customers, and the remaining increase of $23.7 million was attributable to growth from existing customers.
For the year ended December 31, 2021 total Degrees revenue increased by $18.9 million, or 63%, compared to the year ended December 31, 2020. The increase in the number of Degrees students added $16.8 million in revenue, and the remaining increase of $2.1 million was attributable to an increase in revenue per student.
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Cost of Revenue, Gross Profit and Gross Margin
Year Ended December 31, Change
(dollars in thousands)
Gross margin 53 % 60 %
Cost of revenue for the year ended December 31, 2020 was $138.8 million, compared to $165.8 million for the year ended December 31, 2021. The increase in revenue resulted in an increase of $15.6 million in costs related to partner fees. Content costs for the Consumer and Enterprise segments were $86.4 million and $21.8 million for the year ended December 31, 2020, respectively, compared to $84.7 million and $39.2 million for the year ended December 31, 2021, respectively. Content costs as a percentage of revenue for Consumer and Enterprise segments were 45% and 31% for the year ended December 31, 2020, respectively, compared to 34% and 33% for the year ended December 31, 2021, respectively. We experienced an increase in usage by paid learners on our platform which resulted in a $6.8 million cost increase from support services, hosting costs, and credit card processing. Additionally, there was an increase of $4.6 million in amortization expense.
Gross margin was 53% for the year ended December 31, 2020, compared to 60% for the year ended December 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.
Operating Expenses
Year Ended December 31, Change
(dollars in thousands)
Operating expenses:
Total operating expenses for the year ended December 31, 2020 were $221.2 million, compared to $392.5 million for the year ended December 31, 2021.
Research and development expenses for the year ended December 31, 2020 were $76.8 million, compared to $135.4 million for the year ended December 31, 2021. The increase was primarily due to higher personnel-related expenses of $51.5 million, driven by additional headcount, and additional stock-based compensation expense of $35.8 million. Consulting and services expenses increased by $3.7 million. Other research and development expenses including facilities allocation, office expenses, and recruiting fees increased by $3.4 million.
Sales and marketing expenses for the year ended December 31, 2020 were $107.2 million, compared to $179.3 million for the year ended December 31, 2021. The increase in sales and marketing expenses was primarily due to higher personnel-related expenses of $47.2 million, driven by additional headcount, and additional stock-based compensation expense of $21.9 million. Marketing and advertising expenses increased by $15.5 million, consulting and services expenses increased by $4.7 million, and software subscription fees increased by $1.9 million. Other sales and marketing expenses including general overhead expenses, office expenses and recruiting fees increased by $2.8 million.
General and administrative expenses for the year ended December 31, 2020 were $37.2 million, compared to $77.8 million for the year ended December 31, 2021. The increase in general and administrative expenses was primarily due to higher personnel-related expenses of $22.4 million, mainly driven by additional headcount, and additional stock-based compensation expense of $15.1 million. There was also an increase of $7.6 million in consulting and professional services, $6.6 million in office expenses which included directors and officers insurance, and $3.5 million related to indirect taxes. Other general and administrative expenses, which included facility expenses and recruiting fees increased by $0.5 million.
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Other Income (Expense)
Year Ended December 31, Change
(dollars in thousands)
Total other income for the year ended December 31, 2020 was $1.3 million, and was immaterial for the year ended December 31, 2021.Total other income for the year ended December 31, 2020 primarily reflected interest income earned on invested cash balances. Total other expense for the year ended December 31, 2021 primarily reflected foreign exchange losses, offset by interest income earned on invested cash balances. Interest income was lower during the year ended December 31, 2021 compared to the year ended December 31, 2020 due to lower interest rates.
Income Tax Expense
Year Ended December 31, Change
(dollars in thousands)
For the year ended December 31, 2020, we recognized income tax expense of $1.5 million, compared to $2.1 million for the year ended December 31, 2021. Income tax expense for the years ended December 31, 2020 and 2021 was primarily related to foreign taxes.
Liquidity and Capital Resources
Overview
Since our inception, we have financed our operations primarily through proceeds from our redeemable convertible preferred stock issuances, as well as from cash generated from our business operations. In April 2021, we received cash proceeds of $525.3 million from our IPO net of underwriting discounts and commissions but before deducting other offering expenses. As of December 31, 2021, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $821.8 million. Our investments consist of U.S. government treasury bills.
Our principal uses of cash in recent periods have been funding of our business operations and investing in our capital expenditures. 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.
Contractual Obligations and Commitments
Our estimated future obligations as of December 31, 2021 include both current and long term obligations. Under our operating leases, as noted in Note 10, Leases, to the consolidated financials included in Part II, Item 8, "Financial Statements and Supplementary Data", we have a current obligation of $8.0 million and a long-term obligation of $11.9 million.
Our operating leases obligations as of December 31, 2021 were approximately $21.7 million, which consist of payments related to lease facilities under operating lease agreements expiring through 2024. We have office facility operating leases in the United States, Canada, the United Kingdom, India, Bulgaria, and United Arab Emirates.
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Our purchase obligations as of December 31, 2021 were approximately $47.6 million, which primarily consisted of our commitments related to purchase of services. As noted in Note 11, Commitments and Contingencies, to the consolidated financials included in Part II, Item 8, "Financial Statements and Supplementary Data", we have a current obligation of $9.5 million and a long-term obligation of $38.1 million. In situations where we have received delivery of the services as of December 31, 2021 under the purchase obligations outstanding as of the same date, such amounts are reflected in the consolidated balance sheet as other accounts payable and accrued expenses, and are excluded from the $47.6 million.
In March 2021, we entered into a five-year agreement with a cloud hosting provider pursuant to which we committed to spend $7.5 million in each of the next five years.
Capital expenditures
Our capital expenditures primarily reflected our investments in property, equipment and software and capitalized internal-use software costs. We currently expect our capital expenditures for the year ending 2022 to be consistent with the year ended 2021.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended December 31,
(in thousands)
Operating Activities
Cash provided by operating activities mainly consists of our net loss adjusted for certain non-cash items, including stock-based compensation and depreciation and amortization, as well as the effect of changes in operating assets and liabilities during each period.
Our main source of operating cash is payments received from our customers. Our primary use of cash from operating activities is for personnel-related expenses, partner fees, marketing and advertising expenses, indirect taxes, and third-party cloud infrastructure expenses.
For the year ended December 31, 2020, net cash used in operating activities was $15.0 million, primarily consisting of our net loss of $66.8 million, adjusted for non-cash charges of $26.5 million and net cash inflows of $25.3 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a $39.0 million increase in deferred revenue, resulting primarily from our Enterprise segment growth, a $25.7 million increase in accounts payable and accrued expenses due to the growth of our business, partially offset by a $24.1 million increase in accounts receivable and a $18.3 million increase in prepaids and other assets.
For the year ended December 31, 2021, net cash provided by operating activities was $1.7 million, primarily consisting of our net loss of $145.2 million, adjusted for non-cash charges of $106.0 million and net cash inflows of $41.0 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a $17.8 million increase in deferred revenue, resulting primarily from our Enterprise segment growth, a $16.3 million increase in accounts payable and accrued expenses and a $7.7 million increase in accrued compensation and other liabilities mainly due to our business growth, and a $5.9 million decrease in accounts receivable due to timing of billings, partially offset by a $5.7 million increase in prepaids and other assets primarily due to increase in deferred commissions.
Cash provided by operating activities increased by $16.7 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to our business growth.
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Investing Activities
For the year ended December 31, 2020, net cash used in investing activities was $101.4 million, primarily as a result of net purchases of marketable securities, capital expenditures of property, equipment and software, and capitalized internal-use software costs, and purchase of investment in a private company.
For the year ended December 31, 2021, net cash used in investing activities was $51.6 million, primarily as a result of net purchases of marketable securities, capital expenditures of property, equipment and software, capitalized internal-use software costs, and purchases of content assets.
Financing Activities
For the year ended December 31, 2020, net cash provided by financing activities was $139.0 million, primarily as a result of net proceeds for issuance of redeemable convertible preferred stock, and proceeds from issuance of common stock following employee stock option exercises, partially offset by payment of holdback consideration related to an asset acquisition.
For the year ended December 31, 2021, net cash provided by financing activities was $550.2 million, primarily as a result of net proceeds from our IPO, proceeds from issuance of common stock following employee stock option exercises and proceeds from employee stock purchase plan, offset by payment of deferred offering costs and employee payroll taxes paid for vesting of restricted stock units.
Key Business Metrics and Non-GAAP Financial Measures
We monitor the key business metrics and non-GAAP financial measures set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. These key business metrics and non-GAAP financial measures are presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may differ from similarly titled metrics or measures presented by other companies. A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is provided in “Non-GAAP Financial Measures" below.
Key Business Metrics
Registered Learners
We count the total number of registered learners at the end of each period. For purposes of determining our registered learner count, we treat each customer account that registers with a unique email as a registered learner and adjust for any spam, test accounts, and cancellations. Our registered learner count is not intended as a measure of active engagement. New registered learners are individuals that register in a particular period. We believe that the number of registered learners is an important indicator of the growth of our business and future revenue trends.
Year Ended December 31,
( in millions, except percentages)
Total Registered Learners YoY Growth 65 % 26 %
Number of Degrees Students
We count the total number of Degrees students for each period. For purposes of determining our Degrees student count, we include all the students that are matriculated in a bachelor's, or master's degree or postgraduate diploma and who are enrolled in one or more courses in such a degree program during the period. If a degree term spans across multiple quarters, the 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 segment 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.
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 year ended December 31, 2021, approximately 85% 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 segment and future Enterprise Segment Revenue trends.
As of December 31,
Paid Enterprise Customers 387 803
YoY Growth 107 %
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 decreased from 114% as of December 31, 2020 to 110% as of December 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.
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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.
Year Ended December 31,
(in thousands, except percentages)
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 offerings, shifts in mix between our three segments is expected to be a significant driver of our overall financial performance and profitability.
Year Ended December 31,
(in thousands, except percentages)
Segment Gross Margin % 55 % 66 %
Segment Gross Margin % 69 % 67 %
Segment Gross Margin % 100 % 100 %
Consumer Segment Gross Margin increased from 55% in the year ended December 31, 2020 to 66% in the year ended December 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 69% to 67% when comparing the same periods due to a lower proportion of Enterprise Revenue generated from subscription licenses where learners enrolled in content with no associated content cost.
Non-GAAP Financial Measures
We have included non-GAAP gross profit, non-GAAP net loss, Adjusted EBITDA, Adjusted EBITDA Margin, and Free Cash Flow, which are non-GAAP financial measures because they are key measures used by our management to help us analyze our financial results, establish budgets and operational goals for managing our business, evaluate our performance, and make strategic decisions. Accordingly, we believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. In addition, we believe these measures are useful for period-to-period comparisons of our business. We also believe that the presentation of these non-GAAP financial measures provides an additional tool for investors to use in comparing our core business and results of operations over multiple periods with other companies in our industry, many of which present similar non-GAAP financial measures to investors, and to analyze our cash performance. However, the non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.
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Limitations of Non-GAAP Measures
These non-GAAP financial measures are not prepared in accordance with GAAP, are supplemental in nature, and are not intended, and should not be construed, as the sole measure of our performance, and should not be considered in isolation from or as a substitute for comparable financial measures prepared in accordance with GAAP. There are a number of limitations related to non-GAAP gross profit, non-GAAP net loss, Adjusted EBITDA, Adjusted EBITDA Margin, and Free Cash Flow, including the following:
Because of these limitations, you should consider non-GAAP gross profit, non-GAAP net loss, Adjusted EBITDA, Adjusted EBITDA Margin, and Free Cash Flow alongside other financial performance measures, including gross margin, net loss, and our other GAAP results.
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):
Operating expenses:
Interest expense (625 ) — — (625 )
Other income (expense), net (264 ) — — (264 )
Operating expenses:
Interest expense (12 ) — (12 )
Other income (expense), net 120 — — 120
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Operating expenses:
Other income (expense), net (346 ) — — (346 )
Adjusted EBITDA and Adjusted EBITDA Margin
“Adjusted EBITDA” and “Adjusted EBITDA Margin”, which are non-GAAP financial measures, are key measures used by our management to help us analyze our financial results, establish budget and operational goals for managing our business, evaluate our performance, and make strategic decisions.
We define Adjusted EBITDA as our net loss excluding: (1) depreciation and amortization; (2) interest income, net; (3) stock-based compensation; (4) income tax expense; and (5) payroll tax expense related to stock-based activities. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue.
The following table provides a reconciliation of net loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA.
Year Ended December 31,
(in thousands, except percentages)
Payroll tax expense related to stock-based activities 130 258 1,643
Adjusted EBITDA Margin (15 )% (14 )% (9 )%
Free Cash Flow
“Free Cash Flow” is a non-GAAP financial measure that we calculate as net cash (used in) provided by operating activities, less cash used for purchases of property, equipment and software, and capitalized internal-use software costs. We exclude purchases of property, equipment and software, and capitalized internal-use software costs as we consider these capital expenditures to be a necessary component of our ongoing operations.
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We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors in understanding and evaluating our liquidity and future ability to generate cash that can be used for strategic opportunities, including investing in our business and strengthening our balance sheet, but it is not intended to represent the residual cash flow available for discretionary expenditures.
The following table provides a reconciliation of net cash provided by (used in) operating activities, the most directly comparable GAAP financial measure, to Free Cash Flow.
Year Ended December 31,
(in thousands)
Less: purchases of property, equipment and software (4,410 ) (3,099 ) (1,554 )
Less: capitalized internal-use software costs (5,522 ) (8,819 ) (12,090 )
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“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 the consolidated financials included in Part II, Item 8, "Financial Statements and Supplementary Data", for a description of our other significant accounting policies.
Revenue Recognition
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 Revenue—We generate revenue from the sale of access to course content to consumers. Consumer offerings include certifications for single courses, Specializations, and catalog-wide subscriptions. Access to single courses are generally purchased at a fixed price for a set period of time, typically six months. Specializations are a series of related courses offered by the same educator partner where learners are provided access to these courses on a month-to-month subscription basis. Coursera Plus is our catalog-wide consumer subscription offering and it is sold in the form of a monthly or annual subscription. All contracts with Consumer customers are billed in advance, generally after a 7-day free trial period. We recognize revenue ratably over the contracted period, after access has been granted to the consumer, as learners have unlimited access to the course content during the contracted period. Consumer learners are entitled to a full refund up to two weeks after payment is received. We estimate and establish a refund reserve based on historical refund rates.
Enterprise Revenue—We sell subscription licenses to business, government, and university customers that provide users the ability to enroll in courses and Specializations and receive certifications upon completion. Enterprise contracts are typically between one and three years in length and can consist of either a fixed quantity of seat licenses, each of which allows for unlimited course enrollments by one learner for each year, or the purchase of a quantity of course enrollments. In either contract type, we recognize revenue ratably over the contracted period, after access has been granted to the Enterprise customer, as learners have unlimited access to the course content during the contracted period.
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 course content. Additionally, we have inventory risk through recoupable advances sometimes paid to educator partners.
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Degrees Revenue—University partners contract with us for the delivery of bachelor’s and master’s degrees or postgraduate diplomas awarded by the university. Our Degrees revenue contracts involve the performance of a number of promises, including but not limited to hosting the content on our learning platform, providing content authoring tools, course production support, and marketing and platform technical support services. As a result, the university partner is our customer with respect to Degrees revenue. We earn a Degrees service fee that is determined based as a percentage of total tuition collected from Degrees students, net of refunds, by the university partner. Degrees revenue is earned 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.
The Degrees learning experience is delivered on the same proprietary learning platform used by Consumer and Enterprise learners. There is no direct contractual revenue arrangement between us 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 designing the curriculum, setting admission criteria, real-time teaching, making admission and financial aid decisions, independently awarding credits, certificates or degrees, and academic or career counseling. Although some MasterTrack Certificate learners are required to accept the terms and conditions prior to tuition payment, the Company's core performance obligations remain similar to the services provided to university partners for their online bachelor’s and master’s degrees or postgraduate diplomas. For these reasons, 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.
For all customers, revenue from contracts is recognized when control of promised services is transferred. The amount of revenue
recognized reflects the consideration that we expect to be entitled to receive in exchange for these services. We determine revenue recognition in accordance with Accounting Standards Codification (“ASC”) 606 through the following five steps:
1) Identify the contract with a customer
We determine a contract with a customer to exist when the contract is approved, each party’s rights regarding the services to be transferred can be identified, the payment terms for the services can be identified, the customer has the ability and intent to pay, and the contract has commercial substance. At contract inception, we evaluate whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation. We apply judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer. Consumer customers are required to pay in advance either prior to our providing access to course content or prior to the expiration of a 7-day free trial.
2) Identify the performance obligations in the contract
Performance obligations committed in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services and the products is separately identifiable from other promises in the contract. Customers do not have the ability to take possession of the software supporting the platform and, as a result, contracts are accounted for as service arrangements.
For sales to Consumer and Enterprise customers, our performance obligation generally consists of providing access to our platform and related support services, which is considered one performance obligation. 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.
Degrees services involve the performance of a number of promises that include hosting the degree content on our platform, degree program management, marketing, and platform technical support services, each of which are a series of distinct services that are substantially the same, and satisfied over time using the same measure of progress and as a result are considered one performance obligation to stand ready to perform an online degree hosting service for the duration of the degree.
3) Determine the transaction price
The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur. None of our contracts contain a significant financing component. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental entities (e.g., sales and other indirect taxes).
4) Allocate the transaction price to performance obligations in the contract
Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on each performance obligation’s relative standalone selling price.
As noted above, for Consumer and Enterprise customers, access to our platform and related support services are considered one performance obligation in the context of the contract and accordingly, the transaction price is allocated to this single performance obligation. Similarly, Degrees services are considered one performance obligation and the transaction price is allocated to this single performance obligation.
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5) Recognize revenue when or as performance obligations are satisfied
Revenue is recognized at the time the related performance obligation is satisfied by transferring the control of the promised service to a customer. Revenue is recognized in an amount that reflects the consideration that we expect to receive in exchange for those services. Fees for access to our platform and related support services by Consumer and Enterprise customers are considered one performance obligation, and the related revenue is recognized on a straight-line basis over the contract term as we satisfy our performance obligation.
We have a stand ready obligation to perform Degrees 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.
Historically, and with the exceptions noted below, no significant judgment has generally been required in determining the amount and timing of revenue from our contracts with customers.
• Determining whether we are the principal or agent in our revenue transactions requires significant judgment. In reaching the conclusion, we considered a range of indicators, including, but not limited to, who is primarily responsible for fulfilling the service, who has economic risk as a result of investing resources in advance of a sale transaction (“inventory risk”), and who has pricing discretion. As we control the performance obligation and are the primary obligor with respect to delivering access to course content for Consumer and Enterprise contracts and have inventory risk through recoupable advances paid to educator partners, we are the principal in such transactions. Conversely, as the university partner controls the delivery of degrees hosted on our platform, we recognize Degrees revenue as the service fee we receive from the partner.
• Our Degrees services revenue is determined based on a fee percentage applied to the total tuition collected from Degrees students, net of refunds, by the university partner. As a result, the revenue earned by us is dependent upon the number of learners enrolled and the tuition charged by the university partner. This is a form of variable consideration. We estimate the amount of revenue, using an expected value method, that we expect to be entitled to in return for performance of the Degrees services, subject to assessment of the significant future reversal constraint discussed above. These estimates are continually evaluated until such time as the uncertainties are resolved, generally at the time the final term enrollment report is provided by the university partner.
Common Stock Valuations
Subsequent to our IPO in March 2021, the fair value of common stock was determined on the grant date using the closing price of the Company's common stock.
Prior to our IPO, the fair value of the common stock underlying our stock-based awards had historically been determined by our board of directors, with input from management and corroboration from contemporaneous third-party valuations. We believed that our board of directors had the relevant experience and expertise to determine the fair value of our common stock. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each pre-IPO grant date. These factors include:
• the lack of marketability inherent in our common stock;
• our actual operating and financial performance;
• our current business conditions and projections;
• the hiring of key personnel and the experience of our management;
• the history of the company and the introduction of new offerings;
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• our stage of development;
• the U.S. and global capital market conditions and overall economic conditions.
In valuing our common stock, the fair value of our business was determined using the income approach. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate that is derived from an analysis of the cost of capital of comparable publicly traded companies in our industry or similar business operations as of each valuation date and is adjusted to reflect the risks inherent in our cash flows.
For each valuation, the fair value of our business determined by the income approach was then allocated to the common stock using either the option-pricing method (“OPM”), or the probability-weighted expected return method (“PWERM”). Our valuations prior to June 30, 2020 were allocated based on the OPM. Beginning June 30, 2020, our valuations were allocated based on the PWERM.
In addition, we considered any secondary transactions involving our capital stock. In our evaluation of those transactions, we considered the facts and circumstances of each transaction to determine the extent to which they represented a fair value exchange and assigned the transactions an appropriate weighting in the valuation of our common stock. Factors considered include the number of different buyers and sellers, transaction volume, timing relative to the valuation date, whether the transactions occurred between willing and unrelated parties, and whether the transactions involved investors with access to our financial information.
Application of these approaches and methodologies involves the use of estimates, judgments, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable public companies, and the probability of and timing associated with possible future events.
Stock-Based Compensation
We measure and recognize compensation expense for all stock-based awards granted, primarily including stock options, and restricted stock units, or RSUs based on the estimated fair value on the date of the grant. The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model. The fair value of each restricted stock unit is based on the fair value of our common stock on the date of grant. We estimate the fair value of the shares to be issued under our employee stock purchase plan, or ESPP using the Black-Scholes model at the commencement of an offering period. We recognize forfeitures as they occur.
The Black-Scholes option-pricing model is dependent upon several variables, such as the expected term, expected volatility of our stock price over the expected term, expected risk-free interest rate over the expected option term, and expected dividend yield rate over the expected term. These amounts are estimates and, thus, may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. We recognize compensation expense on a straight-line basis over the requisite vesting period for each award.
The assumptions above are estimated as follows. Each of these assumptions is subjective and generally requires significant judgment to determine.
Fair Value of Common Stock—Prior to our IPO, the fair value was determined by our board of directors or a committee thereof. The board of directors or committee considers numerous objective and subjective factors to determine the fair value of our common stock each time awards are approved. Subsequent to our IPO, the fair value of our common stock is determined by the closing price, on the date of grant, of our common stock, which is traded on the New York Stock Exchange.
Expected Term—The expected term represents the period that our stock-based awards are expected to be outstanding. For option grants considered to be “plain vanilla,” we determined the expected term using the simplified method. The simplified method deems the term to be the average of the time to vesting and the contractual life of the options. For ESPP, the expected term represents the term from the first day of the offering period to the purchase date.
Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the option or ESPP share.
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Expected Volatility—Since we do not have a trading history of our common stock, the expected volatility is derived from the average historical stock volatilities of several unrelated public companies within our industry that we consider to be comparable to our business over a period equivalent to the expected term of the stock option grants or ESPP shares.
Dividend Rate—The expected dividend was assumed to be zero as we have never paid dividends and have no current plans to do so.
We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may refine our estimates, which could materially impact our future stock-based compensation expense.
Income Taxes
We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our income tax expense and deferred tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.
We record a provision for income taxes using 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.
We recognize tax benefits from uncertain tax positions based upon our estimate only if it is more likely than not that the tax position will be sustained upon examination by the taxing authority. We recognize interest and penalties related to income tax matters as income tax expense.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data", for a discussion of recent 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes and foreign currency fluctuations. Information relating to quantitative and qualitative disclosures about these market risks is described below.
Interest Rate Sensitivity
As of December 31, 2020, we had $285.3 million of cash, cash equivalents, and marketable securities which consist of corporate debt, commercial paper securities, and U.S. government Treasury bills. In addition, we had approximately $2.5 million of restricted cash primarily due to outstanding letters of credit related to the operating lease agreement for our corporate headquarters. A hypothetical 100 basis point increase or decrease in interest rates would not have resulted in a material impact on our consolidated financial statements.
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As of December 31, 2021, we had $821.8 million of cash, cash equivalents, and marketable securities which consist of U.S. government Treasury bills. In addition, we had approximately $2.1 million of restricted cash due to outstanding letters of credit related to the operating lease agreement for our corporate headquarters. Our cash, cash equivalents, and marketable securities are held for working capital purposes. A hypothetical 100 basis point increase and decrease in interest rates would have resulted in decrease of $2.0 million and immaterial increase, respectively, in the market value of our cash equivalents and marketable securities as of December 31, 2021.
Foreign Currency Risk
Our reporting currency and the functional currency of our wholly owned foreign subsidiaries is the U.S. dollar. The majority of our sales are denominated in U.S. dollars; therefore, our revenue is not currently subject to significant foreign currency risk. Our operating expenses are denominated in the currencies of the countries in which our operations are located and may be subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Pound Sterling, Canadian Dollar, and Indian Rupee. Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statement of operations. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, although we may choose to do so in the future. A 10% increase or decrease in current exchange rates would have resulted in an impact of $3.4 million and $6.6 million on our consolidated financial statements for the years ended December 31, 2020 and 2021, respectively.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 78
Consolidated Balance Sheets 79
Consolidated Statements of Operations 80
Consolidated Statements of Comprehensive Loss 81
Consolidated Statements of Cash Flows 83
Notes to Consolidated Financial Statements 84
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Coursera, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Coursera, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2021, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
March 3, 2022
We have served as the Company's auditor since 2013.
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PART I—FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
COURSERA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
Assets
Current assets:
Prepaid expenses and other current assets 14,993 16,494
Property, equipment and software, net 18,644 24,725
Current liabilities:
Other accounts payable and accrued expenses 12,897 23,257
Operating lease liabilities, current 7,926 8,031
Operating lease liabilities, non-current 18,305 11,864
Deferred revenue, non-current 4,562 3,851
Commitments and contingencies (Note 11)
Redeemable convertible preferred stock:
Stockholders’ equity (deficit):
Accumulated other comprehensive income (loss) 20 (252 )
See notes to consolidated financial statements.
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COURSERA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share data)
Year Ended December 31,
Operating expenses:
Interest expense (625 ) (12 ) —
See notes to consolidated financial statements.
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COURSERA, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(In thousands)
Year Ended December 31,
See notes to consolidated financial statements.
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COURSERA, INC. AND SUBSIDIARIES
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except share and per share amounts)
Redeemable Accumulated
Convertible Additional Other Total
Shares Amount Shares Amount Capital Stock Income (Loss) Deficit Equity (Deficit)
Issuance of restricted stock awards — — 50,000 — — — — — —
Vesting of early exercise stock options — — — — 927 — — — 927
Stock-based compensation expense — — — — 16,679 — — — 16,679
Change in unrealized gain on marketable securities — — — — — — 88 — 88
Issuance of restricted stock awards — — 36,250 — — — — — —
Issuance of common stock upon exercise of warrants — — 190,930 — 38 — — — 38
Vesting of early exercise stock options — — — — 196 — — — 196
Stock-based compensation expense — — — — 17,773 — — — 17,773
Change in unrealized loss on marketable securities — — — — — — (54 ) — (54 )
Issuance of restricted stock awards — — 4,722 — — — — — —
Vesting of restricted stock units — — 502,135 — — — — — —
Vesting of early exercise stock options — — — — 77 — — — 77
Stock-based compensation expense — — — — 96,073 — — — 96,073
Change in unrealized loss on marketable securities — — — — — — (272 ) — (272 )
See notes to consolidated financial statements.
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COURSERA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
Cash flows from operating activities:
Amortization or accretion of marketable securities (1,121 ) (1 ) 501
Changes in operating assets and liabilities:
Operating lease right-of-use assets — 5,165 5,301
Accrued compensation and other liabilities (815 ) 3,718 7,670
Operating lease liabilities — (5,831 ) (6,336 )
Net cash provided by (used in) operating activities (21,334 ) (14,991 ) 1,746
Cash flows from investing activities:
Asset acquisition (3,345 ) — —
Purchases of property, equipment and software (4,410 ) (3,099 ) (1,554 )
Capitalized internal-use software costs (5,522 ) (8,819 ) (12,090 )
Purchase of investment in private company — (1,000 ) —
Purchases of content assets — — (1,188 )
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 8,293 10,118 31,766
Proceeds from employee stock purchase plan — — 6,397
Proceeds from exercise of unvested options, net of repurchases 499 84 —
Repayment of debt associated with asset acquisition (231 ) — —
Payment of holdback consideration related to asset acquisition — (769 ) —
Proceeds from initial public offering, net of offering costs — — 525,284
Payment of deferred offering costs — (32 ) (6,119 )
Payment of tax withholding on vesting of restricted stock units — — (7,172 )
Reconciliation of cash, cash equivalents, and restricted cash:
Restricted cash in prepaid expenses and other current assets 769 — —
Supplemental disclosures of cash flow information:
Cash paid for interest $ 197 $ 550 $ —
Supplemental disclosures of noncash investing and financing activities:
Vesting of early exercised stock options $ 927 $ 196 $ 77
Issuance of common stock in connection with settlement liability $ 7,622 $ — $ —
Issuance of common stock in connection with asset acquisition $ 3,846 $ — $ —
Unpaid proceeds from exercise of stock options $ — $ — $ 521
Unpaid purchases of content assets $ — $ — $ 577
Issuance of common stock in connection with content asset $ — $ 3,956 $ —
Unpaid deferred offering costs $ — $ 1,297 $ 295
See notes to consolidated financial statements.
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COURSERA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1.
ORGANIZATION AND DESCRIPTION OF BUSINESS
Description of Business
Coursera, Inc., a Delaware corporation (the “Company”), is an online learning platform that connects learners, educators, and institutions with the goal of providing world-class educational content that is affordable, accessible, and relevant. The Company combines content, data, and technology into a platform that is customizable and extensible to both individual learners and institutions. The Company partners with leading university and industry partners (“educator partners”) to bring quality higher education to a broad range of individuals, businesses, organizations, and governments. The Company also sells directly to institutions, including employers, colleges and universities, and governments, to enable their employees, students, and citizens to gain critical skills aligned to the job markets of today and tomorrow. The Company’s corporate headquarters are located in Mountain View, California.
Initial Public Offering
On April 5, 2021, the Company completed its initial public offering ("IPO") of common stock, in which it sold 14,664,776 shares. The shares were sold at a price to the public of $33.00 per share for net proceeds of $452,482, after deducting underwriting discounts and commissions of $31,456. Upon completion of the IPO, $6,449 of deferred offering costs were reclassified into additional paid-in capital as a reduction of the net proceeds received from the IPO. Upon the closing of the IPO, all outstanding shares of redeemable convertible preferred stock automatically converted into 75,305,400 shares of common stock on a one-for-one basis.
On April 19, 2021, the underwriters exercised in full the right to purchase 2,359,500 additional shares of common stock from the Company, resulting in additional net proceeds of $72,802 after deducting underwriting discounts and commissions of $5,061.
2.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation—The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Principles of Consolidation—The consolidated financial statements include the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Segment Information—The Company defines its segments as those operations the chief operating decision maker (“CODM”), determined to be the Chief Executive Officer of the Company, regularly reviews to allocate resources and assess performance. For the years ended December 31, 2019, 2020 and 2021, the Company operated under three segments: Consumer, Enterprise, and Degrees. The Company continually monitors and reviews its segment reporting structure in accordance with Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, to determine whether any changes have occurred that would impact its reportable segments. For further information on the Company’s segment reporting, see Note 14 “Segment and Geographic Information.”
Use of Estimates—The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, the Company evaluates its estimates, including those related to fair value of common stock and stock-based awards; period of benefit for capitalized commissions; internal-use software costs; useful lives of long-lived assets; the carrying value of operating lease right-of-use assets; valuation of intangible assets and income tax expense, including the valuation of deferred tax assets and liabilities, among others.
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The World Health Organization declared in March 2020 that the outbreak of the coronavirus disease (“COVID-19") constitutes a pandemic. Since early 2020, the world has been, and continues to be impacted by COVID-19 and its variants. The COVID-19 pandemic has caused general business disruption worldwide beginning in January 2020. The global impact of COVID-19 continues to rapidly evolve, and the Company will continue to actively monitor the situation, including progress made through vaccinations, and the effects on its business and operations. The Company does not yet know the full extent of potential impacts on its business or operations or on the global economy as a whole, particularly if the COVID-19 pandemic continues and persists for an extended period of time. Given the uncertainty, the Company cannot reasonably estimate the impact on its future results of operations, cash flows, or financial condition. As of the date of issuance of the consolidated financial statements, the Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments, or the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information is obtained and are recognized in the consolidated statements as soon as they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s consolidated financial statements.
Summary of Significant Accounting Policies
Cash and Cash Equivalents—The Company considers all highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents.
Marketable Securities—Marketable securities consist of corporate debt, commercial paper securities, and U.S. government Treasury bills, with an original maturity greater than three months at the date of purchase and are classified as available-for-sale securities. As the Company views these securities as available to support current operations, it has classified all available-for-sale securities as current assets. Available-for-sale securities are initially recorded at cost and periodically adjusted to fair value with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity (deficit), while realized gains and losses are reported within other income (expense), net as a component of net loss. An impairment charge is recorded in the consolidated statements of operations for declines in fair value below the cost of an individual investment that are deemed to be other-than-temporary. The Company did not identify any marketable securities as other-than-temporarily impaired during the years ended December 31, 2019, 2020 and 2021.
Restricted Cash—As of December 31, 2020 and 2021, the Company had letters of credit of $2,548 and $2,061, respectively, related to its corporate headquarters’ operating lease agreement.
Accounts Receivable—Accounts receivable includes billed and unbilled receivable, net of allowances for doubtful accounts. An allowance for doubtful accounts is established based on the Company’s assessment of the collectibility of accounts. Management regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice; each customer’s expected ability to pay; and the collection history with each customer, when applicable, to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectible are charged against the allowance for doubtful accounts when identified. The allowance for doubtful accounts and related activities were not material for the years ended December 31, 2019, 2020 and 2021.
Property, Equipment and Software—Property, equipment and software are stated at cost, less accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, generally two to five years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the remaining lease term.
Deferred Offering Costs—Deferred offering costs consist primarily of direct and incremental legal, accounting, and other fees related to the Company’s IPO. Prior to the IPO, all deferred offering costs were capitalized in prepaids expenses and other current assets on the consolidated balance sheets. Upon completion of the IPO, $6,449 of the deferred offering costs were reclassified into stockholder's equity as a reduction of the IPO proceeds.
Leases—The Company determines if an arrangement is a lease and the classification of that lease, if applicable, at inception based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset. For leases that commenced before the Company's adoption date of Accounting Standards Update No. 2016-02, Leases, (“ASC 842”), the Company elected the practical expedients to carryforward its historical lease classification, its assessment on whether a contract was or contains a lease, and its initial direct costs. The Company also elected to not separate lease and non-lease components and to not recognize operating lease right-of-use assets and operating lease liabilities that arise from short-term leases (i.e., leases with a term of 12 months or less).
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The Company applies ASC 842 to individual leases of assets. Right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date based on the present value of minimum remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. When determining the probability of exercising such options, the Company considers contract-based, asset-based, entity-based, and market-based factors. The Company’s lease agreements may contain variable costs such as common area maintenance, insurance, real estate taxes or other costs. Variable lease costs are expensed as incurred in the consolidated statements of operations.
ROU assets are initially measured at amounts that represents the present value of the lease payments over the lease, plus any initial direct costs incurred and less any lease incentives received. Annually, all ROU assets are reviewed for impairment. The Company’s lease agreements generally do not contain any residual value guarantees or restrictive covenants.
Operating leases are included in operating lease ROU assets, and current and non-current operating lease liabilities on the Company’s consolidated balance sheets. Operating lease costs for operating lease payments are recognized on a straight-line basis over the lease term. The Company does not have any finance leases.
Internal-Use Software Development Costs—The Company capitalizes certain costs associated with developing its internal-use software during the application development stage when management with the relevant authority authorizes and commits to the funding of the project, it is probable that the project will be completed, and the software will be used as intended. These costs include personnel and related employee benefits expenses for employees who are directly associated with and who devote time to software projects. Such costs are amortized on a straight-line basis over the estimated useful life of the related asset, which is approximately two years. Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred and recorded in research and development expenses in the consolidated statements of operations.
The Company capitalized internal-use software costs of $5,884, $9,785 and $16,980 for the years ended December 31, 2019, 2020 and 2021.
Intangible Assets—Intangible assets with finite lives are stated at cost, net of accumulated amortization. The Company amortizes its intangible assets on a straight-line basis over an estimated useful life of three to six years.
Impairment of Long-Lived Assets—The Company continually monitors events and changes in circumstances that could indicate that carrying amounts of its long-lived assets, including property, equipment, software, and finite-lived intangible assets, may not be recoverable. When such events or changes in circumstances occur, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through their undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. There were no impairments of long-lived assets during the years ended December 31, 2019, 2020 and 2021
Revenue Recognition—The Company derives revenue from contracts with customers for access to the learning content hosted on its platform and related services. The Company derives its revenue from three sources: Consumer, Enterprise, and Degrees. Refer to Note 14 ”Segment and Geographic Information" for disaggregation of revenue.
Consumer Revenue—The Company generates revenue from the sale of access to course content to consumers. Consumer products include certifications for single courses, Specializations, and catalog-wide subscriptions. Access to single courses are generally purchased at a fixed price for a set period of time, typically six months. Specializations are a series of courses offered by the same educator partner where learners are provided access to these courses on a month-to-month subscription basis. Coursera Plus is the Company’s catalog-wide consumer subscription product, and it is sold in the form of a monthly or annual subscription. All contracts with Consumer customers are billed in advance, generally after a 7-day free trial period. The Company recognizes revenue ratably over the contracted period, after access has been granted to the consumer, as learners have unlimited access to the course content during the contracted period.
Consumer learners are entitled to a full refund up to two weeks after payment is received. The Company estimates and establishes a refund reserve based on historical refund rates. The refund reserve was immaterial as of December 31, 2020 and 2021.
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Enterprise Revenue—The Company sells subscription licenses to business, government, and university customers that provide users the ability to enroll in courses and Specializations and receive certifications upon completion. Enterprise contracts are typically between one and three years in length and can consist of either the purchase of a fixed quantity of seat licenses, each of which allows for unlimited course enrollments by one learner for each year or the purchase of a quantity of course enrollments. In either contract type, the Company recognizes revenue ratably over the contracted period, after access has been granted to the Enterprise customer, as learners have unlimited access to the course content during the contracted period.
The Company is the principal with respect to revenue generated from sales to Consumer and Enterprise customers as the Company controls the performance obligation and is the primary obligor with respect to delivering access to course content. Additionally, the Company has inventory risk through recoupable advances sometimes paid to educator partners.
Degrees Revenue—University partners contract with the Company for the delivery of bachelor’s and master’s degrees or postgraduate diplomas awarded by the university. The Company’s Degrees revenue contracts involve the performance of a number of promises, including but not limited to hosting the degree content on its learning platform, providing content authoring tools, course production support, and marketing and platform technical support services. As a result, the university partner is the Company’s customer with respect to Degrees revenue. The Company earns a Degrees service fee that is determined based as a percentage of total tuition collected from Degrees students, net of refunds, by the university partner. University partners generally collect the tuition from Degrees students, however in the case of some MasterTrack Certificate offerings this obligation can be the Company's responsibility. The Company has a stand ready obligation to perform degree services continually throughout the period that the degree content is hosted on our platform.Degrees revenue is earned 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.
The Degrees learning experience is delivered on the same proprietary learning platform used by Consumer and Enterprise customers. There is no direct contractual revenue arrangement between the Company and Degrees students, who contract directly with university partners. Further, the university partners typically have additional performance obligations to the Degrees students in the form of designing the curriculum, setting admission criteria, real-time teaching, making admission and financial aid decisions, independently awarding credits, certificates or degrees, and academic or career counseling. Although some MasterTrack Certificate learners are required to accept the terms and conditions prior to tuition payment, the Company's core performance obligations remain similar to the services provided to university partners for their online bachelor’s and master’s degrees or postgraduate diplomas. For these reasons, the university partners control the delivery of degrees hosted on its platform. As a result, the Company recognizes Degrees revenue as the service fee it receives from the university partner.
For all customers, revenue from contracts is recognized when control of promised services is transferred. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to receive in exchange for these services. To achieve this, the Company applies the following five steps:
1) Identify the contract with a customer
The Company determines a contract with a customer to exist when the contract is approved, each party’s rights regarding the services to be transferred can be identified, the payment terms for the services can be identified, the customer has the ability and intent to pay, and the contract has commercial substance. At contract inception, the Company evaluates whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation. The Company applies judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new Enterprise or Degrees customer, credit and financial information pertaining to the customer. Consumer revenue customers are required to pay in advance either prior to the Company providing access to course content or prior to the expiration of a 7-day free trial.
2) Identify the performance obligations in the contract
Performance obligations committed in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services and the products is separately identifiable from other promises in the contract. Customers do not have the ability to take possession of the software supporting the platform and, as a result, contracts are accounted for as service arrangements.
For sales to Consumer and Enterprise customers, the Company’s performance obligation generally consists of providing access to its platform and related support services, which is considered one performance obligation. Access to the Company’s platform represents a series of distinct services, as the Company continually provides access to, and fulfills its obligation to, the customer over the contract term.
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Degrees services involve the performance of a number of promises that include hosting the degree content on the Company’s platform, degree program management, marketing and platform technical support services, each of which are a series of distinct goods or services that are substantially the same, are satisfied over time using the same measure of progress and as a result are considered one performance obligation to stand ready to perform an online degree hosting service for the duration of the degree.
3) Determine the transaction price
The transaction price is determined based on the consideration to which the Company expects to be entitled in exchange for transferring services to the customer. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur. None of the Company’s contracts contain a significant financing component. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental entities (e.g., sales and other indirect taxes).
The Company’s Degrees services revenue is determined based on a fee percentage applied to the total tuition collected from Degrees students, net of refunds, by the university partner. As a result, the revenue earned by the Company is dependent upon the number of learners enrolled and the tuition charged by the university partner. This is a form of variable consideration. The Company estimates the amount of revenue, using an expected value method, that it expects to be entitled to in return for performance of the Degrees services, subject to assessment of the significant future reversal constraint discussed above. These estimates are continually evaluated until such time as the uncertainties are resolved, generally at the time the final term enrollment report is provided by the university partner.
4) Allocate the transaction price to performance obligations in the contract
Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on each performance obligation’s relative standalone selling price. As noted above, for Consumer and Enterprise customers, access to the Company’s platform and related support services are considered one performance obligation in the context of the contract and, accordingly, the transaction price is allocated to this single performance obligation. Similarly, Degrees services are considered one performance obligation and the transaction price is allocated to this single performance obligation.
5) Recognize revenue when or as performance obligations are satisfied
Revenue is recognized at the time the related performance obligation is satisfied by transferring the control of the promised service to a customer. Revenue is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those services. Fees for access to the Company’s platform and related support services by Consumer and Enterprise customers are considered one performance obligation, and the related revenue is recognized on a straight-line basis over the contract term as the Company satisfies its performance obligation.
The Company has a stand ready obligation to perform Degrees services continually throughout the period that the degree content is hosted on its platform. Degrees revenue is earned 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.
Contract Assets and Liabilities—Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts in the period that the Company’s right to consideration is unconditional. Payment terms on invoiced amounts are typically 30-60 days. The timing of revenue recognition may differ from the timing of invoicing to customers. If revenue is recognized prior to the Company’s unconditional right to consideration, a contract asset is recorded. Deferred revenue consists of cash payments received in advance of performance obligations being delivered and is recorded as current or noncurrent based on the related period in which services will be provided.
Contract Acquisition and Fulfillment Costs—Contract acquisition costs consist of sales commissions and related payroll taxes associated with obtaining contracts with Enterprise customers.
Deferred Commissions—Customer acquisition costs are primarily related to sales commissions and related payroll taxes earned by the Company’s Enterprise sales force, which are incremental costs to obtaining a contract. Sales commissions and related payroll taxes for new and upsell Enterprise contracts are deferred and then amortized on a straight-line basis over the expected period of benefit, which is estimated to be three years. The Company determined the expected period of benefit by taking into consideration the length of terms in its Enterprise customer contracts, the life of the technology, and other factors. The Company amortizes these costs over three years since the commissions paid upon a contract renewal are not commensurate with the commissions paid on the initial contract and as such, the sales contract period is not commensurate with the expected period of benefit. Commissions and related payroll taxes paid for Enterprise contract renewals are amortized over the renewal term, which is generally two years.
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Deferred commissions and related payroll taxes that will amortize within the succeeding 12-month period are classified as current and included in deferred costs in the consolidated balance sheets. The remaining balance is classified as noncurrent and included in other assets.
Deferred Partner Fees—These fulfillment costs are paid to educator partners in advance of the Company’s performance obligations being completed; are recorded within current assets or other assets, depending on the timing of the related revenue recognition; and are amortized into cost of revenue ratably over the term of the access being provided.
Cost of Revenue—Cost of revenue consists of content costs in the form of a fee paid to educator partners and expenses associated with the operation and maintenance of the Company’s platform. These expenses include the cost of servicing both paid learner and educator partner support requests, hosting and bandwidth costs, amortization of acquired technology and internal-use software, customer payment processing fees, and allocated depreciation and facilities costs.
Fair Value Measurements—Fair value is defined as the price that would be received for an asset or the “exit price” that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between independent market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs, where available. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. The classification of a financial asset or liability within the hierarchy is determined based on the lowest-level input that is significant to the fair value measurement. The Company’s assets and liabilities that were measured at fair value by level within the fair value hierarchy as of December 31, 2020 and 2021, are as follows:
Fair Value Level 1 Level 2
Financial assets:
Cash equivalents—money market funds $ 58,997 $ 58,997 $ —
Marketable securities:
Fair Value Level 1
Financial assets:
Marketable securities:
The Company remeasures certain assets, including intangible assets and its equity-method investment in a private company, at fair value on a nonrecurring basis when there are identifiable events or changes in circumstances that may have a significant adverse impact on the fair value of these assets. No such events or changes occurred during the years ended December 31, 2019, 2020 and 2021.
Concentration of Credit Risk—Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents, and marketable securities. The Company invests only in high-credit-quality instruments and maintains its cash equivalents and marketable securities in fixed-income securities. The Company places its cash primarily with domestic financial institutions that are federally insured within statutory limits.
For purposes of assessing concentration of credit risk and significant customers, a group of customers under common control or customers that are affiliates of each other are regarded as a single customer. For the years ended December 31, 2019, 2020 and 2021, the Company did not have any customers that accounted for more than 10% of the Company’s revenue. As of December 31, 2020, the Company had one customer that accounted for 21% of its net accounts receivable balance, and as of December 31, 2021, no customer accounted for more than 10% of its net accounts receivable balance.
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Income Taxes—The Company is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining its income tax expense and deferred tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.
The Company utilizes 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 its 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. The Company considers 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. Net deferred tax assets as of December 31, 2021 was included in other assets in the consolidated balance sheet.
The Company regularly reviews its tax positions and benefits to be realized. The Company recognizes tax liabilities based upon its estimate of whether and the extent to which additional taxes will be due when such estimates are more likely than not to be sustained upon examination by the taxing authority. An uncertain income tax position will be recognized only if it is more likely than not to be sustained. The Company recognizes interest and penalties related to income tax matters as income tax expense.
Stock-Based Compensation—The Company measures and recognizes compensation expense for stock options, restricted stock units and awards granted to employees, directors, and service providers based on the estimated fair value on the date of the grant. The fair value of each option award is estimated on the grant date using the Black-Scholes option pricing model. The fair value of each restricted stock unit is based on the fair value of the Company’s common stock on the date of grant. The Company estimates the fair value of the shares to be issued under the employee stock purchase plan, or ESPP, using the Black-Scholes option pricing model at the commencement of an offering period.
Stock-based compensation is generally recognized on a straight-line basis over the requisite service period. The Company also grants certain awards that have performance-based vesting conditions. Stock-based compensation expense for such awards is recognized using an accelerated attribution method from the time it is deemed probable that the vesting condition will be met through the time the service-based vesting condition has been achieved. The Company recognizes forfeitures as they occur.
Net Loss Per Share Attributable to Common Stockholders—Basic and diluted net loss per share attributable to common stockholders is computed in conformity with the two-class method required for participating securities. The Company considers all series of its redeemable convertible preferred stock to be participating securities as the holders of such stock have the right to receive nonforfeitable dividends on a pari passu basis in the event that a dividend is paid on common stock. Under the two-class method, the net loss attributable to common stockholders is not allocated to the redeemable convertible preferred stock as the preferred stockholders do not have a contractual obligation to share in the Company’s losses.
Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potentially dilutive common stock equivalents to the extent they are dilutive. For purposes of this calculation, redeemable convertible preferred stock, common stock options, restricted stock units, ESPP, early exercised common stock options, and common stock warrants are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive for the period presented.
Comprehensive Loss—Comprehensive loss is composed of two components: net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of stockholders’ equity (deficit) but are excluded from net loss.
Research and Development—Expenditures for research and development of the Company’s technology and non-refundable contributions to the development of partner content are expensed when incurred unless they qualify as internal-use software development costs. Research and development costs consist principally of personnel costs, consulting services, content development contributions, and allocated facilities costs.
Advertising Costs—Advertising costs are expensed as incurred and are included in sales and marketing expense. For the years ended December 31, 2019, 2020 and 2021, these costs were $11,566, $21,005 and $28,740, respectively.
Foreign Currency—The majority of the Company’s sales contracts are denominated in U.S. dollars. In addition, the functional currency of the Company’s international subsidiaries is U.S. dollars. Foreign currency transaction gains and losses have not been material for any periods presented.
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New Accounting Pronouncements Recently Adopted
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
The JOBS Act does not preclude an emerging growth company from early adopting new or revised accounting standards. The Company early adopted ASU 2016-02, Leases (ASC 842), effective January 1, 2020, ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, effective July 1, 2021. The Company expects to use the extended transition period for any other new or revised accounting standards during the period for which the Company remains an emerging growth company.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This update requires capitalization of the implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Further, the standard also requires the Company to amortize the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. This update is effective for the Company for the annual reporting period commencing January 1, 2021 and interim periods within the annual reporting period commencing January 1, 2022, and early adoption is permitted. The Company early adopted ASU 2018-15 on July 1, 2021 on a prospective basis for implementation costs incurred after January 1, 2021. The adoption of the standard did not have a material impact on the consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Revenue from Contracts with Customers (Topic 606), as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. This new guidance is effective for the Company in 2023 and interim periods within that year, and early adoption is permitted. The Company early adopted this guidance upon issuance to all business combinations that occur on or after the date of adoption. The adoption had no impact on the Company’s consolidated financial statements as there were no acquisitions accounted for as business combinations during the year ended December 31, 2021.
New Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and the allocation of consolidated income taxes to separate financial statements of entities not subject to income tax. ASU 2019-12 will be effective for the Company in 2022. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to accumulated deficit as of the beginning of the fiscal year of adoption. The Company does not expect a material impact of this update on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses, which provides new authoritative guidance with respect to the measurement of credit losses on financial instruments. This update changes the impairment model for most financial assets and certain other instruments by introducing a current expected credit loss (“CECL”) model. The CECL model is a more forward-looking approach based on expected losses rather than incurred losses, requiring entities to estimate and record losses expected over the remaining contractual life of an asset. The guidance will be effective for the Company in 2023 and early adoption beginning in 2019 is permitted. The Company is currently evaluating the impact from the adoption of this guidance on the consolidated financial statements and related disclosures.
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3.REVENUE RECOGNITION
Contract Balances—The Company’s contract assets and liabilities as of January 1, 2020, December 31, 2020 and 2021 were as follows:
Contract assets:
Contract liabilities:
Revenue recognized during the years ended December 31, 2019, 2020 and 2021 that was included in the deferred revenue balances at the beginning of the year was$27,501, $37,906 and $74,775, respectively.
There were no impairment losses recorded on contract assets during the years ended December 31, 2019, 2020 and 2021.
Remaining Performance Obligations—Remaining performance obligations are future revenue that are under noncancelable contracts but have not yet been recognized. As of December 31, 2021, the Company had remaining performance obligations of $274,656 and expects to recognize approximately 60% as revenue over the next twelve months and the remainder thereafter.
Costs to Obtain and Fulfill a Contract—During the years ended December 31, 2019, 2020 and 2021, the Company capitalized $4,906, $11,099 and $14,217, respectively, of commissions and related payroll tax expenditures and amortized $1,695, $4,156 and $8,197, respectively, to sales and marketing expense. As of December 31, 2020 and 2021, the amount of deferred commissions and related payroll tax expenditures included in deferred costs and in other assets was $5,990 and $6,568, and $9,761 and $8,817, respectively.
4.MARKETABLE SECURITIES
The following table presents the Company’s available-for-sale marketable securities as of December 31, 2020 and 2021:
The gross realized gains and losses related to the Company’s marketable securities were not material for the years ended December 31, 2019, 2020 and 2021.
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The following table presents the cost basis and fair value of available-for-sale marketable securities by contractual maturity date as of December 31, 2020 and 2021:
AmortizedCost EstimatedFair MarketValue AmortizedCost EstimatedFair MarketValue
Investments in an unrealized loss position consisted of the following as of December 31, 2020 and 2021:
FairValue GrossUnrealizedLosses FairValue GrossUnrealizedLosses
As of December 31, 2020 and 2021, no investments were in a continuous unrealized loss position for more than 12 months. The Company does not intend to sell any of these investments and it is not more likely than not that the Company would be required to sell these investments before recovery of their amortized cost basis, which may be at maturity.
5.CONSOLIDATED BALANCE SHEET COMPONENTS
Property, Equipment and Software, net —Property, equipment and software, net as of December 31, 2020 and 2021, consisted of the following:
Computer equipment and software 2 years 2,928 4,163
Leasehold improvements Shorter of useful life orremaining lease term 7,057 7,119
Total property, equipment and software 34,540 49,841
Less accumulated depreciation and amortization (15,896 ) (25,116 )
Property, equipment and software—net $ 18,644 $ 24,725
Depreciation and amortization expense related to property, equipment and software for the years ended December 31, 2019, 2020 and 2021 was $4,740, $8,114 and $12,513, respectively, which included amortization expense of internal-use software of $3,273, $5,875 and $9,675 respectively, that is recorded within cost of revenue in the consolidated statements of operations.
Intangible Assets, net —Intangible assets, net as of December 31, 2020 and 2021 consisted of the following:
During the years ended December 31, 2019, 2020 and 2021, the Company capitalized zero, $3,956 and $1,765 of content assets, respectively. Intangible assets amortization expense was $542, $1,471 and $2,244 for the years ended December 31, 2019, 2020 and 2021, respectively.
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As of December 31, 2021, the weighted-average remaining amortization period was 0.6 years for assembled workforce, 3.6 years for developed technology and 4.3 years for content assets. Amortization of assembled workforce is included in research and development expenses and amortization of developed technology and content assets is included in cost of revenue in the consolidated statements of operations.
As of December 31, 2021, future expected amortization expense for intangible assets was as follows:
Years Ending December 31
6.INCOME TAXES
The components of loss before income tax for the years ended December 31, 2019, 2020 and 2021 were as follows:
Year Ended December 31,
The income tax expense for the years ended December 31, 2019, 2020 and 2021 consisted of the following:
Year Ended December 31,