Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following section discusses the financial condition and results of operations of Coursera, Inc. and its subsidiaries (“Coursera”, the “Company”, “we”, “us”, or “our”) and should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K (“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 Form 10-K. You should review the disclosure under the heading "Risk Factors" under Part I, Item 1A in this 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 consolidated financial statements. It includes the following sections:
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Overview
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JOBS Act Transition Period
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Expense Reduction Initiative
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Initial Public Offering
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Factors Affecting Our Performance
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Impact of COVID-19 and Other Macroeconomic Conditions
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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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Critical Accounting Estimates
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Recent Accounting Pronouncements
In this section of the Form 10-K, we discuss our financial condition and results of operations for the years ended December 31, 2022 and 2021. Our financial condition and results of operations for the years ended December 31, 2021 and 2020 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Form 10-K for the fiscal year ended December 31, 2021 filed with the United States Securities and Exchange Commission (“SEC”) on March 3, 2022.
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 education to learners, organizations, and institutions worldwide. We partner with over 300 leading global university and industry partners to create and distribute content that is modular, stackable, flexible, and affordable. As of December 31, 2022, approximately 118 million learners are registered on our platform to engage with a wide range of offerings from industry microcredentials, including entry-level Professional Certificates, to bachelor’s and master’s degree programs.
Coursera serves learners where and how they want to learn—in their homes, through their employers, through their colleges and universities, and through government-sponsored programs. We provide a range of stackable learning content and credentials, including Clips, Guided Projects, Specializations, courses, and certificates that can build towards a broader course of study such as a degree or postgraduate diploma. Our go-to-market strategy centers on efficiently attracting learners to our platform and connecting them to stackable content and degree programs tailored to them, after which our data-driven learner experience identifies potential Enterprise prospects, complemented by our direct sales team, which finds and engages with potential business, academic, government, and other institutional customers.
For the years ended December 31, 2022 and 2021, we generated a net loss of $175.4 million and $145.2 million, which included stock-based compensation expense of $110.8 million and $91.2 million, and a net loss margin as a percentage of revenue of 33% and 35%, respectively.
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JOBS Act Transition Period
As of June 30, 2022, the last business day of our most recently completed second fiscal quarter, our aggregate worldwide public float was greater than $700 million. As a result of exceeding this threshold and meeting the time and reporting requirements established by the SEC, we became a large accelerated filer and no longer qualify as an emerging growth company as of December 31, 2022. Accordingly, we are no longer eligible for the emerging growth company provisions of the JOBS Act.
Expense Reduction Initiative
We are undertaking a plan to reduce our expenses, focus our efforts, and prioritize investments in key initiatives that are expected to drive long-term, sustainable growth. In connection with this effort, on November 9, 2022, we enacted a plan to reduce our global workforce to better align our cost structure and personnel needs with our business objectives, growth opportunities, and operational priorities.
As a result of this reduction, we recognized restructuring charges, within operating expenses, of $10.1 million mainly related to personnel expenses, such as employee severance and benefits costs, and made cash payments of $4.8 million in the year ended December 31, 2022. As of December 31, 2022, $5.1 million of the incremental expenses relating to this reduction remained unpaid and were included in the consolidated balance sheet as accrued compensation and benefits, substantially all of which are expected to be paid during the year ended December 31, 2023. We will also have a reversal of stock-based compensation expense of approximately $6 million, the majority of which will be recognized in the first quarter of 2023, when the forfeiture of RSUs and stock options will occur.
Initial Public Offering
On April 5, 2021, Coursera, Inc. completed its initial public offering of common stock, in which 14,664,776 shares were sold and certain selling stockholders sold 1,065,224 shares (the “IPO”). 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 the 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 provided by our educator partners. Continuing to source in-demand content and credentials from our educator partners—from courses to degrees—will be an important factor in attracting learners and increasing our revenue over time.
We believe that our reach, scale, and reputation provide an attractive value proposition for leading organizations and institutions to partner 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, developing a suite of academic integrity features (e.g., identity verification and anti-plagiarism detection), improving recommendation and personalization features, developing marketing capabilities that drive higher conversion into paid offerings, and improving the analytics tools available for learners, educators, organizations, and institutions.
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Impact of mix shift over time. Our mix of business amongst our Consumer, Enterprise, and Degrees segments shifts from time to time, and these shifts will affect our financial performance. We incur content costs generally in the form of a fee paid to our university and industry partners, determined as a percentage of total revenue generated from their content. We incur no content costs for our Degrees offerings, since our university partners pay us a percentage of learner tuition.
Ability to convert free learners to paid learners. New learners to our platform typically begin to engage with our free courses, which serve as a funnel to grow our total learner base and drive referrals to our other offerings, including our paid offerings. Through both our on-platform and off-platform marketing efforts, we engage our free learners by highlighting key features that encourage conversion to our paid offerings, including paid subscriptions. These efforts include campaigns targeting existing learners, personalized recommendations, and performance marketing across leading social media platforms.
Ability to expand our international footprint. We see a significant opportunity to expand our offerings into other regions, particularly in regions with large, underserved adult learning populations. We have invested, and plan to continue to invest, in personnel and marketing efforts to support our international growth as part of our strategy to grow our customer and learner base.
Ability to retain and expand our Enterprise customer relationships. Our efforts to grow our Enterprise segment are focused primarily on business, academic, government, and other institutional customers. We believe a significant opportunity exists for us to expand our existing customers’ use of our platform by identifying new use cases to increase the size of deployments. Our business and results of operations will depend in part on our ability to retain and expand usage of our platform within our existing customer base.
Our measured investment in growth. We are actively managing our investments to support the future growth of our business using a measured approach. With indications of a global economic slowdown, we are focusing our investments in select markets, offerings, and technologies that we believe will provide the best opportunity to grow our revenue and improve our operating results in the long term.
Impact of COVID-19 and Other Macroeconomic Factors
Our business and financial conditions have been, and may continue to be, impacted by adverse macroeconomic factors. In addition, the COVID-19 pandemic has resulted in significant global, social, and business disruption, beginning in January 2020, and accelerated the need for online-delivered education. Individuals, organizations, and institutions relied and are continuing to rely on online learning to navigate change and disruption. The full extent to which the COVID-19 pandemic, including any new variants, may continue to directly or indirectly impact general market conditions or our business, results of operations, cash flows, and financial condition remains uncertain.
We expect general macroeconomic headwinds combined with tight labor markets in certain geographies to cause our future revenue growth to be lower than in prior years. In our Degrees business, we experienced a slowdown in new student growth during the year ended December 31, 2022, which is consistent with National Clearinghouse Data regarding graduate enrollments in the U.S., and we believe is likely influenced by tight U.S. labor markets that could persist in future periods. Global and regional, macroeconomic, and geopolitical conditions have impacted overall student engagement and may continue to have a lingering impact on total student enrollments.
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. Enterprise subscriptions are generally invoiced in advance in annual or quarterly installments. Access to our platform represents a series of distinct services, as we continually provide access to, and fulfill our obligation to, our customers over the contract term. As a result, revenue is recognized ratably over the contract term.
We are generally the principal with respect to revenue generated from sales to Consumer and Enterprise customers as we control the performance obligation and are the primary obligor with respect to delivering access to content.
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Degrees revenue is generated from contracts with university partners to host and deliver their online bachelor’s and master’s degrees or postgraduate diplomas. We earn a 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. We have a stand-ready obligation to perform services continually throughout the period that the degree content is hosted on our platform. Service fees are paid by the university partner for each university term. As a result, revenue generated from each term is recognized ratably from the start of a term through the start of the following term.
There is no direct contractual revenue arrangement between Coursera and Degrees students, who contract directly with our university partners. University partners typically have additional performance obligations to the Degrees students in the form of designing the curriculum, setting admission criteria, real-time teaching, making admissions and financial aid decisions, independently awarding credits, certificates, or degrees, and academic or career counseling. For these reasons, the university partners control the delivery of degrees, and postgraduate diplomas hosted on our platform.
Cost of Revenue
Cost of revenue consists of content costs in the form of fees paid to educator partners and expenses associated with the operation and maintenance of our platform. These expenses include the cost of servicing both paid learner and educator partner support requests, content translation and captioning, hosting and bandwidth costs, amortization of acquired technology, internal-use software and content assets, customer payment processing fees, 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 for Enterprise and Consumer vary based on the content mix of each segment.
Operating Expenses
Operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of our operating expenses and consist of salaries, stock-based compensation expense, payroll taxes, commissions, bonus, and benefits. Our operating expenses also include marketing and advertising expenses, consulting and services expenses, office expenses, depreciation and amortization, and facilities costs.
Research and development. Our research and development expenses consist primarily of personnel and personnel-related costs, including stock-based compensation expense, and costs related to the ongoing management, maintenance, and expansion of content, features, and services offered on our platform. We believe that continued investment in our platform is important to our future growth and to maintain and attract partners and learners to our platform. As a result, we expect research and development expenses to increase in absolute dollars. In addition, we expect research and development expenses as a percentage of revenue to vary from period to period but generally decrease over the long term.
Sales and marketing. Our sales and marketing expenses consist primarily of personnel and personnel-related costs, including stock-based compensation expense, as well as costs related to acquiring learners, customers, and educator partners, support efforts, and brand marketing. Sales and marketing expenses also include hosting and bandwidth costs. We expect sales and marketing expenses to decline in absolute dollars for the year ending December 31, 2023. In addition, we expect sales and marketing expenses as a percentage of revenue to vary from period to period but decline in 2023 and generally decrease over the long term.
General and administrative. Our general and administrative expenses consist primarily of personnel and personnel-related costs, including stock-based compensation expense, and costs related to our legal, finance, and human resources departments, as well as certain indirect taxes, professional fees, and other corporate expenses.
We have incurred and expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance and professional services. We expect general and administrative expenses to increase in absolute dollars as our business grows. In addition, we expect general and administrative expenses as a percentage of revenue to vary from period to period but generally decrease over the long term.
Restructuring charges. Our restructuring charges consist primarily of personnel expenses, such as employee severance and benefits costs as well as stock-based compensation expense related to the reduction of our global workforce in the year ended December 31, 2022.
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Interest Income
Interest income consists primarily of interest income earned on our cash, cash equivalents, and marketable securities. It also includes amortization of premiums and accretion of discounts related to our marketable securities. Interest income varies each reporting period based on our average balance of cash, cash equivalents, and marketable securities during the period and market interest rates.
Other (Expense) Income, Net
Other (expense) income, net consists primarily of foreign exchange (losses) gains.
Income Tax Expense
Income tax expense consists primarily of income taxes in 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, which are not necessarily indicative of results to be expected for future periods.
Year Ended December 31,
(in thousands)
Operating expenses:
Restructuring charges(1) 10,149 — —
Other income (expense):
(1) Includes stock-based compensation expense as follows:
Year Ended December 31,
(in thousands)
Restructuring charges 122 — —
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The following table summarizes our results of operations as a percentage of revenue:
Year Ended December 31,
Operating expenses:
Research and development 32 32 26
General and administrative 20 19 13
Restructuring charges 2 — —
Total operating expenses 97 94 76
Loss from operations (34 ) (34 ) (23 )
Other income (expense):
Interest income 2 — 1
Other (expense) income, net — — —
Loss before income taxes (32 ) (34 ) (22 )
Income tax expense 1 1 1
Comparison of the Years Ended December 31, 2022 and 2021
Revenue
Year Ended December 31, Change
(in thousands, except percentages)
Revenue:
Revenue for the year ended December 31, 2022 was $523.8 million, compared to $415.3 million for the year ended December 31, 2021. Revenue increased by $108.5 million, or 26%, compared to the year ended December 31, 2021. The increase was primarily driven by a 22% increase in registered learners, which resulted in more paid learners and Degrees students, and by the addition of 346 Paid Enterprise Customers, partially offset by lower revenue per student from our Degrees students.
For the year ended December 31, 2022, total Consumer revenue increased by $49.4 million, or 20%, compared to the year ended December 31, 2021. New learners that registered after December 31, 2021 contributed $96.7 million to total Consumer revenue of $295.6 million for the year ended December 31, 2022. The remaining Consumer revenue in the year ended December 31, 2022 of $198.9 million is attributable to learners that were registered on our platform as of December 31, 2021, thus retaining 81% of the revenue from those registered learners.
For the year ended December 31, 2022, total Enterprise revenue increased by $60.9 million, or 51%, compared to the year ended December 31, 2021. Approximately $29.7 million of the increase in revenue was attributable to new customers, and the remaining increase of $31.2 million was attributable to growth from existing customers.
For the year ended December 31, 2022, total Degrees revenue decreased by $1.8 million, or 4%, compared to the year ended December 31, 2021. The $1.8 million decrease in revenue was primarily attributable to a decrease of $9.3 million due to lower revenue per student, partially offset by $7.5 million in revenue from an increase in the number of Degrees students.
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Cost of Revenue, Gross Profit, and Gross Margin
Year Ended December 31, Change
(in thousands, except percentages)
Gross margin 63 % 60 %
Cost of revenue for the year ended December 31, 2022 was $192.3 million, compared to $165.8 million for the year ended December 31, 2021. Paid learner usage on our platform increased, resulting in an $8.6 million cost increase for hosting fees, support services, and credit card processing fees. The increase in revenue combined with improved content costs as a percentage of revenue resulted in a net increase of $12.1 million in costs related to partner fees. Amortization expense, primarily from internal-use software, increased $3.9 million, and partner content translation costs increased $1.9 million.
Content costs for the Consumer and Enterprise segments were $81.3 million and $54.7 million, respectively, for the year ended December 31, 2022 compared to $84.7 million and $39.2 million, respectively, for the year ended December 31, 2021. Content costs as a percentage of revenue for the Consumer and Enterprise segments were 27% and 30%, respectively, for the year ended December 31, 2022 compared to 34% and 33%, respectively, for the year ended December 31, 2021.
Gross margin was 63% for the year ended December 31, 2022, compared to 60% for the year ended December 31, 2021. The increase in gross margin was driven by a lower revenue content cost rate in both our Consumer and Enterprise segments.
In January 2023, we extended a multi-year agreement with our largest educator partner, who will start earning typical content fees, whereas we had historically supported their program primarily through marketing and content production efforts. Additionally, we will incur $25 million of expense evenly throughout 2023 to support the partnership, such as sales and marketing efforts, content production, and product development. Overall, the change in this agreement's structure is expected to result in a prospective shift of expenses from operating expenses to cost of revenue of approximately 10% of revenue for the year ending December 31, 2023.
Operating Expenses
Year Ended December 31, Change
(in thousands, except percentages)
Operating expenses:
Total operating expenses for the year ended December 31, 2022 were $508.9 million, compared to $392.5 million for the year ended December 31, 2021.
Research and development expenses for the year ended December 31, 2022 were $165.1 million, compared to $135.4 million for the year ended December 31, 2021. The increase was primarily due to headcount growth, which contributed to higher personnel-related expenses of $19.6 million and higher stock-based compensation expense of $6.0 million. In addition, content creation fees increased $7.9 million, software related expenses increased $1.4 million, and a one-time impairment charge of $1.5 million was recognized due to a partial sublease of our office space, partially offset by a decrease in consulting expenses of $1.8 million.
Sales and marketing expenses for the year ended December 31, 2022 were $227.7 million, compared to $179.3 million for the year ended December 31, 2021. The increase was primarily due to higher personnel-related expenses of $27.0 million driven by headcount growth and stock-based compensation expense of $4.1 million, as well as marketing and advertising expenses of $14.1 million. In addition, travel-related costs increased $2.7 million, software related expenses increased $1.9 million, and we recognized a one-time impairment charge of $1.2 million resulting from a partial sublease of our office space.
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General and administrative expenses for the year ended December 31, 2022 were $105.9 million, compared to $77.8 million for the year ended December 31, 2021. The increase was primarily due to headcount growth contributing to higher personnel-related expenses of $21.3 million, including stock-based compensation expense of $8.4 million. During the year ended December 31, 2022, we recognized a non-recurring impairment charge of $2.9 million relating to deferred partner fees that we do not expect to recover associated with content from Russian educator partners whose content we removed from our platform. In addition, we had increases of $2.1 million in indirect taxes and $1.7 million in software-related expenses.
Restructuring charges for the year ended December 31, 2022 were $10.1 million, mainly consisting of personnel expenses, such as employee severance and benefits costs, related to efforts to reduce our expenses, focus our efforts, and prioritize investments in key initiatives that are expected to drive long-term, sustainable growth. There were no restructuring charges in the year ended December 31, 2021. Refer to Note 16, Restructuring Charges, in the Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial and Supplementary Data” for further information.
Other Income (Expense), Net
Year Ended December 31, Change
(in thousands, except percentages)
Total other income (expense), net $ 6,743 $ (26 ) $ 6,769 nm
Total other income (expense), net for the year ended December 31, 2022 primarily reflected interest income earned on cash, cash equivalents, and marketable securities offset by unrealized net foreign exchange losses. Interest income was higher during the year ended December 31, 2022 compared to the year ended December 31, 2021 due to a rise in interest rates and our average rate of return on investments in U.S. Treasury securities. Other expense, net was higher during the year ended December 31, 2022 compared to the year ended December 31, 2021 due to unfavorable foreign exchange rates resulting from the strengthening of the U.S. dollar to other currencies. Our operating expenses are typically denominated in the local currencies of the countries in which our operations are located and are subject to fluctuations due to changes in foreign currency exchange rates. We also hold cash and cash equivalents in foreign currencies, primarily in our foreign entities to support their ongoing operations.
Income Tax Expense
Year Ended December 31, Change
(in thousands, except percentages)
For the year ended December 31, 2022, we recognized income tax expense of $4.7 million, compared to $2.1 million for the year ended December 31, 2021. Income tax expense for the years ended December 31, 2022 and 2021 was primarily related to our foreign operations.
Liquidity and Capital Resources
Overview
Since our inception, we have financed our operations primarily through proceeds from our IPO, issuance of redeemable convertible preferred stock, and 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, 2022, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $780.5 million. Our investments consist of U.S. Treasury securities.
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Our principal uses of cash in recent periods include the funding of our business operations and investments in our internal-use software. We believe that our existing cash, cash equivalents, and marketable securities and our expected cash flows from operations will be sufficient to meet our cash needs for at least the next 12 months. Over the longer term, our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our sales and marketing and research and development expenditures, the continuing market acceptance of our offerings, and any investments or acquisitions we may choose to pursue in the future. In the event that we need to borrow funds or issue additional equity, we cannot assure you that any such additional financing will be available on terms acceptable to us, if at all. In addition, any future borrowings may result in additional restrictions on our business and any issuance of additional equity would result in dilution to investors. If we are unable to raise additional capital when desired and on terms acceptable to us, our business, results of operations, and financial condition could be materially and adversely affected.
Contractual Obligations and Commitments
Our estimated future obligations as of December 31, 2022 include both current and long term obligations. Under our operating leases, as described in Note 7, Leases, to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”, we have a current obligation of $8.7 million and a long-term obligation of $5.8 million.
Our operating leases obligations as of December 31, 2022 were approximately $15.3 million, which consist of payments related to lease facilities under operating lease agreements expiring through 2025. We have office facility operating leases in the U.S., Canada, the United Kingdom, India, Bulgaria, and the United Arab Emirates.
Our purchase obligations as of December 31, 2022 were approximately $41.0 million, which primarily consisted of our commitments related to purchase of services. As described in Note 12, Commitments and Contingencies, to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”, we have a current obligation of $12.6 million and a long-term obligation of $28.4 million. In situations where we have received delivery of the services as of December 31, 2022 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 $41.0 million.
In March 2021, we entered into a five-year agreement with a cloud hosting provider pursuant to which we committed to spend $50.0 million over the next five years.
Capital Expenditures
Our capital expenditures primarily include investments in property, equipment, and software and capitalized internal-use software costs. We currently expect our capital expenditures for the year ending 2023 to be relatively consistent with the year ended 2022.
Cash Flows
The following table summarizes our cash flows:
Year Ended December 31,
(in thousands)
Operating Activities
Cash used in operating activities mainly consists of our net loss adjusted for certain non-cash items, including stock-based compensation expense and depreciation and amortization, as well as the effect of changes in operating assets and liabilities during each period.
Our main source of operating cash is payments received from our customers. Our primary use of cash from operating activities is for personnel-related expenses, partner fees, marketing and advertising expenses, indirect taxes, and third-party cloud infrastructure expenses.
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For the year ended December 31, 2022, net cash used in operating activities was $38.1 million, primarily consisting of our net loss of $175.4 million, adjusted for non-cash charges of $135.6 million and net cash inflows of $1.7 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a $20.6 million increase in accounts receivables due to the growth of our Enterprise business, a $18.3 million increase in prepaid expenses and other assets due to timing of recoupable advances paid to educator partners and an increase in deferred commissions and prepayments to vendors, resulting from business growth, offset by a $20.3 million increase in deferred revenue, resulting primarily from our Enterprise business growth, and a $17.9 million increase in accounts payable and accrued expenses due to timing of payments.
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 prepaid expenses and other assets primarily due to increase in deferred commissions.
Cash used in operating activities increased by $39.8 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to increased spending to support business growth, and timing of invoicing and cash collections.
Investing Activities
For the year ended December 31, 2022, net cash used in investing activities was $234.0 million, primarily as a result of purchases of marketable securities, capitalized internal-use software costs, capital expenditures of property, equipment and software, and purchases of content assets, partially offset by proceeds from maturities of marketable securities.
For the 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, 2022, net cash provided by financing activities was $12.2 million, primarily as a result of proceeds from issuance of common stock from employee stock option exercises and proceeds from the employee stock purchase plan, offset by employee payroll taxes paid for vesting of restricted stock units and payment of deferred offering costs.
For the 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 the 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.
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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 factor in the growth of our business and future revenue trends.
Year Ended December 31,
(in millions, except percentages)
Total Registered Learners year-over-year ("YoY") growth 22 % 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, master’s, or postgraduate diploma and who are enrolled in one or more courses in such a degree program during the period. If a degree term spans across multiple quarters, the student is counted as active in all quarters of the degree term. For purposes of determining our Degrees student count, we do not include students who are matriculated in the degree but are not enrolled in a course in that period. We believe that the number of Degrees students is an important indicator of the growth of our Degrees business and future Degrees segment revenue trends.
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, 2022, approximately 88% of our total Enterprise segment revenue was generated from our Paid Enterprise Customers. We believe that the number of Paid Enterprise Customers and our ability to increase this number is an important indicator of the growth of our Enterprise business and future Enterprise segment revenue trends.
December 31,
YoY growth 43 %
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Net Retention Rate for Paid Enterprise Customers
We disclose Net Retention Rate for Paid Enterprise Customers as a supplemental measure of our Enterprise revenue growth. We believe Net Retention Rate for Paid Enterprise Customers is an important metric that provides insight into the long-term value of our subscription agreements and our ability to retain and grow revenue from our Paid Enterprise Customers.
We calculate annual recurring revenue (“ARR”) by annualizing each customer’s monthly recurring revenue (“MRR”) for the most recent month at period end. We calculate “Net Retention Rate” as of a period end by starting with the ARR from all Paid Enterprise Customers as of the 12 months prior to such period end, or Prior Period ARR. We then calculate the ARR from these same Paid Enterprise Customers as of the current period end, or Current Period ARR. Current Period ARR includes expansion within Paid Enterprise Customers and is net of contraction or attrition over the trailing 12 months but excludes revenue from new Paid Enterprise Customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at our Net Retention Rate for Paid Enterprise Customers. Our Net Retention Rate for Paid Enterprise Customers decreased to 108% as of December 31, 2022 from 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.
Segment Revenue
Our revenue is generated from three sources: Consumer, Enterprise, and Degrees, each of which is an individual segment of our business.
Year Ended December 31,
(in thousands, except percentages)
YoY growth (4 )% 63 %
Segment Gross Profit
We monitor segment gross profit as a key metric to help us evaluate the financial performance of our individual segments. Segment gross profit represents segment revenue less content costs paid to educator partners; segment gross margin is the quotient of segment gross profit and segment revenue. Content costs apply only to the Consumer and Enterprise segments as there is no content cost attributable to the Degrees segment. Instead, in the Degrees segment, we earn a Degrees service fee based on a percentage of the total online student tuition collected by the university partner. Given that content costs are the largest individual cost of our revenue, and contractually vary as a percentage of revenue between our Consumer and Enterprise offerings, and the fact that no content costs are payable in our Degrees offering, shifts in mix between our three segments is expected to be a significant driver of our overall financial performance and profitability.
Year Ended December 31,
(in thousands, except percentages)
Consumer segment gross margin % 73 % 66 %
Enterprise segment gross margin % 70 % 67 %
Degrees segment gross margin % 100 % 100 %
Consumer segment gross margin increased to 73% in the year ended December 31, 2022 from 66% in the year ended December 31, 2021 due to a greater proportion of Consumer revenue generated from subscription sales with no associated content cost. Enterprise segment gross margin increased to 70% from 67% when comparing the same periods due to a higher proportion of Enterprise revenue generated from subscription licenses where learners enrolled in content with no associated content cost.
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Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, 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. Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for, or superior to, comparable GAAP financial measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our presentation of these non-GAAP financial measures may not be comparable to similar measures used by other companies. We encourage investors to carefully consider our results under GAAP, as well as our supplemental non-GAAP information and the GAAP-to-non-GAAP reconciliation to more fully understand our business.
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 stock-based compensation expense, restructuring charges, and payroll tax expense related to stock-based activities. We believe the presentation of operating results that exclude these non-cash items provides useful supplemental information to investors and facilitates the analysis of our operating results and comparison of operating results across reporting periods.
The following tables provide a reconciliation of GAAP gross profit and GAAP net loss, the most directly comparable GAAP financial measure, to non-GAAP gross profit and non-GAAP net loss:
Year Ended December 31,
(in thousands)
Payroll tax expense related to stock-based activities 28 64 —
Year Ended December 31,
(in thousands)
Restructuring charges 10,149 — —
Payroll tax expense related to stock-based activities 1,120 1,643 258
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 budgets 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; (3) other expense (income), net; (4) stock-based compensation expense; (5) restructuring charges, (6) income tax expense; and (7) payroll tax expense related to stock-based activities. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue.
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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)
Restructuring charges 10,149 — —
Payroll tax expense related to stock-based activities 1,120 1,643 258
Net loss margin (33 )% (35 )% (23 )%
Adjusted EBITDA Margin (7 )% (9 )% (14 )%
Free Cash Flow
“Free Cash Flow” is a non-GAAP financial measure that we calculate as net cash (used in) provided by operating activities, less cash used for purchases of property, equipment, and software and capitalized internal-use software costs as we consider these capital expenditures necessary to support our ongoing operations.
We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors in understanding and evaluating our liquidity and future ability to generate cash that can be used for strategic opportunities, including investing in our business and strengthening our balance sheet, but it is not intended to represent the residual cash flow available for discretionary expenditures.
The following table provides a reconciliation of net cash (used in) provided by operating activities, the most directly comparable GAAP financial measure, to Free Cash Flow (in thousands):
Year Ended December 31,
(in thousands)
Less: purchases of property, equipment, and software (1,578 ) (1,554 ) (3,099 )
Less: capitalized internal-use software costs (12,299 ) (12,090 ) (8,819 )
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“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.
We believe that of our significant accounting policies described in Note 2, Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data”, the critical accounting estimates, assumptions, and judgments that have the most significant impact on our consolidated financial statements are described below.
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Revenue Recognition
Determining whether we are the principal or agent in our revenue transactions requires significant judgment. We consider 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, for Degrees, the university partner controls the delivery of their degrees hosted on our platform, and we are the agent in these transactions recognizing only the service fee we receive from the university 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 the assessment of the significant future reversal constraint. 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.
Stock-Based Compensation Expense
We measure and recognize compensation expense for stock-based awards granted to employees, directors, and nonemployees based on the estimated grant date fair value. Stock-based awards include restricted stock units (“RSUs”), stock options, and restricted stock awards as well as stock purchase rights granted to employees under our employee stock purchase plan (“ESPP Rights”).
The fair value of RSUs and restricted stock awards is based on the fair value of our common stock on the grant date. We estimate the fair value of stock options and ESPP Rights using the Black-Scholes option-pricing model, which requires the use of the assumptions described below:
Fair Value of Common Stock— Prior to the IPO, the fair value was determined by our Board of Directors. The Board of Directors considered numerous objective and subjective factors to determine the fair value of the common stock at each meeting in which awards were approved. The factors considered included, but were not limited to: (i) the results of contemporaneous independent third-party valuations of the common stock; (ii) the prices, rights, preferences, and privileges of the redeemable convertible preferred stock relative to the common stock; (iii) the lack of marketability of the common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions involving the common stock. Subsequent to the IPO, the fair value of Coursera, Inc.’s common stock is determined on the grant date using the common stock's closing price.
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 determine 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 Rights, 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 stock option or ESPP Rights.
Expected Volatility—Since we do not have a sufficient 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 or ESPP Rights.
Dividend Yield—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.
Recent Accounting Pronouncements
Refer to Note 2, Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data”, for a discussion of recent accounting pronouncements.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have operations both within the U.S. 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 Risk
Our exposure to interest rate changes relates primarily to our investment portfolio. While we are exposed to global interest rate fluctuations, our interest income is most sensitive to U.S. interest rate fluctuations, which affect the interest earned on our cash, cash equivalents, and marketable securities and the fair value of those securities.
Our investment policy and strategy are focused on the preservation of capital and supporting our liquidity requirements. We use a combination of internal and external management to execute our investment strategy and achieve our investment objectives. We typically invest in highly-rated securities, such as U.S. Treasury securities, with original maturities between three months and one year, with the primary objective of minimizing the potential risk of principal loss.
Based on our investment positions as of December 31, 2022 and 2021, a hypothetical 100 basis point increase in interest rates across all maturities would have resulted in a $2.4 million and $2.0 million incremental decline in the fair value of the portfolio, respectively. Such losses would only be realized if we sold the investments prior to their maturities.
Based on the balance of our cash, cash equivalents, and marketable securities as of December 31, 2022 and 2021, a hypothetical 100 basis point increase or decrease in interest rates would have resulted in a $7.8 million and $8.2 million decrease or increase, respectively, on our interest income on an annualized basis.
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 typically subject to significant foreign currency risk. Our operating expenses are typically denominated in the local 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 British pound sterling, Canadian dollar, and Indian rupee. We also hold cash and cash equivalents in foreign currencies, primarily in our foreign entities to support their ongoing operations. 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 $5.6 million and $6.6 million on our consolidated financial statements for the years ended December 31, 2022 and 2021, respectively.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 74
Consolidated Balance Sheets 77
Consolidated Statements of Operations 78
Consolidated Statements of Comprehensive Loss 79
Consolidated Statements of Cash Flows 81
Notes to Consolidated Financial Statements 82
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Coursera, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Coursera, Inc. and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 23, 2023, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 23, 2023
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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, 2022 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
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 PCAOB and are required to be independent with respect to the Company in accordance with the U.S. 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - Refer to Notes 2 and 3 to the financial statements
Critical Audit Matter Description
The Company derives revenue from contracts with customers for access to the learning content hosted on its platform and related services. The Company’s Enterprise revenue is generated through the sale of subscription licenses to businesses, organizations, governments, and educational institutions that provide users the ability to enroll in courses and Specializations and receive certifications upon completion. Enterprise contracts consist of the purchase of a fixed quantity of seat licenses, each of which allows for unlimited course enrollments by one learner for each year. For higher value Enterprise contracts, management applies judgment in identifying and evaluating the terms and conditions of such contracts that impact revenue recognition.
Given the complexity of the Company’s higher value Enterprise contracts, together with the judgments involved in identifying and evaluating the terms and conditions impacting revenue recognition, auditing management’s identification and evaluation of the terms and conditions within such contracts and the resulting impact on revenue recognition required a high degree of auditor judgment and an increased extent of effort.
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How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s identification and evaluation of the terms and conditions within higher value Enterprise contracts and the resulting impact on revenue recognition included the following, among others:
•
We tested the operating effectiveness of internal controls over revenue recognition, including those over the identification and evaluation of terms and conditions and the resulting impact on revenue recognition.
•
We selected a sample of higher value Enterprise revenue contracts and performed the following:
o
Obtained the related contract, including master agreements, amendments, and purchase and sales order agreements, and evaluated whether management properly documented the terms of the contract in accordance with the Company’s accounting policies.
o
Assessed management’s identification and evaluation of the terms and conditions that impact revenue recognition by independently evaluating the terms and conditions of the contract and the resulting impact on revenue recognition.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 23, 2023
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 17,636 16,494
Property, equipment, and software, net 27,096 24,725
Operating lease right-of-use assets 9,605 16,321
Liabilities and Stockholders’ Equity
Current liabilities:
Other accounts payable and accrued expenses 23,342 23,257
Operating lease liabilities, current 8,658 8,031
Operating lease liabilities, non-current 5,791 11,864
Deferred revenue, non-current 3,076 3,851
Commitments and contingencies (Note 12)
Stockholders’ equity:
Accumulated other comprehensive loss (718 ) (252 )
Total liabilities and stockholders’ equity $ 947,597 $ 958,910
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:
Restructuring charges 10,149 — —
Net loss per share—basic and diluted $ (1.21 ) $ (1.28 ) $ (1.80 )
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
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 )
Vesting of restricted stock units — — 1,940,200 — — — — — — —
Issuance of restricted stock awards — — 5,518 — — — — — —
Stock-based compensation expense — — — — 116,192 — — — — 116,192
Change in unrealized loss on marketable securities — — — — — — — (466 ) — (466 )
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 (895 ) 501 (1 )
Impairment of long-lived assets 6,124 — —
Changes in operating assets and liabilities:
Net cash (used in) provided by operating activities (38,051 ) 1,746 (14,991 )
Cash flows from investing activities:
Purchases of property, equipment, and software (1,578 ) (1,554 ) (3,099 )
Purchase of investment in private company — — (1,000 )
Purchases of content assets (1,377 ) (1,188 ) —
Cash flows from financing activities:
Proceeds from employee stock purchase plan 6,829 6,397 —
Proceeds from exercise of unvested options, net of repurchases — — 84
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 (295 ) (6,119 ) (32 )
Reconciliation of cash, cash equivalents, and restricted cash:
Restricted cash, current 487 — —
Supplemental disclosure of cash flow information:
Cash paid for interest $ — $ — $ 550
Supplemental disclosure of noncash investing and financing activities:
Issuance of common stock in connection with content asset $ — $ — $ 3,956
Unpaid deferred offering costs $ — $ 295 $ 1,297
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.
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Basis of Presentation
The accompanying consolidated financial statements of Coursera, Inc., a Delaware public benefit corporation, and its subsidiaries (“Coursera”, the “Company”, “we”, “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Description of Business
Coursera 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. We combine content, data, and technology into a platform that is customizable and extensible to both individual learners and institutions. We partner with leading university and industry partners (“educator partners”) to bring quality higher education to a broad range of individuals, businesses, organizations, and governments. We also sell directly to institutions, including employers, colleges and universities, organizations, and governments, to enable their employees, students, and citizens to gain critical skills aligned to the job markets of today and tomorrow. Our corporate headquarters is located in Mountain View, California.
Reporting Segments
We conduct our operations through three reporting segments: Consumer, Enterprise, and Degrees. Refer to Note 15 for additional information.
Initial Public Offering
On April 5, 2021, Coursera, Inc. completed its initial public offering of common stock, in which 14,664,776 shares were sold (the “IPO”). 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.SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
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 as of the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience, current conditions, and various other factors that we believe to be reasonable under the circumstances. Significant items subject to such estimates, judgements, and assumptions include, but are not limited to, those related to the determination of principal versus agent and variable consideration in our revenue contracts; stock-based compensation expense; 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; the valuation of intangible assets and income tax expense, including the valuation of deferred tax assets and liabilities, among others. Actual results could differ from those estimates, and any such differences could be material to our consolidated financial statements.
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Cash, Cash Equivalents, and Restricted Cash
We consider all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Our cash and cash equivalents consist of cash and money market funds at financial institutions, and are stated at cost, which approximates fair value because of their immediate or short-term maturities. Our restricted cash consists of a letter of credit required to fulfill our corporate headquarters’ operating lease agreement.
Marketable Securities
Marketable securities consist of U.S. Treasury securities, with an original maturity between three months and one year at the date of purchase, and are classified as available-for-sale (“AFS”) debt securities. We view these securities as available to support current operations and have classified all AFS debt securities as current assets. AFS debt 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). We evaluate our AFS debt securities with an unamortized cost basis in excess of estimated fair value to determine what amount of that difference, if any, is caused by expected credit losses. Credit-related impairment losses, not to exceed the amount that fair value is less than the amortized cost basis, are recognized through an allowance for credit losses with changes recognized as a charge to other (expense) income, net. Any remaining impairment is included in accumulated other comprehensive income (loss) as a component of stockholders' equity (deficit). Realized gains and losses are reported within other (expense) income, net as a component of net loss.
Accounts Receivable, Net
Accounts receivable, net includes trade accounts receivable, both billed and unbilled, net of an allowance for credit losses. Billed receivables are recorded at the invoiced amount in the period that our right to consideration is unconditional. Payment terms on invoiced amounts are typically 30 to 60 days. Unbilled receivables, or contract assets, are recorded when revenue is recognized prior to our unconditional right to consideration. A contract asset is a right to consideration that is conditional upon factors other than the passage of time.
An allowance for credit losses is established based on our assessment of the collectibility of accounts receivable by considering various factors, including the age of each outstanding invoice, each customer's expected ability to pay, the collection history with each customer, current economic conditions, and reasonable and supportable forecasts of future economic conditions over the life of the receivable, when applicable, to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified. The allowance for credit losses and related activities were not material for the years ended December 31, 2022, 2021, and 2020.
Property, Equipment, and Software, Net
Property, equipment, and software, net is stated at cost, less accumulated depreciation and amortization. Depreciation and software amortization are 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 IPO. Prior to the IPO, all deferred offering costs were capitalized in prepaid 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 stockholders' equity as a reduction of the IPO proceeds.
Educator Partner Costs
We have various agreements with educator partners that grant us the right to host their intellectual property on our platform. In return, educator partners earn a fee that we recognize as a content cost in the same period in which the related revenue is recognized and is classified as a cost of revenue in the consolidated statement of operations. One such agreement stipulates that certain fees earned by the educator partner are to be allocated to a development fund to be held and spent by Coursera on activities such as developing, marketing, and advertising the educator partner's content, according to a mutually agreed upon plan. We recognize the liability and related expenses associated with this development fund consistent with the timing of when we recognize educator partner content costs given our liability is established in the same period the revenue is recognized. The expenses are classified in the consolidated statement of operations based on the nature of the underlying spend. The liability associated with the development fund is recorded within other accounts payable and accrued expenses within the consolidated balance sheets.
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Leases
We determine if an arrangement is a lease and the classification of that lease, if applicable, at inception by evaluating various factors, including if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration and other facts and circumstances. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and are included in operating lease ROU assets, on our consolidated balance sheets. Lease liabilities represent our obligation to make lease payments according to the arrangement and are included in operating lease liabilities, current and non-current, on our consolidated balance sheets. We do not have any finance leases.
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, we include payments that are fixed and determinable at the commencement date including initial direct costs incurred and excluding lease incentives received. We use the implicit rate when it is readily determinable. Otherwise, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. Our 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. Operating lease expense is recognized on a straight-line basis over the lease term.
We do not separate lease and non-lease components and do not recognize ROU assets and operating lease liabilities that arise from leases with an initial lease term of 12 months or less.
In addition, any impairment as a result of a sublease to the associated ROU asset and other lease related assets including leasehold improvements, furniture and fixtures, and computer equipment is recognized in the period the sublease is executed and recorded in the consolidated statements of operations. We recognize sublease income on a straight-line basis over the sublease term, and it is recorded as a reduction to our operating lease expense. Refer to Note 7 for additional information.
Internal-Use Software and Website Development Costs
We capitalize certain costs associated with our internal-use software and website development 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 and website development projects. Such costs are amortized on a straight-line basis over the estimated useful life of the related asset, which is approximately two to five years, and are recorded within cost of revenue in the consolidated statements of operations. Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred within research and development in the consolidated statements of operations.
Intangible Assets, Net
Intangible assets, net is stated at cost, net of accumulated amortization. We amortize our finite-lived intangible assets on a straight-line basis over an estimated useful life of three to six years. Amortization of content assets and developed technology is included in cost of revenue, and assembled workforce is included in research and development in the consolidated statements of operations.
Impairment of Long-Lived Assets
We monitor events and changes in circumstances that could indicate the carrying amounts of our long-lived assets, including deferred partner fees, property, equipment, software, intangible assets, and operating lease ROU assets, may not be recoverable. When such events or changes in circumstances occur, we assess 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, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. During the year ended December 31, 2022, we recognized an impairment loss related to deferred partner fees of $2,915, related to our operating lease ROU asset of $2,304, and related to property and equipment of $904. There were no impairments of long-lived assets during the years ended December 31, 2021 and 2020.
Revenue Recognition
We recognize revenue from contracts with customers for access to the learning content hosted on our platform and related services. Revenue is recognized when control of promised services is transferred to our customer. The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these services. We apply judgment in determining our customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience, credit, or financial information. Consumer revenue customers are required to pay in advance.
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At contract inception, we assess the performance obligations, or deliverables, we have agreed to provide in the contract and determine if they are individually distinct or if they should be combined with other performance obligations. 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. We combine performance obligations when an individual performance obligation does not have standalone value to our customer. For example, our customers do not have the ability to take possession of the software supporting our platform and, as a result, our contracts are typically accounted for as service arrangements with a single performance obligation.
We have a stand-ready obligation to provide learners continuous access to our learning platform and deliver related support services for a specified term. For this reason, these services are generally viewed as a stand-ready performance obligation consisting of a series of distinct daily services. We typically satisfy these performance obligations over time as the services are provided. A time-elapsed output method is used to measure progress because our efforts are expended evenly throughout the period given the nature of the promise is a stand-ready service. Fixed fees for these services are generally recognized ratably over the contract term.
We include any fixed consideration within our contracts as part of the total transaction price. Generally, we include an estimate of the variable amount within the total transaction price and update our assumptions over the duration of the contract. None of our contracts contain a significant financing component. We do not include taxes collected from customers and remitted to governmental authorities within the total transaction price.
At times, we are party to multiple concurrent contracts or contracts that combine multiple services. These situations require judgment to determine if multiple contracts should be combined and accounted for as a single arrangement. In making this determination, we consider (i) the economics of each individual contract and whether or not it was negotiated on a standalone basis and (ii) if multiple promises represent a single performance obligation.
Contract modifications require judgment to determine if the modification should be accounted for as (i) a separate contract, (ii) the termination of the original contract and creation of a new contract, or (iii) a cumulative catch-up adjustment to the original contract. When evaluating contract modifications, we must identify the performance obligations of the modified contract and determine both the allocation of revenues to the remaining performance obligations and the period of recognition for each identified performance obligation.
We derive our revenue from three sources: Consumer, Enterprise, and Degrees. Refer to Note 15 for our disaggregation of revenue.
Consumer Revenue
We generate revenue from consumers by selling access to learning content hosted on our platform. 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 our catalog-wide consumer subscription product, sold in monthly or annual subscriptions. All Consumer contracts are billed in advance and revenue is recognized ratably over the contract term, after access has been granted to the learner, as learners have unlimited access to the course content during the contract term.
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. The refund reserve was immaterial as of December 31, 2022 and 2021.
Enterprise Revenue
We sell subscription licenses to businesses, organizations, governments, and educational institutions 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 consist of the purchase of a fixed quantity of seat licenses, each of which allows for unlimited course enrollments by one learner for each year. We recognize revenue ratably over the contract term, after access has been granted to the Enterprise customer, as they have unlimited access to the course content during the contract term.
We are generally the principal with respect to Consumer and Enterprise revenue 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
Universities contract with us to facilitate the delivery of their bachelor’s and master’s degree programs or postgraduate diplomas. Degrees revenue contracts involve the performance of a number of promises, including but not limited to hosting the degree content on our learning platform, providing content authoring tools, course production support, and marketing and platform technical support services. As a result, the university is our customer with respect to Degrees revenue. We earn a service fee based on a percentage of total tuition collected by the university from Degrees students, net of refunds. As a result, the revenue we earn is dependent upon the number of learners enrolled and the tuition charged by the university. This is a form of variable consideration, and we estimate the amount of revenue using an expected value method. These estimates are refined each reporting period until the consideration becomes known, generally at the time the final term enrollment report is provided by the university. We have a stand-ready obligation to perform services throughout the contract term during which degree content is hosted on our platform.Degrees revenue is earned and paid by the university for each academic 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 Coursera and Degrees students, who contract directly with the universities. In addition to the learning platform, the universities are obligated to provide their students with additional services, such as designing the curriculum, setting admission criteria, making admission and financial aid decisions, real-time teaching, independently awarding credits, certificates, or degrees, and providing academic and career counseling. For these reasons, the universities control the delivery of degrees hosted on our platform. As a result, we recognize only the service fee we receive from the universities as our Degrees revenue.
Deferred Revenue
Deferred revenue, or contract liabilities, consists of consideration recorded in advance of performance obligations being delivered and is classified as current or non-current based on the related period in which services are expected to 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 our Enterprise sales force, which are incremental costs we incur to obtain a contract. Sales commissions and related payroll taxes for 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. We determine the expected period of benefit by taking into consideration the length of terms in Enterprise customer contracts, the life of the technology, and other factors. We amortize 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 term is not commensurate with the expected period of benefit. Sales commissions and related payroll taxes paid for Enterprise contract renewals are amortized over the renewal term, which is generally two years.
Deferred commissions and related payroll taxes are recorded within deferred costs or other assets in the consolidated balance sheets, depending on the timing of the related amortization. They are amortized to sales and marketing in the consolidated statements of operations.
Deferred Partner Fees
These fulfillment costs are paid to educator partners in advance of completing our performance obligations; are recorded within prepaid expenses and other current assets or other assets in the consolidated balance sheets, depending on the timing of the related revenue recognition; and are amortized into cost of revenue ratably over the subscription term of the access being provided to the customer.
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 support requests from paid learners and educator partners; hosting and bandwidth costs; amortization of acquired technology and internal-use software; customer payment processing fees; and attributed depreciation and facilities costs.
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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 unadjusted quoted prices 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 assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.
Level 3— Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.
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.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentration of credit risk consist of cash, cash equivalents, and marketable securities. We only invest in high-credit-quality instruments and maintain our cash equivalents and marketable securities in fixed-income securities. We place our cash primarily with domestic financial institutions that are federally insured within statutory limits.
For purposes of assessing concentration of credit risk with respect to accounts receivable and significant customers, we treat a group of customers under common control or customers that are affiliates of each other as a single customer. For the years ended December 31, 2022, 2021, and 2020, we did not have any customers that accounted for more than 10% of our revenue. As of December 31, 2022 and 2021, we did not have any customers that accounted for more than 10% of our net accounts receivable balance.
Income Taxes
We are treated as a corporation under applicable federal and state income tax laws and 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 utilize the asset and liability method under which deferred tax assets and liabilities arise from the temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements, as well as from net operating losses (“NOLs”) and tax credit carryforwards. Deferred tax amounts are determined by using the tax rates expected to be in effect when the taxes will be paid or refunds received, as provided for under currently enacted tax law. The effect on deferred taxes of changes in tax rates and laws in future periods, if any, is reflected in the consolidated financial statements in the period enacted. 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 the 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. Certain of our earnings are indefinitely reinvested offshore and could be subject to additional income tax if repatriated. It is not practicable to determine the unrecognized deferred tax liability on a hypothetical distribution of those earnings.
Determination of income tax expense requires estimates and can involve complex issues that may require an extended period to resolve. We recognize estimated tax liabilities when such liabilities are more likely than not to be sustained upon examination by the taxing authority. Further, the estimated level of annual earnings before income tax can cause the overall effective income tax rate to vary from period to period. Final determination of prior-year tax liabilities, either by settlement with tax authorities or expiration of statutes of limitations, could be materially different than estimates reflected in assets and liabilities and historical income tax expense. The outcome of these final determinations could have a material effect on our income tax expense or cash flows in the period that determination is made.
We recognize interest and penalties related to income tax matters as a component of income tax expense in the consolidated statement of operations.
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Stock-Based Compensation Expense
We measure and recognize compensation expense for stock-based awards granted to employees, directors, and nonemployees based on the estimated grant date fair value. Stock-based awards include restricted stock units (“RSUs”), stock options, and restricted stock awards as well as stock purchase rights granted to employees under our employee stock purchase plan (“ESPP Rights”).
The fair value of RSUs and restricted stock awards is based on the fair value of our common stock on the grant date. We estimate the fair value of stock options and ESPP Rights using the Black-Scholes option-pricing model, which requires the use of the following assumptions:
Fair Value of Common Stock— Prior to the IPO, the fair value was determined by our Board of Directors. The Board of Directors considered numerous objective and subjective factors to determine the fair value of the common stock at each meeting in which awards were approved. The factors considered included, but were not limited to: (i) the results of contemporaneous independent third-party valuations of the common stock; (ii) the prices, rights, preferences, and privileges of the redeemable convertible preferred stock relative to the common stock; (iii) the lack of marketability of the common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions involving the common stock. Subsequent to the IPO, the fair value of Coursera, Inc.’s common stock is determined on the grant date using the common stock's closing price.
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 determine 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 Rights, 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 stock option or ESPP Rights.
Expected Volatility—Since we do not have a sufficient 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 or ESPP Rights.
Dividend Yield—The expected dividend was assumed to be zero as we have never paid dividends and have no current plans to do so.
Stock-based compensation is generally recognized on a straight-line basis over the requisite service period, which usually matches the vesting period. We also grant certain awards that have performance-based vesting conditions, which are 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. If at any point we determine that the performance condition is improbable of achievement, we reverse any previously recognized compensation cost for that award. Forfeitures are recognized 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. For the period prior to our IPO, we treated all series of our redeemable convertible preferred stock as participating securities, since the holders of such stock had the right to receive nonforfeitable dividends on a pari passu basis in the event that a dividend was paid on common stock. Under the two-class method, the net loss attributable to common stockholders was not allocated to the redeemable convertible preferred stock as the preferred stockholders did 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, RSUs, ESPP Rights, 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 periods presented.
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Comprehensive Loss
Comprehensive loss includes net loss and other comprehensive income (loss), net of tax. Other comprehensive income (loss), net of tax, 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 our 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 attributed facilities costs.
Advertising Costs
Advertising costs are expensed as incurred and are included in sales and marketing expense in the consolidated statements of operations. For the years ended December 31, 2022, 2021, and 2020, these costs were $39,940, $28,740, and $21,005, respectively.
Foreign Currency
The majority of our sales contracts are denominated in U.S. dollars. In addition, the functional currency of our international subsidiaries is U.S. dollars. Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured to the functional currency at period-end exchange rates. Foreign currency transaction gains and losses resulting from remeasurement are recognized in other (expense) income, net in the consolidated statements of operations.
Recent Accounting Pronouncements
New Accounting Pronouncements Recently 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 Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, 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. Upon adoption, certain aspects of this standard are applied 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. We adopted ASU 2019-12 effective January 1, 2022, and the adoption did not have a material impact on our consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”), 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. We adopted ASU 2016-13 on January 1, 2022 on a modified retrospective basis. The adoption of the standard did not have a material impact on the consolidated financial statements.
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3.REVENUE RECOGNITION
Contract Balances
Contract assets and liabilities were as follows:
Contract assets:
Contract liabilities:
Revenue recognized during the years ended December 31, 2022, 2021, and 2020 that was included in the corresponding deferred revenue balance at the beginning of each year was$92,806, $74,775, and $37,906, respectively.
Impairment losses recorded on contract assets during the year ended December 31, 2022 were immaterial, and there were no impairment losses recorded on contract assets during the years ended December 31, 2021 and 2020.
Remaining Performance Obligations
Remaining performance obligations represent future revenue that is under noncancelable contracts but has not yet been recognized. As of December 31, 2022, we had remaining performance obligations of $324,009 and expect to recognize approximately 62% as revenue over the next 12 months and the remainder thereafter.
Costs to Obtain and Fulfill Contracts
During the years ended December 31, 2022, 2021, and 2020, we capitalized $17,766, $14,217, and $11,099, respectively, of commissions and related payroll tax expenditures and amortized $12,618, $8,197, and $4,156, respectively. As of December 31, 2022 and 2021, the amount of deferred commissions and related payroll tax expenditures included in deferred costs and in other assets was $13,300 and $9,761, and $10,426 and $8,817, respectively.
During the year ended December 31, 2022, we recognized an impairment loss of $2,915 on deferred partner fees that we do not expect to recover associated with content from Russian educator partners whose content we removed from our platform. The impairment loss was recorded within general and administrative expenses in the consolidated statements of operations.
4.FAIR VALUE MEASUREMENTS
The following table presents our fair value hierarchy for those assets measured at fair value on a recurring basis:
Carrying Amount Fair Value - Level 1 Carrying Amount Fair Value - Level 1
Financial assets:
We remeasure certain assets, including intangible assets and our equity-method investment in a private company, at fair value on a non-recurring 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, 2022 and 2021.
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5.MARKETABLE SECURITIES
The following table presents our AFS marketable securities:
Gross realized gains and losses related to our marketable securities were not material for the years ended December 31, 2022, 2021, and 2020.
The following table presents the cost basis and fair value of AFS marketable securities by contractual maturity date:
AmortizedCost Fair Value AmortizedCost Fair Value
Investments in an unrealized loss position consisted of the following:
FairValue GrossUnrealizedLosses FairValue GrossUnrealizedLosses
As of December 31, 2022 and 2021, no investments were in a continuous unrealized loss position for more than 12 months. Unrealized losses on our debt securities have not been recorded into income because we do not intend to sell nor is it more likely than not that we will be required to sell these securities prior to recovery of their amortized cost basis. The decline in fair value of our AFS debt securities is largely due to changes in credit spreads as a result of market conditions. The credit ratings associated with our AFS debt securities are highly rated and mostly unchanged. As a result, there were no credit or non-credit impairment charges recorded during the years ended December 31, 2022, 2021 or 2020.
6.CONSOLIDATED BALANCE SHEET COMPONENTS
Property, Equipment, and Software, Net
Property, equipment, and software, net consisted of the following:
Internal-use software and website development 2 years $ 53,215 $ 35,508
Computer equipment and purchased software 2 years 4,662 4,163
Total property, equipment, and software 67,158 49,841
Less accumulated depreciation and amortization (40,062 ) (25,116 )
Property, equipment, and software, net $ 27,096 $ 24,725
Depreciation and amortization expense related to property, equipment, and software for the years ended December 31, 2022, 2021, and 2020 was $15,865, $12,513, and $8,114, respectively, which included amortization expense of internal-use software and website development of $13,128, $9,675, and $5,875, respectively.
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Intangible Assets, Net
Intangible assets, net consisted of the following:
During the years ended December 31, 2022, 2021, and 2020, the Company capitalized $1,100, $1,765, and $3,956 of content assets, respectively. Intangible assets amortization expense was $2,638, $2,244, and $1,471 for the years ended December 31, 2022, 2021, and 2020, respectively.
As of December 31, 2022, the weighted-average remaining amortization period was 2.6 years for developed technology and 3.7 years for content assets.
As of December 31, 2022, future expected amortization expense for intangible assets was as follows: