[Table of Contents](index=1&type=section&id=Table%20of%20Contents) This section provides an organized listing of all chapters and major sections within the report [Summary of Risk Factors](index=4&type=section&id=Summary%20of%20Risk%20Factors) This section provides a high-level overview of the principal risks that could materially affect the company's business and financial performance [Summary of Principal Risks](index=4&type=section&id=Summary%20of%20Risk%20Factors) This section summarizes the principal risks faced by Udemy, Inc., including stock price volatility, a history of losses, and challenges in an emerging and competitive market - The trading price of Udemy's common stock may be **volatile**, leading to potential investment loss[7](index=7&type=chunk) - Udemy has a history of **losses** and may not achieve or maintain profitability in the future[7](index=7&type=chunk) - Operating in an emerging and dynamic market makes future results **difficult to evaluate**[7](index=7&type=chunk) - Rapid growth may not be sustainable and depends on attracting and retaining learners, instructors, and organizations[7](index=7&type=chunk) - Reliance on a limited number of instructors for popular content poses a **risk** if these relationships are lost[7](index=7&type=chunk) - Failure to maintain and expand relationships with Udemy Business (UB) customers could **hinder business and revenue growth**[7](index=7&type=chunk) - Operating in a highly competitive market may prevent successful competition against current and future rivals[7](index=7&type=chunk) - The online learning market is relatively new and may not grow as expected, potentially **harming the business**[7](index=7&type=chunk) [Special Note Regarding Forward-Looking Statements](index=5&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section provides important cautionary information about forward-looking statements contained in the report, highlighting inherent risks and uncertainties [Nature of Forward-Looking Statements](index=5&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section clarifies that forward-looking statements in the Form 10-Q are subject to risks and uncertainties, and actual results may differ materially - Forward-looking statements in this Form 10-Q relate to **future results of operations, financial condition, business strategy, and management objectives**[8](index=8&type=chunk) - Actual events or results may **differ** from those expressed in forward-looking statements due to risks, uncertainties, assumptions, and other factors[9](index=9&type=chunk) - Udemy does not undertake to update any forward-looking statements to reflect events or circumstances after the date of the Form 10-Q, except as required by law[11](index=11&type=chunk) - Key areas of forward-looking statements include **financial and operating performance, business strategy, customer attraction and retention, industry trends, liquidity, and regulatory effects**[10](index=10&type=chunk) [Market and Industry Data](index=6&type=section&id=Market%20and%20industry%20data) This section addresses the sources and reliability of market and industry data presented in the report [Reliance on Third-Party Data](index=6&type=section&id=Market%20and%20industry%20data) This section clarifies that market and industry data, while believed reliable, is from third-party sources and has not been independently verified by the company - Market and industry data in the report is obtained from **third-party sources** believed to be reliable[13](index=13&type=chunk) - Udemy has **not independently verified** third-party information[13](index=13&type=chunk) - Such data involves **risks and uncertainties** and is subject to change based on various factors, including those discussed in 'Risk Factors'[13](index=13&type=chunk) [PART I. Financial Information](index=7&type=section&id=PART%20I.%20Financial%20Information) This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=7&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides Udemy's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, with accompanying notes [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position at specific points in time, detailing assets, liabilities, and stockholders' equity | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total assets | $722,144 | $737,568 | | Total liabilities | $389,023 | $398,258 | | Total stockholders' equity | $333,121 | $339,310 | - Total assets decreased by **$15.424 million** from December 31, 2022, to June 30, 2023[16](index=16&type=chunk) - Total liabilities decreased by **$9.235 million** from December 31, 2022, to June 30, 2023[16](index=16&type=chunk) - Total stockholders' equity decreased by **$6.189 million** from December 31, 2022, to June 30, 2023[16](index=16&type=chunk) [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section reports the company's revenues, expenses, and net loss over specific periods, reflecting operational performance | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Revenue | $178,240 | $153,112 | $354,670 | $305,335 | | Gross profit | $102,302 | $87,300 | $202,031 | $173,085 | | Loss from operations | $(27,462) | $(28,527) | $(74,739) | $(53,843) | | Net loss | $(25,735) | $(29,380) | $(70,279) | $(55,029) | | Net loss per share (Basic and diluted) | $(0.17) | $(0.21) | $(0.48) | $(0.39) | - Revenue increased by **16%** for both the three and six months ended June 30, 2023, compared to the prior year periods[18](index=18&type=chunk) - Net loss decreased by **$3.645 million** for the three months ended June 30, 2023, but increased by **$15.250 million** for the six months ended June 30, 2023, compared to the prior year periods[18](index=18&type=chunk) - Interest income, net, significantly increased from **$0.127 million to $4.944 million** for the three months ended June 30, 2023, and from **$0.370 million to $8.876 million** for the six months ended June 30, 2023[18](index=18&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section presents the net loss and other comprehensive income/loss items, providing a broader view of financial performance | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net loss | $(25,735) | $(29,380) | $(70,279) | $(55,029) | | Foreign currency translation loss, net of tax | $(5) | $(28) | $(16) | $(18) | | Change in unrealized loss on marketable securities, net of tax | $53 | $0 | $201 | $0 | | Comprehensive loss | $(25,687) | $(29,408) | $(70,094) | $(55,047) | - Comprehensive loss improved for the three months ended June 30, 2023, to **$(25.687) million** from $(29.408) million in the prior year, but worsened for the six months ended June 30, 2023, to **$(70.094) million** from $(55.047) million[21](index=21&type=chunk) - A positive change in unrealized loss on marketable securities of **$0.053 million** (three months) and **$0.201 million** (six months) contributed to the comprehensive loss in 2023, compared to zero in 2022[21](index=21&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in the company's equity accounts, including common stock, additional paid-in capital, and accumulated deficit | Metric | Balance—June 30, 2023 (in thousands) | Balance—December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------------- | :------------------------------------- | | Total Stockholders' Equity | $333,121 | $339,310 | | Additional Paid-In Capital | $1,015,851 | $951,946 | | Accumulated Deficit | $(682,683) | $(612,404) | | Common Stock Shares Outstanding | 149,845,546 | 145,013,786 | - Total stockholders' equity decreased by **$6.189 million** from December 31, 2022, to June 30, 2023[24](index=24&type=chunk) - Additional paid-in capital increased by **$63.905 million**, primarily due to stock-based compensation and exercise of stock options[24](index=24&type=chunk) - Accumulated deficit increased by **$70.279 million**, reflecting the net loss for the six months ended June 30, 2023[24](index=24&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | $(6,404) | $(16,435) | | Net cash provided by (used in) investing activities | $6,404 | $(12,342) | | Net cash provided by financing activities | $9,467 | $7,808 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $9,442 | $(20,973) | | Cash, cash equivalents and restricted cash—End of period | $326,756 | $515,795 | - Cash used in operating activities significantly decreased from **$16.435 million** in H1 2022 to **$6.404 million** in H1 2023[26](index=26&type=chunk) - Investing activities shifted from using **$12.342 million** in H1 2022 to providing **$6.404 million** in H1 2023, primarily due to proceeds from maturities of marketable securities[26](index=26&type=chunk) - Net cash provided by financing activities increased to **$9.467 million** in H1 2023 from **$7.808 million** in H1 2022[26](index=26&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Organization and Description of Business](index=13&type=section&id=1.%20Organization%20and%20description%20of%20business) This note describes Udemy's founding, global learning platform, and business model connecting experts with learners - Udemy, Inc. is a global learning company founded in January 2010, headquartered in San Francisco, California[30](index=30&type=chunk) - The company's online platform connects subject matter experts with a global audience of learners and offers curated content for Udemy Business (UB) customers[31](index=31&type=chunk) [2. Summary of Significant Accounting Policies](index=13&type=section&id=2.%20Summary%20of%20significant%20accounting%20policies) This note outlines the key accounting principles and estimates used in preparing the financial statements, including segment reporting - Financial statements are prepared in accordance with **GAAP** and include consolidated accounts of the Company and its wholly-owned subsidiaries[32](index=32&type=chunk) - Udemy operates under two reportable segments: **Enterprise and Consumer**, reviewed by the CEO as the chief operating decision maker[33](index=33&type=chunk) - Significant estimates include **allowance for credit losses, capitalized software, stock-based compensation, income tax valuation allowance, and valuation of strategic investments**[35](index=35&type=chunk) - Beginning in 2023, the Company became **self-insured for medical benefits** for certain employees, accruing costs based on known and estimated incurred but not reported claims[46](index=46&type=chunk) **Allowance for Credit Losses (in thousands):** | Period | Balance at Beginning of Period | Charged to Expenses | Utilized/Written-off, Net of Recoveries | Balance at End of Period | | :-------------------------- | :----------------------------- | :------------------ | :------------------------------------ | :----------------------- | | Six Months Ended June 30, 2023 | $1,528 | $1,011 | $(776) | $1,763 | | Six Months Ended June 30, 2022 | $678 | $517 | $(117) | $1,078 | [3. Revenue Recognition](index=15&type=section&id=3.%20Revenue%20recognition) This note details the company's policies for recognizing revenue from its Enterprise and Consumer segments, including deferred revenue **Revenue Recognized from Deferred Revenue (in millions):** | Period | 2023 | 2022 | | :---------------------------------------------------------------- | :--- | :--- | | Three months ended June 30, from deferred revenue as of March 31 | $135.2 | $115.2 | | Six months ended June 30, from deferred revenue as of December 31 | $200.5 | $157.8 | **Deferred Revenue Balances by Segment (in thousands):** | Segment | June 30, 2023 | December 31, 2022 | December 31, 2021 | | :-------- | :------------ | :---------------- | :---------------- | | Enterprise | $229,456 | $219,030 | $148,966 | | Consumer | $58,069 | $59,249 | $61,588 | | Total | $287,525 | $278,279 | $210,554 | - Remaining performance obligations totaled **$509.0 million** as of June 30, 2023, with **72%** expected to be recognized over the next twelve months[50](index=50&type=chunk) **Deferred Contract Costs Rollforward (in thousands):** | Period | Balance at Beginning of Period | Additions | Amortization Expense | Balance at End of Period | | :-------------------------- | :----------------------------- | :-------- | :------------------- | :----------------------- | | Six Months Ended June 30, 2023 | $65,645 | $30,036 | $(21,829) | $73,852 | | Six Months Ended June 30, 2022 | $44,545 | $27,381 | $(13,965) | $57,961 | [4. Investments and Fair Value Measurements](index=16&type=section&id=4.%20Investments%20and%20fair%20value%20measurements) This note provides information on the company's investments and how their fair values are measured using a hierarchy **Fair Value Hierarchy of Assets and Liabilities (in thousands):** | Category | June 30, 2023 (Level 1) | June 30, 2023 (Level 2) | June 30, 2023 (Level 3) | | :-------------------------------- | :---------------------- | :---------------------- | :---------------------- | | Money market funds | $281,719 | — | — | | U.S. government securities (marketable) | — | $142,287 | — | | Strategic investments | — | — | $10,311 | | Cash settled stock appreciation rights | — | — | $30 | | Category | December 31, 2022 (Level 1) | December 31, 2022 (Level 2) | December 31, 2022 (Level 3) | | :-------------------------------- | :------------------------ | :------------------------ | :------------------------ | | Money market funds | $130,377 | — | — | | U.S. government securities (cash equivalents) | — | $48,900 | — | | U.S. government securities (marketable) | — | $151,687 | — | | Strategic investments | — | — | $12,104 | | Cash settled stock appreciation rights | — | — | $462 | **Changes in Fair Value of Level 3 Financial Instruments (in thousands):** | Item | Stock Appreciation Rights (June 30, 2023) | Strategic Investments (June 30, 2023) | | :-------------------------------- | :-------------------------------------- | :------------------------------------ | | Balance—March 31, 2023 | $264 | $12,104 | | Vesting and remeasurement of SARs | $19 | — | | Exercises of SARs | $(253) | — | | Unrealized loss on strategic investments | — | $(1,793) | | Balance—June 30, 2023 | $30 | $10,311 | | Item | Stock Appreciation Rights (June 30, 2022) | Strategic Investments (June 30, 2022) | | :-------------------------------- | :-------------------------------------- | :------------------------------------ | | Balance—March 31, 2022 | $508 | $15,000 | | Vesting and remeasurement of SARs, net | $(89) | — | | Balance—June 30, 2022 | $419 | $15,000 | - An impairment loss of **$1.8 million** was recorded on strategic investments for the three and six months ended June 30, 2023, bringing cumulative impairment charges to **$4.7 million**[54](index=54&type=chunk) [5. Consolidated Balance Sheet Components](index=18&type=section&id=5.%20Consolidated%20balance%20sheet%20components) This note breaks down key components of the balance sheet, including cash, marketable securities, property, and intangible assets **Cash, Cash Equivalents, and Marketable Securities (in thousands):** | Category | June 30, 2023 (Fair Value) | December 31, 2022 (Fair Value) | | :-------------------------------- | :--------------------------- | :----------------------------- | | Cash and cash equivalents | $323,227 | $313,685 | | Marketable securities | $142,287 | $151,687 | | Total | $465,514 | $465,372 | - The Company's marketable securities portfolio had remaining contractual maturities of **one year or less** as of June 30, 2023[58](index=58&type=chunk) **Property and Equipment, Net (in thousands):** | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Total property and equipment | $31,868 | $32,182 | | Less accumulated depreciation and amortization | $(26,383) | $(25,170) | | Property and equipment, net | $5,485 | $7,012 | Depreciation expense: $0.8 million (Q2 2023), $1.1 million (Q2 2022); $1.6 million (H1 2023), $2.3 million (H1 2022) **Capitalized Software, Net (in thousands):** | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Capitalized software | $74,797 | $63,748 | | Less accumulated amortization | $(44,447) | $(36,336) | | Capitalized software, net | $30,350 | $27,412 | Amortization expense: $4.3 million (Q2 2023), $3.0 million (Q2 2022); $8.2 million (H1 2023), $5.7 million (H1 2022) **Intangible Assets, Net (CorpU acquisition, in thousands):** | Category | June 30, 2023 (Net) | December 31, 2022 (Net) | | :-------------------------------- | :------------------ | :-------------------- | | Customer relationships | $3,802 | $4,261 | | Vendor relationships | $1,722 | $2,472 | | Developed technology | $1,607 | $2,307 | | Tradename | $66 | $291 | | Total | $7,197 | $9,331 | Amortization expense: $1.0 million (Q2 2023), $1.0 million (Q2 2022); $2.1 million (H1 2023), $2.1 million (H1 2022) - Goodwill of **$12.6 million**, established from the CorpU acquisition, was allocated to the Enterprise segment with no adjustments as of June 30, 2023[63](index=63&type=chunk) [6. Leases](index=20&type=section&id=6.%20Leases) This note details the company's operating lease arrangements, including costs and future minimum lease payments **Operating Lease Costs (in thousands):** | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease costs | $1,564 | $1,698 | $3,234 | $3,399 | | Variable lease costs | $231 | $203 | $545 | $407 | | Cash paid for operating lease liabilities, net of lease incentives | N/A | N/A | $3,697 | $3,044 | **Future Minimum Lease Payments (in thousands):** | Year | Amount | | :--- | :----- | | 2023 (Remainder) | $3,590 | | 2024 | $5,918 | | 2025 | $809 | | 2026 | $410 | | Total Gross Lease Payments | $10,727 | | Less Imputed Interest | $(364) | | Present Value of Operating Lease Liabilities | $10,363 | [7. Accrued Expenses and Other Current Liabilities](index=21&type=section&id=7.%20Accrued%20expenses%20and%20other%20current%20liabilities) This note provides a breakdown of accrued expenses and other short-term liabilities, including indirect tax reserves **Accrued Expenses and Other Current Liabilities (in thousands):** | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Accrued expenses | $9,539 | $8,494 | | Indirect tax reserves | $3,914 | $6,627 | | Indirect tax payables | $7,161 | $9,137 | | Other current liabilities | $6,552 | $6,989 | | Total | $27,166 | $31,247 | - Indirect tax payables include amounts collected from customers and **withholding taxes on instructor payments**[67](index=67&type=chunk) - Udemy engaged in a voluntary disclosure program with the IRS regarding historical instructor withholding tax amounts and has filed all outstanding returns and paid associated tax obligations[71](index=71&type=chunk) **Instructor Withholding Tax Reserve (in thousands):** | Period | Balance, beginning of period | Amounts charged to (released from) expense | Net payments and settlements | Balance, end of period | | :-------------------------- | :----------------------------- | :----------------------------------------- | :--------------------------- | :----------------------- | | Three Months Ended June 30, 2023 | $2,572 | $45 | — | $2,617 | | Three Months Ended June 30, 2022 | $15,693 | $157 | — | $15,850 | | Six Months Ended June 30, 2023 | $2,528 | $89 | — | $2,617 | | Six Months Ended June 30, 2022 | $17,036 | $(1,186) | — | $15,850 | [8. Commitments and Contingencies](index=22&type=section&id=8.%20Commitments%20and%20contingencies) This note discloses the company's future minimum payments under purchase commitments and potential legal liabilities - As of June 30, 2023, Udemy had **$56.7 million** in future minimum payments under noncancellable purchase commitments, expected to be paid through 2026, primarily with cloud infrastructure, network service, and paid advertising providers[74](index=74&type=chunk) - The Company is subject to legal proceedings and claims in the ordinary course of business, but the outcome is not expected to have a **material effect** on financial position, results of operations, or cash flows[76](index=76&type=chunk) [9. Income Taxes](index=22&type=section&id=9.%20Income%20taxes) This note explains the company's income tax provision, effective tax rate, and valuation allowance against deferred tax assets **Effective Tax Rate:** | Period | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | (4.28)% | (1.10)% | | Six Months Ended June 30 | (3.10)% | (1.20)% | - The difference from the **21% statutory federal tax rate** is due to income in higher tax jurisdictions, foreign withholding taxes, tax credits, and changes in valuation allowance[78](index=78&type=chunk) - A **full valuation allowance** is provided against U.S. federal and state deferred tax assets due to uncertainty of realization[79](index=79&type=chunk) - The Company is subject to taxation in the U.S. and various foreign jurisdictions, with an income audit in India ongoing since 2022[81](index=81&type=chunk) [10. Related Party Transactions](index=23&type=section&id=10.%20Related%20party%20transactions) This note details revenue and operating expenses arising from transactions with affiliated entities and board members **Revenue from Related Parties (in millions):** | Related Party | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Naspers/Prosus affiliated entities | $0.4 | $0.4 | $0.7 | $0.8 | | Board of Directors affiliated customers | $0.1 | $0.1 | $0.2 | $0.2 | **Operating Expenses with Related Parties (in millions):** | Related Party | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Insight Partners affiliated vendors | $0.1 | $0.3 | $0.3 | $0.5 | [11. Stockholders' Equity](index=23&type=section&id=11.%20Stockholders'%20equity) This note provides information on common stock, equity incentive plans, and stock-based compensation expense **Common Stock Reserved for Future Issuance:** | Plan | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | 2010 Equity Incentive Plan (Stock options outstanding) | 8,836,101 | 10,333,771 | | 2021 Equity Incentive Plan (RSUs outstanding and PSUs) | 18,667,968 | 16,178,101 | | 2021 Equity Incentive Plan (Shares available for future issuance) | 4,865,969 | 2,814,126 | | 2021 Employee Stock Purchase Plan (Shares available for future issuance) | 2,754,604 | 1,929,578 | | Total shares of common stock reserved | 35,124,642 | 31,255,576 | - The 2021 Equity Incentive Plan's shares available for future grants automatically increased by **7,250,689** on January 1, 2023[90](index=90&type=chunk) - Total unrecognized stock-based compensation expense for unvested RSUs was **$224.1 million** as of June 30, 2023, to be recognized over **3.0 years**[100](index=100&type=chunk) - The ESPP purchase price was reset on May 20, 2023, resulting in an incremental compensation cost of **$5.9 million**[105](index=105&type=chunk) **Total Stock-Based Compensation Expense (in thousands):** | Category | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenue | $1,749 | $989 | $3,342 | $1,829 | | Sales and marketing | $8,099 | $5,007 | $15,376 | $9,144 | | Research and development | $6,423 | $3,711 | $12,717 | $7,045 | | General and administrative | $6,890 | $5,025 | $16,801 | $10,056 | | Restructuring charges | — | — | $1,208 | — | | Total | $23,161 | $14,732 | $49,444 | $28,074 | [12. Net Loss Per Share](index=28&type=section&id=12.%20Net%20loss%20per%20share) This note presents the calculation of basic and diluted net loss per share, including anti-dilutive securities **Net Loss Per Share (Basic and Diluted):** | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(25,735) | $(29,380) | $(70,279) | $(55,029) | | Weighted-average shares | 148,071,315 | 140,035,203 | 146,910,959 | 139,691,508 | | Net loss per share | $(0.17) | $(0.21) | $(0.48) | $(0.39) | - Potentially dilutive securities, including stock options, RSUs, PSUs, and contingently issuable shares under ESPP, were excluded from diluted EPS calculation due to their **anti-dilutive impact**[111](index=111&type=chunk) [13. Segment and Geographic Information](index=28&type=section&id=13.%20Segment%20and%20geographic%20information) This note provides financial data broken down by operating segment (Enterprise, Consumer) and geographic region **Revenue by Segment (in thousands):** | Segment | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Enterprise | $101,619 | $74,627 | $196,861 | $139,538 | | Consumer | $76,621 | $78,485 | $157,809 | $165,797 | | Total revenue | $178,240 | $153,112 | $354,670 | $305,335 | **Segment Gross Profit (in thousands):** | Segment | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Enterprise | $67,667 | $49,945 | $130,042 | $92,693 | | Consumer | $41,489 | $42,274 | $85,181 | $89,789 | | Total segment gross profit | $109,156 | $92,219 | $215,223 | $182,482 | - Enterprise revenue grew by **36%** (Q2) and **41%** (H1) year-over-year, while Consumer revenue decreased by **2%** (Q2) and **5%** (H1)[114](index=114&type=chunk) **Revenue by Geographic Region (in thousands):** | Region | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | North America | $71,814 | $62,863 | $143,521 | $123,451 | | Europe, Middle East, Africa | $54,540 | $46,229 | $109,091 | $93,954 | | Asia Pacific | $39,342 | $32,727 | $77,501 | $65,915 | | Latin America | $12,544 | $11,293 | $24,557 | $22,015 | | Total revenue | $178,240 | $153,112 | $354,670 | $305,335 | **Long-Lived Assets by Geographic Region (in thousands):** | Region | June 30, 2023 | December 31, 2022 | | :------------ | :------------ | :---------------- | | North America | $9,782 | $12,782 | | Rest of world | $4,291 | $5,556 | | Total | $14,073 | $18,338 | [14. Restructuring Charges](index=30&type=section&id=14.%20Restructuring%20charges) This note details the restructuring charges incurred due to workforce reduction, including personnel and stock-based compensation expenses - In February 2023, Udemy reduced its global workforce by approximately **10%** in response to macroeconomic conditions[118](index=118&type=chunk) - Restructuring charges totaled **$10.3 million** in the first half of 2023, primarily consisting of **$8.9 million** in personnel expenses and **$1.2 million** in stock-based compensation[118](index=118&type=chunk) **Restructuring Liability Activity (in thousands):** | Period | Beginning balance | Restructuring charges | Settlements | Ending balance | | :-------------------------- | :---------------- | :-------------------- | :---------- | :------------- | | March 31, 2023 to June 30, 2023 | $4,544 | $135 | $(4,335) | $344 | | January 1, 2023 to June 30, 2023 | $0 | $9,055 | $(8,711) | $344 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Udemy's financial condition and results of operations, including key performance factors, revenue and expense analysis, and liquidity [Overview](index=31&type=section&id=Overview) This section introduces Udemy's mission, platform reach, and recent strategic actions like workforce reduction - Udemy's mission is to **improve lives through learning**, addressing the need for flexible and effective skill acquisition in a rapidly changing job market[121](index=121&type=chunk)[122](index=122&type=chunk) - The platform serves over **64 million learners** in **180+ countries** and offers Udemy Business (UB) for corporate learning, with over **70,000 instructors** creating **200,000+ courses**[123](index=123&type=chunk) - In February 2023, Udemy reduced its global workforce by approximately **10%** due to macroeconomic conditions, incurring **$10.3 million** in restructuring charges in H1 2023[124](index=124&type=chunk) [Key Factors Impacting Performance](index=31&type=section&id=Key%20factors%20impacting%20our%20performance) This section outlines critical elements influencing Udemy's financial and operational performance, such as customer acquisition, content, and market shifts - Growth depends on attracting and engaging new learners and Udemy Business customers efficiently, leveraging both **organic and paid marketing channels**[126](index=126&type=chunk) - Retention and expansion of existing learner and customer relationships are **crucial**, with efforts focused on increasing engagement for consumers and expanding deployments for UB customers[127](index=127&type=chunk)[129](index=129&type=chunk) - Sourcing in-demand content from instructors is **vital** for attracting and retaining users; a significant portion of popular content comes from a limited number of instructors[131](index=131&type=chunk)[132](index=132&type=chunk) - The shifting mix towards the Enterprise segment is expected to benefit overall **gross margins** due to higher Enterprise gross margins[133](index=133&type=chunk)[142](index=142&type=chunk) - International expansion is a **significant opportunity**, with continued investment in personnel, marketing, and strategic partnerships to grow the global customer and learner base[134](index=134&type=chunk) - Udemy is actively investing in **sales and marketing, course catalog expansion, immersive learning, and AI technology**, anticipating increased operating expenses[135](index=135&type=chunk) - The pace of adoption of cloud-based skill development solutions impacts growth, as the market is **less mature** than traditional training[136](index=136&type=chunk) [Components of Results of Operations](index=33&type=section&id=Components%20of%20results%20of%20operations) This section details the primary components of Udemy's financial results, including revenue recognition, cost of revenue, and operating expenses - Revenue is recognized from UB customer subscriptions (ratably over term) and paid consumer learners (ratably over an estimated **four-month service period** for single courses, or contractual term for subscriptions)[138](index=138&type=chunk)[139](index=139&type=chunk) - Cost of revenue primarily consists of **instructor payments**, which vary based on content acquisition method[141](index=141&type=chunk) - Operating expenses include **sales and marketing, research and development, general and administrative, and restructuring charges**, with personnel costs being the most significant component[144](index=144&type=chunk) - Sales and marketing expenses are expected to **increase in absolute dollars** but generally decrease as a percentage of revenue over the long term[145](index=145&type=chunk) - Research and development expenses are expected to **increase in absolute dollars** due to continued investment in the platform[146](index=146&type=chunk) - General and administrative expenses are expected to **increase in absolute dollars** but generally decrease as a percentage of revenue over the long term[148](index=148&type=chunk) - Interest income, net, primarily comes from **cash equivalents and investments**, while other expense, net, includes foreign currency transaction gains/losses and strategic investment valuation changes[150](index=150&type=chunk)[151](index=151&type=chunk) - Income tax provision is mainly foreign and state taxes, with a **full valuation allowance** against U.S. federal and state deferred tax assets[152](index=152&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20operations) This section provides a detailed analysis of the company's financial performance, including revenue, gross profit, and net loss trends **Consolidated Results of Operations (in thousands, except percentages):** | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $178,240 (100%) | $153,112 (100%) | $354,670 (100%) | $305,335 (100%) | | Cost of revenue | $75,938 (43%) | $65,812 (43%) | $152,639 (43%) | $132,250 (43%) | | Gross profit | $102,302 (57%) | $87,300 (57%) | $202,031 (57%) | $173,085 (57%) | | Sales and marketing | $77,371 (43%) | $68,421 (45%) | $157,028 (44%) | $135,299 (44%) | | Research and development | $29,635 (17%) | $23,963 (16%) | $60,522 (17%) | $46,533 (15%) | | General and administrative | $22,623 (13%) | $23,443 (15%) | $48,957 (14%) | $45,096 (16%) | | Restructuring charges | $135 (0%) | — (0%) | $10,263 (3%) | — (0%) | | Loss from operations | $(27,462) (16%) | $(28,527) (19%) | $(74,739) (21%) | $(53,843) (18%) | | Net loss | $(25,735) (14%) | $(29,380) (19%) | $(70,279) (20%) | $(55,029) (18%) | **Revenue Growth (in thousands, except percentages):** | Segment | Q2 2023 Revenue | Q2 2022 Revenue | Q2 Change ($) | Q2 Change (%) | H1 2023 Revenue | H1 2022 Revenue | H1 Change ($) | H1 Change (%) | | :-------- | :-------------- | :-------------- | :------------ | :------------ | :-------------- | :-------------- | :------------ | :------------ | | Enterprise | $101,619 | $74,627 | $26,992 | 36% | $196,861 | $139,538 | $57,323 | 41% | | Consumer | $76,621 | $78,485 | $(1,864) | (2)% | $157,809 | $165,797 | $(7,988) | (5)% | | Total | $178,240 | $153,112 | $25,128 | 16% | $354,670 | $305,335 | $49,335 | 16% | - Enterprise revenue growth was primarily driven by an increase in **UB customers and net expansions**, partially offset by negative foreign currency exchange rates[156](index=156&type=chunk)[159](index=159&type=chunk) - Consumer revenue decrease was primarily due to **negative foreign currency exchange rates**, partially offset by an increase in monthly average buyers[157](index=157&type=chunk)[160](index=160&type=chunk) - Gross margin remained **stable at 57%** for both three and six months ended June 30, 2023 and 2022[164](index=164&type=chunk)[167](index=167&type=chunk) - Sales and marketing expenses increased by **$9.0 million** (Q2) and **$21.7 million** (H1) YoY, driven by personnel, stock-based compensation, and deferred contract acquisition costs[169](index=169&type=chunk)[170](index=170&type=chunk) - Research and development expenses increased by **$5.7 million** (Q2) and **$14.0 million** (H1) YoY, mainly due to higher personnel and stock-based compensation[171](index=171&type=chunk)[172](index=172&type=chunk) - General and administrative expenses decreased by **$0.8 million** (Q2) but increased by **$3.9 million** (H1) YoY, with the H1 increase primarily due to accelerated stock-based compensation for the former CEO[173](index=173&type=chunk)[175](index=175&type=chunk) - Restructuring charges totaled **$0.1 million** (Q2) and **$10.3 million** (H1) in 2023, with no comparable charges in 2022[176](index=176&type=chunk)[177](index=177&type=chunk) - Total other income, net, significantly improved to **$2.8 million** (Q2) and **$6.6 million** (H1) in 2023, from net expenses in 2022, primarily due to increased interest income from investments[178](index=178&type=chunk)[179](index=179&type=chunk) [Certain Key Business Metrics and Non-GAAP Financial Metrics](index=42&type=section&id=Certain%20key%20business%20metrics%20and%20non-GAAP%20financial%20metrics) This section presents key operational metrics and non-GAAP financial measures used to evaluate the company's performance **Monthly Average Buyers (in thousands):** | Period | 2023 | 2022 | % Change | | :-------------------------- | :--- | :--- | :------- | | Three Months Ended June 30 | 1,338 | 1,290 | 4% | | Six Months Ended June 30 | 1,366 | 1,337 | 2% | **Udemy Business Customers:** | Date | 2023 | 2022 | % Change | | :--- | :--- | :--- | :------- | | June 30 | 14,946 | 12,514 | 19% | **Udemy Business Annual Recurring Revenue (ARR) (in thousands):** | Date | 2023 | 2022 | % Change | | :--- | :--- | :--- | :------- | | June 30 | $420,402 | $316,107 | 33% | **Udemy Business Net Dollar Retention Rate (NDRR):** | Date | 2023 | 2022 | % Change | | :--- | :--- | :--- | :------- | | UB NDRR | 108% | 118% | (8)% | | UB Large Customer NDRR | 115% | 124% | (7)% | - Decreases in NDRR metrics were driven by **lower rates of upsells and expansion**, negatively impacted by longer sales cycles due to economic factors[193](index=193&type=chunk) **Adjusted EBITDA (in thousands):** | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(25,735) | $(29,380) | $(70,279) | $(55,029) | | Adjusted EBITDA | $1,934 | $(8,562) | $(4,354) | $(15,569) | | Adjusted EBITDA margin | 1% | (6)% | (1)% | (5)% | - Adjusted EBITDA improved by **$10.5 million** (Q2) and **$11.2 million** (H1) YoY, driven by revenue growth outpacing operating expenses (excluding stock-based compensation and restructuring charges)[203](index=203&type=chunk)[204](index=204&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20capital%20resources) This section discusses the company's cash position, funding sources, and ability to meet short-term and long-term financial obligations - As of June 30, 2023, principal liquidity sources included **$326.8 million** in cash, cash equivalents, and restricted cash, and **$142.3 million** in marketable securities[206](index=206&type=chunk) - The company believes existing cash and expected cash flows will be **sufficient for at least the next 12 months**[206](index=206&type=chunk) - Historically, operations have been financed through revenue and capital stock issuances, including **$397.4 million** net proceeds from the 2021 IPO[209](index=209&type=chunk) - Future growth and operations may require **additional capital** through equity, equity-linked, or debt financing[208](index=208&type=chunk)[210](index=210&type=chunk) - Cash used in operating activities decreased from **$16.4 million** in H1 2022 to **$6.4 million** in H1 2023, driven by deferred revenue increase and accounts receivable decrease[216](index=216&type=chunk)[217](index=217&type=chunk) - Net cash provided by investing activities was **$6.4 million** in H1 2023, primarily from marketable securities maturities, a shift from **$12.3 million** used in H1 2022[218](index=218&type=chunk)[219](index=219&type=chunk) - Net cash provided by financing activities was **$9.5 million** in H1 2023, mainly from stock option exercises and employee stock purchase plan proceeds[220](index=220&type=chunk)[221](index=221&type=chunk) [Critical Accounting Policies and Estimates](index=48&type=section&id=Critical%20accounting%20policies%20and%20estimates) This section highlights the accounting policies and estimates that require significant judgment and can materially impact financial results - No **material changes** to critical accounting policies and estimates compared to the Annual Report[224](index=224&type=chunk) [Recent Accounting Pronouncements](index=48&type=section&id=Recent%20accounting%20pronouncements) This section discusses the potential impact of recently issued accounting standards on the company's financial statements - No recently issued accounting pronouncements are expected to have a **material impact** on the Company's condensed consolidated financial statements[47](index=47&type=chunk) [Item 3. Qualitative and Quantitative Disclosures about Market Risk](index=49&type=section&id=Item%203.%20Qualitative%20and%20Quantitative%20Disclosures%20about%20Market%20Risk) This section details Udemy's exposure to market risks, including interest rate sensitivity and foreign currency fluctuations, and related management strategies [Interest Rate Sensitivity](index=49&type=section&id=Interest%20rate%20sensitivity) This section assesses the potential impact of interest rate changes on the company's financial instruments and investment portfolio - As of June 30, 2023, Udemy held **$323.2 million** in cash and cash equivalents and **$142.3 million** in marketable securities, primarily U.S. government securities[227](index=227&type=chunk) - A hypothetical **100 basis point change** in interest rates would not materially impact the market value of the portfolio or interest income[228](index=228&type=chunk) [Foreign Currency Risk](index=49&type=section&id=Foreign%20currency%20risk) This section discusses the company's exposure to fluctuations in foreign currency exchange rates and their potential effect on financial results - The reporting currency is the **U.S. dollar**, and fluctuations in foreign currency exchange rates can lead to transaction gains/losses or translation gains/losses[229](index=229&type=chunk) - Udemy does not currently use hedging arrangements for foreign currency risk, and a hypothetical **10% change** in exchange rates would not have a material impact on income or expense for H1 2023[229](index=229&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details management's evaluation of the effectiveness of disclosure controls and internal control over financial reporting, noting inherent limitations [Evaluation of Disclosure Controls and Procedures](index=50&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures) This section presents management's assessment of the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that disclosure controls and procedures were **effective** as of June 30, 2023[230](index=230&type=chunk) - Disclosure controls are designed to provide **reasonable assurance** that required information is recorded, processed, summarized, and reported timely[230](index=230&type=chunk) [Changes in Internal Control Over Financial Reporting](index=50&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) This section reports any material changes in the company's internal control over financial reporting during the period - No **material changes** to internal control over financial reporting occurred during the quarter ended June 30, 2023[231](index=231&type=chunk) [Inherent Limitations on the Effectiveness of Internal Controls Over Financial Reporting](index=50&type=section&id=Inherent%20limitations%20on%20the%20effectiveness%20of%20internal%20controls%20over%20financial%20reporting) This section acknowledges that internal control systems provide reasonable, but not absolute, assurance against misstatement or fraud - Control systems provide only **reasonable, not absolute, assurance** and may not prevent or detect all errors and fraud[232](index=232&type=chunk) [PART II. Other Information](index=51&type=section&id=PART%20II.%20Other%20Information) This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) This section outlines Udemy's legal proceedings, including a settled class action, and confirms no current material adverse effects are expected - Udemy is not currently party to any legal proceedings expected to have a **material adverse effect** on its business, operating results, or financial condition[235](index=235&type=chunk) - A California class action complaint (Williams v. Udemy, Inc.) regarding pricing practices was settled for an **immaterial amount**, with final approval granted on July 28, 2023[236](index=236&type=chunk) [Item 1A. Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20Factors) This section comprehensively details various factors that could materially and adversely affect Udemy's business, financial condition, and results of operations [Risks Related to Our Business and Operations](index=52&type=section&id=Risks%20related%20to%20our%20business%20and%20operations) This section identifies risks associated with Udemy's business model, market dynamics, growth management, and operational execution - Udemy has a history of **losses** and may not achieve or maintain profitability due to significant investments in growth[240](index=240&type=chunk) - Operating in an emerging and dynamic market makes future results **difficult to predict** and exposes the company to various challenges[241](index=241&type=chunk)[242](index=242&type=chunk) - Results of operations may **fluctuate significantly** due to factors like customer acquisition, competition, economic conditions, and revenue mix[243](index=243&type=chunk)[244](index=244&type=chunk) - Sustainable growth depends on attracting and retaining learners, instructors, and organizations, which may be impacted by **content appeal, policy changes, or perceived lack of audience**[246](index=246&type=chunk)[247](index=247&type=chunk) - Reliance on a limited number of instructors for popular content poses a **risk** if these relationships are lost, potentially affecting content quality and platform attractiveness[248](index=248&type=chunk) - Failure to maintain and expand relationships with UB customers, including renewals and increased usage, could **hinder business growth and revenue**[249](index=249&type=chunk) - The online learning market is **highly competitive**, with risks from existing and new entrants, including those leveraging advanced AI capabilities[250](index=250&type=chunk)[251](index=251&type=chunk) - The market for online learning solutions may not grow as expected, influenced by **macroeconomic conditions and adoption rates**, potentially harming demand for Udemy's platform[256](index=256&type=chunk) - Adherence to company values and a focus on long-term sustainability may **negatively impact short- or medium-term financial performance**[257](index=257&type=chunk)[259](index=259&type=chunk) - Changes in pricing models or contract lengths could **adversely impact results of operations**, especially with new product rollouts or increased competition[260](index=260&type=chunk) - Failure to effectively expand sales and marketing capabilities could **harm the ability to increase the learner and UB customer base**[261](index=261&type=chunk)[262](index=262&type=chunk) - Damage to brand and reputation, from internal factors (platform reliability, customer service) or external factors (negative publicity, litigation), could **reduce demand**[263](index=263&type=chunk)[264](index=264&type=chunk)[266](index=266&type=chunk) - Liability or reputational harm could arise from courses posted to the platform that **infringe third-party intellectual property** or contain other problematic content[267](index=267&type=chunk)[268](index=268&type=chunk) - Failure of resellers or partners to comply with ethical practices or laws could **negatively impact business**, especially in international jurisdictions[269](index=269&type=chunk) - General economic conditions, including **inflation and financial market instability**, could negatively affect revenue and increase the need for significant expenditures[270](index=270&type=chunk)[271](index=271&type=chunk) - Natural disasters, public health crises, or political crises could **materially and adversely affect business and operations**[272](index=272&type=chunk) - Failure to manage rapid growth effectively could **strain operational infrastructure and managerial resources**, impacting gross profit or operating expenses[273](index=273&type=chunk)[274](index=274&type=chunk) - Loss of senior management or highly skilled employees, or difficulty attracting new talent, could **significantly harm the business**[275](index=275&type=chunk)[276](index=276&type=chunk) - Acquisitions and strategic investments expose the company to **significant risks**, including integration difficulties, failure to realize benefits, and diversion of management attention[277](index=277&type=chunk)[278](index=278&type=chunk) - The company may need to raise additional funds, and if capital is not available on acceptable terms, **growth strategy could be impaired**[279](index=279&type=chunk) - International operations expose the company to risks such as **localization costs, competition with local players, regulatory uncertainty, currency fluctuations, and political instability**[280](index=280&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk) - Failure to comply with diverse global laws and regulations (privacy, data protection, export controls, anti-bribery) could lead to **claims, penalties, and adverse effects on business**[285](index=285&type=chunk)[286](index=286&type=chunk)[287](index=287&type=chunk)[288](index=288&type=chunk)[290](index=290&type=chunk)[293](index=293&type=chunk) - Increased scrutiny on ESG practices could lead to **additional costs, resource allocation, and reputational risks**[295](index=295&type=chunk) - Inadequate self-insurance accruals or insurance coverage for employee healthcare benefits could **adversely affect financial results**[296](index=296&type=chunk) [Risks Related to Technology, Privacy, and Cybersecurity](index=65&type=section&id=Risks%20related%20to%20technology,%20privacy,%20and%20cybersecurity) This section addresses risks concerning data privacy, cybersecurity threats, platform reliability, and reliance on third-party technology services - Changes in privacy, data protection, or cybersecurity laws (e.g., GDPR, CCPA, PIPL) or non-compliance could **adversely affect business**, leading to fines, litigation, and increased costs[297](index=297&type=chunk)[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk)[301](index=301&type=chunk)[302](index=302&type=chunk) - A cybersecurity attack or security breach could **interrupt service, harm reputation, or lead to significant liability**, despite protective measures[304](index=304&type=chunk)[305](index=305&type=chunk)[306](index=306&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk) - Interruptions or performance problems with technology and infrastructure could **adversely affect business and results of operations**[310](index=310&type=chunk) - Regulations permitting ISPs to limit internet consumption (e.g., net neutrality changes) could **harm business** by affecting platform access[312](index=312&type=chunk) - Reliance on Amazon Web Services (AWS) for platform services means any disruption or interference with AWS could **seriously harm operations and business**[313](index=313&type=chunk)[314](index=314&type=chunk) - Dependence on third-party payment processors and evolving payment laws/regulations could lead to **service disruptions, increased costs, or compliance issues**[315](index=315&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk) - Ineffective mobile solutions could **adversely affect platform usage** and ability to attract learners, as mobile access is increasingly important[318](index=318&type=chunk)[319](index=319&type=chunk)[320](index=320&type=chunk) - Failure to appear prominently in internet search results could **decline growth rate** and adversely affect business[321](index=321&type=chunk) [Risks Related to Our Intellectual Property](index=71&type=section&id=Risks%20related%20to%20our%20intellectual%20property) This section outlines risks related to protecting and enforcing the company's intellectual property and potential litigation - Inability to adequately obtain, maintain, protect, and enforce intellectual property (patents, trade secrets, trademarks) could **adversely affect business and competitive advantage**[322](index=322&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk)[325](index=325&type=chunk)[326](index=326&type=chunk)[327](index=327&type=chunk) - Intellectual property litigation, including claims related to content on the platform, could result in **significant costs, divert management attention, and harm reputation**[329](index=329&type=chunk) - Failure to comply with open source software licenses could **restrict the ability to provide the platform** or require proprietary software to be disclosed[330](index=330&type=chunk) [Risks Related to Financial Reporting, Taxation, and Operations as a Public Company](index=74&type=section&id=Risks%20related%20to%20financial%20reporting,%20taxation,%20and%20operations%20as%20a%20public%20company) This section covers risks associated with financial controls, tax liabilities, public company compliance, and accounting changes - Failure to maintain effective disclosure controls and internal control over financial reporting could **impair timely and accurate financial statements**, affecting investor confidence[331](index=331&type=chunk)[332](index=332&type=chunk)[333](index=333&type=chunk) - Operating as a public company incurs **substantial costs and administrative burdens**, exacerbated by the loss of 'emerging growth company' status[334](index=334&type=chunk)[335](index=335&type=chunk) - Unanticipated changes in effective tax rate and additional tax liabilities, including from international operations or new tax rules (e.g., Inflation Reduction Act, global minimum tax), could **harm future results**[336](index=336&type=chunk)[337](index=337&type=chunk)[338](index=338&type=chunk) - Taxing authorities may assert improper collection/remittance of indirect taxes (sales, VAT, employment), leading to **substantial liabilities and increased compliance costs**[339](index=339&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk)[342](index=342&type=chunk) - Ability to use net operating loss (NOL) carryforwards and other tax attributes may be **limited by expiration or ownership changes** (Section 382 of the Code)[343](index=343&type=chunk)[344](index=344&type=chunk) - Fluctuations in currency exchange rates could **adversely affect reported financial results**, especially with **30% of sales** denominated in non-U.S. dollars[345](index=345&type=chunk) - The effects of inflation could **adversely impact operating costs, pricing models, customer acquisition, and retention**[347](index=347&type=chunk)[348](index=348&type=chunk)[349](index=349&type=chunk) - Changes in generally accepted accounting principles (GAAP) or their interpretations could **significantly affect reported results of operations**[350](index=350&type=chunk) [Risks Related to Ownership of Our Common Stock](index=77&type=section&id=Risks%20related%20to%20ownership%20of%20our%20common%20stock) This section discusses risks pertinent to the company's common stock, including price volatility, dilution, and corporate governance provisions - The trading price of common stock may be **volatile** due to various factors, including market fluctuations, operating performance, analyst coverage, and company announcements[351](index=351&type=chunk)[352](index=352&type=chunk)[354](index=354&type=chunk) - Future sales of common stock by existing stockholders could **depress the market price**[355](index=355&type=chunk)[356](index=356&type=chunk) - Future issuances of common stock or rights to purchase common stock could result in **additional dilution** to stockholders[357](index=357&type=chunk) - If securities or industry analysts publish inaccurate or unfavorable research, the market price and trading volume of common stock could **decline**[358](index=358&type=chunk) - Udemy does not expect to pay dividends in the foreseeable future, requiring stockholders to rely on **stock price appreciation for gains**[359](index=359&type=chunk) - Directors, executive officers, and principal stockholders beneficially own a substantial percentage (approx. **48%**) of common stock, enabling significant control over stockholder-approved matters[360](index=360&type=chunk) - Delaware law and company bylaws contain provisions that might **delay, discourage, or prevent mergers, tender offers, or proxy contests**, potentially depressing the stock price[361](index=361&type=chunk)[362](index=362&type=chunk)[364](index=364&type=chunk) - Bylaw provisions designating Delaware courts and federal district courts as exclusive forums for certain disputes could **limit stockholders' choice of judicial forum** and discourage lawsuits[365](index=365&type=chunk)[366](index=366&type=chunk)[367](index=367&type=chunk)[368](index=368&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=82&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered sales of equity securities or use of proceeds during the reporting period - No unregistered sales of equity securities or use of proceeds to report[370](index=370&type=chunk) [Item 3. Defaults Upon Senior Securities](index=82&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there are no defaults upon senior securities to report - Not applicable; no defaults upon senior securities[371](index=371&type=chunk) [Item 4. Mine Safety Disclosures](index=82&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section clarifies that mine safety disclosures are not applicable to the company's operations - Not applicable; no mine safety disclosures[372](index=372&type=chunk) [Item 5. Other Information](index=82&type=section&id=Item%205.%20Other%20Information) This section reports no adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the last fiscal quarter[373](index=373&type=chunk) [Item 6. Exhibits](index=83&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, policies, and certifications - The exhibit index includes **Amended and Restated Certificate of Incorporation, Bylaws, Outside Director Compensation Policy, and Employment Letter** for Genefa Murphy[376](index=376&type=chunk) - Certifications of the **Principal Executive Officer and Principal Financial Officer** pursuant to Rules 13a-14(a) and 15d-14(a) and 18 U.S.C. Section 1350 are included[376](index=376&type=chunk) - Inline XBRL documents (Instance, Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Presentation Linkbase) and Cover Page Interactive Data File are also listed[377](index=377&type=chunk) [Signatures](index=85&type=section&id=SIGNATURES) This section contains the authorized signatures certifying the accuracy and completeness of the report [Signatures](index=85&type=section&id=SIGNATURES) This section contains the authorized signatures of Udemy, Inc.'s President, CEO, and CFO, certifying the report's filing on August 3, 2023 - The report is signed by **Greg Brown, President and Chief Executive Officer**, and **Sarah Blanchard, Chief Financial Officer**, on August 3, 2023[381](index=381&type=chunk)

Udemy, Inc. (NASDAQ:UDMY) Q1 2023 Earnings Conference Call May 3, 2023 5:00 PM ET Company Participants Dennis Walsh - Vice President, Investor Relations Greg Brown - Chief Executive Officer Sarah Blanchard - Chief Financial Officer Conference Call Participants Ryan MacDonald - Needham Rob Oliver - Baird Terry Tillman - Truist David Lustberg - Jefferies Josh Baer - Morgan Stanley Devin Au - KeyBanc Capital Markets Operator Good afternoon, and welcome to Udemy's First Quarter 2023 Earnings Conference Call. Al ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number 001-40956 Udemy, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 27-1 ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number 001-40956 Udemy, Inc. (Exact Name of Registrant as Specified in its Charter) (I.R.S. Employer I ...

Udemy, Inc. (NASDAQ:UDMY) Q4 2022 Results Conference Call February 14, 2023 5:00 PM ET Company Participants Dennis Walsh - Vice President of Investor Relations Gregg Coccari - Chairman and Chief Executive Officer Greg Brown - President Sarah Blanchard - Chief Financial Officer Conference Call Participants Patrick Schulz - Baird Brett Knoblauch - Cantor Fitzgerald Ryan MacDonald - Needham Stephen Sheldon - William Blair Connor Passarella - Truist Securities Jason Celino - KeyBanc Capital Markets David Lustbe ...

Udemy, Inc. (NASDAQ:UDMY) Q3 2022 Earnings Conference Call November 2, 2022 5:00 PM ET Company Participants Dennis Walsh - Vice President-Investor Relations Gregg Coccari - President & Chief Executive Officer Sarah Blanchard - Chief Financial Officer Greg Brown - President-Udemy Business Conference Call Participants Rob Oliver - Baird Ryan MacDonald - Needham Stephen Sheldon - William Blair Connor Passarella - Truist Josh Baer - Morgan Stanley Devin Au - KeyBanc Brent Thill - Jefferies Operator Welcome to ...

Udemy, Inc. (NASDAQ:UDMY) Q2 2022 Earnings Conference Call August 3, 2022 5:00 PM ET Company Participants Stacey Hara - SVP, Corporate Communications Gregg Coccari - Chairman and CEO Sarah Blanchard - CFO Conference Call Participants David Lustberg - Jefferies Robert Oliver - Baird Terry Tillman - Truist Devin Au - KeyBanc Josh Baer - Morgan Stanley Brett Knoblauch - Cantor Fitzgerald Matthew Shea - Needham Arvind Ramnani - Piper Sandler Stacey Hara Thank you, and welcome to Udemy Second Quarter 2022 Earnin ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=7&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements of Udemy, Inc, including balance sheets, statements of operations, and cash flows [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total Assets | $745,989 | $739,851 | | Total Liabilities | $371,043 | $350,151 | | Total Stockholders' Equity | $374,946 | $389,700 | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $153,112 | $126,093 | $305,335 | $250,643 | | Cost of revenue | $65,812 | $55,993 | $132,250 | $113,916 | | Gross profit | $87,300 | $70,100 | $173,085 | $136,727 | | Loss from operations | $(28,527) | $(10,974) | $(53,843) | $(27,412) | | Net loss attributable to common stockholders | $(29,380) | $(11,391) | $(55,029) | $(29,380) | | Basic and diluted net loss per share | $(0.21) | $(0.31) | $(0.39) | $(0.80) | - Revenue increased by **21%** for the three months ended June 30, 2022, and by **22%** for the six months ended June 30, 2022, compared to the prior year periods[18](index=18&type=chunk) - Net loss attributable to common stockholders increased significantly to **$29.38 million** for the three months ended June 30, 2022, from $11.39 million in the prior year, and to **$55.03 million** for the six months ended June 30, 2022, from $29.38 million in the prior year[18](index=18&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(29,380) | $(11,391) | $(55,029) | $(29,380) | | Comprehensive loss | $(29,408) | $(11,391) | $(55,047) | $(29,380) | [Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Redeemable%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity%20(Deficit)) | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Accumulated Deficit | $(513,558) | $(458,529) | | Total Stockholders' Equity | $374,946 | $389,700 | - The accumulated deficit increased to **$513.6 million** as of June 30, 2022, from $458.5 million as of December 31, 2021, reflecting ongoing net losses[16](index=16&type=chunk)[24](index=24&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :--- | :--- | :--- | | Operating activities | $(16,435) | $(5,486) | | Investing activities | $(12,342) | $(9,791) | | Financing activities | $7,808 | $3,444 | | Net decrease in cash, cash equivalents and restricted cash | $(20,973) | $(11,833) | - Net cash used in operating activities increased to **$16.4 million** for the six months ended June 30, 2022, from $5.5 million in the prior year, primarily due to increased net loss and changes in operating assets and liabilities[26](index=26&type=chunk)[234](index=234&type=chunk)[235](index=235&type=chunk) - Net cash used in investing activities increased to **$12.3 million**, driven by strategic investments and capitalized software costs[26](index=26&type=chunk)[236](index=236&type=chunk) - Net cash provided by financing activities increased to **$7.8 million**, mainly from stock option exercises and employee stock purchase plan proceeds[26](index=26&type=chunk)[237](index=237&type=chunk) Notes to Unaudited Condensed Consolidated Financial Statements [1. Organization and description of business](index=13&type=section&id=1.%20Organization%20and%20description%20of%20business) Udemy, Inc operates as a global marketplace platform connecting learners with expert instructors - Udemy is a global marketplace platform connecting millions of learners to skills from expert instructors[31](index=31&type=chunk) **Initial Public Offering (IPO) Details:** | Date | Shares Sold | Price per Share | Net Proceeds | | :--- | :--- | :--- | :--- | | Oct 29, 2021 | 14,500,000 | $29.00 | $397.4 million | | Nov 24, 2021 (Underwriters' Option) | 650,000 | $29.00 | $17.8 million | [2. Summary of significant accounting policies](index=14&type=section&id=2.%20Summary%20of%20significant%20accounting%20policies) This section details the company's accounting policies, including segment reporting, use of estimates, and recently adopted accounting pronouncements - The company operates under two reportable segments: **Consumer** (individual learners) and **Enterprise** (business and government customers)[37](index=37&type=chunk)[139](index=139&type=chunk) - The COVID-19 pandemic has not had a material negative impact on the business, results of operations, financial position, and liquidity to date, but future impacts remain uncertain[41](index=41&type=chunk) - The company adopted ASU No 2016-02, Leases (Topic 842) on January 1, 2022, recognizing **$17.6 million** in operating ROU assets and **$20.0 million** in operating lease liabilities, with no material impact on the income statement or cash flows[53](index=53&type=chunk)[59](index=59&type=chunk) - Udemy is an Emerging Growth Company (EGC) and has elected to use the extended transition period for new accounting standards; it will cease to be an EGC on **December 31, 2022**[61](index=61&type=chunk)[243](index=243&type=chunk) [3. Revenue recognition](index=19&type=section&id=3.%20Revenue%20recognition) Revenue is recognized from both Consumer and Enterprise segments, with details on deferred revenue and remaining performance obligations **Deferred Revenue by Segment (in thousands):** | Segment | June 30, 2022 | December 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | :--- | | Enterprise | $188,642 | $148,966 | $84,241 | | Consumer | $55,010 | $61,588 | $58,135 | | Total | $243,652 | $210,554 | $142,376 | - As of June 30, 2022, remaining performance obligations totaled **$414.3 million**, with **70%** expected to be recognized over the next twelve months[66](index=66&type=chunk) [4. Consolidated balance sheet components](index=20&type=section&id=4.%20Consolidated%20balance%20sheet%20components) This note provides a breakdown of prepaid expenses, property and equipment, and capitalized software, including amortization schedules **Expected Amortization Expense for Capitalized Software (in thousands):** | Period | Amount | | :--- | :--- | | Remainder of 2022 | $6,107 | | 2023 | $10,395 | | 2024 | $6,070 | | 2025 | $945 | | Total | $23,517 | [5. Leases](index=21&type=section&id=5.%20Leases) The company reports operating lease costs, variable lease costs, and future minimum lease payments for its real estate facilities **Operating Lease Information (Six Months Ended June 30, 2022):** | Metric | Amount (in thousands) | | :--- | :--- | | Operating lease costs | $3,400 | | Variable lease costs | $400 | | Cash paid for operating lease liabilities, net of incentives | $3,044 | | Weighted average remaining term | 2.5 years | | Weighted average discount rate | 3.8% | [6. Strategic investments](index=22&type=section&id=6.%20Strategic%20investments) The company made a strategic investment in a privately held online education platform technology company, increasing its total investment to $15.0 million - Total strategic investment in a privately held online education platform company reached **$15.0 million** as of June 30, 2022, up from $10.0 million at December 31, 2021[74](index=74&type=chunk)[50](index=50&type=chunk) - The investment is classified as **Level 3** within the fair value hierarchy, indicating significant unobservable inputs in its valuation[74](index=74&type=chunk) - No impairment losses or changes in carrying value were recognized for the strategic investment during the three and six months ended June 30, 2022[75](index=75&type=chunk)[76](index=76&type=chunk) [7. Business combinations](index=22&type=section&id=7.%20Business%20combinations) On August 24, 2021, Udemy acquired CorpU, an online learning platform, for a purchase price of $28.6 million - Acquired CorpU on August 24, 2021, for **$28.6 million** to deepen Udemy Business offerings[78](index=78&type=chunk)[79](index=79&type=chunk) - Goodwill of **$12.6 million** was recorded and allocated to the Enterprise reporting segment[81](index=81&type=chunk)[85](index=85&type=chunk) [8. Intangible assets, net and goodwill](index=23&type=section&id=8.%20Intangible%20assets,%20net%20and%20goodwill) This note details the intangible assets acquired from the CorpU business combination, along with their estimated useful lives and amortization **Intangible Assets, Net (as of June 30, 2022, in thousands):** | Asset Type | Estimated Useful Lives | Intangible Assets, Net | | :--- | :--- | :--- | | Customer relationships | 6 years | $4,719 | | Vendor relationships | 3 years | $3,222 | | Developed technology | 3 years | $3,007 | | Tradename | 2 years | $516 | | Total | | $11,464 | **Expected Future Amortization Expense for Intangible Assets (as of June 30, 2022, in thousands):** | Period | Amount | | :--- | :--- | | Remainder of 2022 | $2,133 | | 2023 | $4,108 | | 2024 | $2,795 | | 2025 | $917 | | 2026 | $917 | | Thereafter | $594 | | Total | $11,464 | - Goodwill from the CorpU acquisition remains at **$12.6 million** as of June 30, 2022, with no adjustments[85](index=85&type=chunk) [9. Accrued expenses and other current liabilities](index=24&type=section&id=9.%20Accrued%20expenses%20and%20other%20current%20liabilities) This section details the components of accrued expenses and other current liabilities, with a focus on indirect tax reserves **Accrued Expenses and Other Current Liabilities (in thousands):** | Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Accrued expenses | $6,495 | $7,326 | | Indirect tax reserves | $16,138 | $18,392 | | Indirect tax payables | $7,616 | $10,786 | | Other current liabilities | $3,471 | $2,833 | | Total | $33,720 | $40,140 | - As of June 30, 2022, the company estimated a probable liability of **$15.9 million** for instructor withholding taxes related to historical payments[92](index=92&type=chunk)[94](index=94&type=chunk) [10. Commitments and contingencies](index=25&type=section&id=10.%20Commitments%20and%20contingencies) The company has noncancellable purchase commitments and engages in indemnification agreements in the ordinary course of business - Noncancellable purchase commitments total approximately **$18.8 million**, expected to be paid through 2024[95](index=95&type=chunk) - Current legal proceedings and claims are not expected to have a material adverse effect on the company's financial position, results of operations, or cash flows[98](index=98&type=chunk) [11. Income taxes](index=26&type=section&id=11.%20Income%20taxes) The income tax provision is based on an estimated annual effective tax rate, and a full valuation allowance is maintained against U.S. deferred tax assets **Effective Tax Rate:** | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three Months Ended June 30, | (1.1)% | (1.4)% | | Six Months Ended June 30, | (1.2)% | (3.7)% | - A **full valuation allowance** is provided against U.S. federal and state deferred tax assets due to the uncertainty of their realization[101](index=101&type=chunk) [12. Employee retirement plan](index=26&type=section&id=12.%20Employee%20retirement%20plan) The company maintains a 401(k) retirement savings plan for eligible employees with a matching contribution **Company 401(k) Contributions (in thousands):** | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three Months Ended June 30, | $100 | $100 | | Six Months Ended June 30, | $400 | $300 | [13. Related party transactions](index=27&type=section&id=13.%20Related%20party%20transactions) The company engages in transactions with entities affiliated with its Board members, including revenue and expenses **Related Party Transactions (in thousands):** | Transaction Type | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue from customers | $400 | $300 | $800 | $600 | | Expenses with vendors | $300 | $200 | $500 | $300 | [14. Stockholders' equity](index=27&type=section&id=14.%20Stockholders'%20equity) This note details the company's stock, equity incentive plans, and Employee Stock Purchase Plan (ESPP) **Common Stock Reserved for Future Issuance:** | Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Stock options to purchase common stock | 18,553,783 | 20,342,259 | | Shares available for future issuance under: | | | | 2021 Equity Incentive Plan | 6,831,278 | 11,417,359 | | 2021 Employee Stock Purchase Plan | 2,273,246 | 2,800,000 | | Total shares of common stock reserved | 27,658,307 | 34,559,618 | - The Employee Stock Purchase Plan (ESPP) purchase price was reset on May 20, 2022, resulting in incremental compensation cost of **$3.4 million** to be recognized over the new offering period ending May 2024[130](index=130&type=chunk) **Total Stock-Based Compensation Expense (in thousands):** | Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Cost of revenue | $989 | $237 | $1,829 | $537 | | Sales and marketing | $5,007 | $1,712 | $9,144 | $3,636 | | Research and development | $3,711 | $1,052 | $7,045 | $3,142 | | General and administrative | $5,025 | $2,971 | $10,056 | $9,169 | | Total | $14,732 | $5,972 | $28,074 | $16,484 | [15. Net loss per share](index=32&type=section&id=15.%20Net%20loss%20per%20share) This section provides the calculation of basic and diluted net loss per share and lists excluded potentially dilutive securities **Net Loss Per Share Attributable to Common Stockholders:** | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Basic and diluted net loss per share | $(0.21) | $(0.31) | $(0.39) | $(0.80) | | Weighted-average shares used in computing net loss per share | 140,035,203 | 37,269,650 | 139,691,508 | 36,726,992 | **Potentially Dilutive Securities Excluded from Diluted EPS:** | Security Type | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Redeemable convertible preferred stock | — | 85,403,933 | — | 85,403,933 | | Stock options | 18,553,783 | 20,173,022 | 18,553,783 | 20,173,022 | | RSUs and restricted stock | 8,049,418 | — | 8,049,418 | — | | Contingently issuable shares under ESPP | 132,041 | — | 132,041 | — | | Total potentially dilutive securities | 26,735,242 | 105,576,955 | 26,735,242 | 105,576,955 | [16. Segment and geographic information](index=32&type=section&id=16.%20Segment%20and%20geographic%20information) This note provides financial information for the company's Consumer and Enterprise segments and breaks down revenue by geographic region **Segment Revenue (in thousands):** | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Consumer | $78,485 | $83,964 | $165,797 | $171,837 | | Enterprise | $74,627 | $42,129 | $139,538 | $78,806 | | Total Revenue | $153,112 | $126,093 | $305,335 | $250,643 | **Segment Gross Profit (in thousands):** | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Consumer | $42,274 | $45,051 | $89,789 | $90,474 | | Enterprise | $49,945 | $27,674 | $92,693 | $51,393 | | Total Segment Gross Profit | $92,219 | $72,725 | $182,482 | $141,867 | **Revenue by Geographic Region (in thousands):** | Region | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | North America | $62,863 | $49,206 | $123,451 | $97,216 | | Europe, Middle East, Africa | $46,229 | $42,115 | $93,954 | $85,616 | | Asia Pacific | $32,727 | $24,825 | $65,915 | $48,309 | | Latin America | $11,293 | $9,947 | $22,015 | $19,502 | | Total Revenue | $153,112 | $126,093 | $305,335 | $250,643 | [17. Subsequent events](index=34&type=section&id=17.%20Subsequent%20events) The company announced an option exchange program on July 11, 2022, allowing eligible service providers to exchange certain options for RSUs - An option exchange program was announced on July 11, 2022, allowing exchange of up to **7,373,532 stock options** and **22,655 SARs** for RSUs[144](index=144&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Udemy's financial condition and results of operations, emphasizing the shift towards the Enterprise segment [Overview](index=35&type=section&id=Overview) - Udemy's mission is to create new possibilities by connecting people and organizations to knowledge and skills[147](index=147&type=chunk) - The platform serves **54 million learners** with access to **204,000 courses** in over **75 languages** across **180 countries**[149](index=149&type=chunk) [Key factors impacting our performance](index=35&type=section&id=Key%20factors%20impacting%20our%20performance) - Growth depends on attracting and engaging new learners and Udemy Business (UB) customers, and retaining existing relationships[153](index=153&type=chunk)[154](index=154&type=chunk) - The mix of Consumer and Enterprise segments is shifting, with **Enterprise revenue expected to grow faster**, benefiting overall margins due to lower content costs[160](index=160&type=chunk) - The company is actively investing in sales and marketing, course catalog expansion, employee base, and technology development to penetrate market opportunities[162](index=162&type=chunk) - The COVID-19 pandemic accelerated demand for online learning, but its future impact remains uncertain[164](index=164&type=chunk) [Components of results of operations](index=37&type=section&id=Components%20of%20results%20of%20operations) - Consumer revenue includes individual course purchases (recognized ratably over 4 months) and subscriptions (recognized ratably over term)[167](index=167&type=chunk) - Enterprise revenue primarily comes from annual or multi-year subscription contracts, recognized ratably over the term[168](index=168&type=chunk) - Content costs are the primary component of cost of revenue, with UB and consumer subscription offerings having lower content costs as a percentage of revenue compared to individual course purchases[170](index=170&type=chunk)[171](index=171&type=chunk) - Operating expenses (Sales & Marketing, R&D, G&A) are expected to increase in absolute dollars due to investments in growth but generally decrease as a percentage of revenue over the long term[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[177](index=177&type=chunk) [Results of operations](index=40&type=section&id=Results%20of%20operations) **Revenue Performance (in thousands, except percentages):** | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Consumer | $78,485 | $83,964 | $(5,479) | (7)% | | Enterprise | $74,627 | $42,129 | $32,498 | 77% | | Total Revenue | $153,112 | $126,093 | $27,019 | 21% | | Segment | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Consumer | $165,797 | $171,837 | $(6,040) | (4)% | | Enterprise | $139,538 | $78,806 | $60,732 | 77% | | Total Revenue | $305,335 | $250,643 | $54,692 | 22% | - **Enterprise revenue growth (77% for both three and six months)** was the primary driver of overall revenue increase, offsetting a decrease in Consumer revenue[184](index=184&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk)[189](index=189&type=chunk) **Gross Margin Performance:** | Period | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Three Months Ended June 30, | 57% | 56% | | Six Months Ended June 30, | 57% | 55% | - Gross margin improved due to a shift in revenue mix towards the **Enterprise segment**, which has comparatively lower content costs[193](index=193&type=chunk)[196](index=196&type=chunk) - Operating expenses increased significantly across sales and marketing (**34% for Q2, 30% for H1**), research and development (**62% for Q2, 54% for H1**), and general and administrative (**52% for Q2, 51% for H1**) due to headcount growth, increased stock-based compensation, and public company costs[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk) [Certain key business metrics and non-GAAP financial metrics](index=45&type=section&id=Certain%20key%20business%20metrics%20and%20non-GAAP%20financial%20metrics) **Key Business Metrics (in thousands, except percentages):** | Metric | June 30, 2022 | June 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Monthly average buyers (3 months) | 1,290 | 1,316 | (2)% | | Monthly average buyers (6 months) | 1,337 | 1,364 | (2)% | | Udemy Business customers | 12,514 | 8,669 | 44% | | Udemy Business annual recurring revenue | $316,107 | $181,870 | 74% | | Udemy Business net dollar retention rate | 118% | 121% | (2)% | - Udemy Business (UB) customers grew **44%** year-over-year to **12,514**, and UB Annual Recurring Revenue (ARR) increased **74%** to **$316.1 million**[213](index=213&type=chunk)[215](index=215&type=chunk) - Monthly average buyers decreased by **2%** for both the three and six months ended June 30, 2022[211](index=211&type=chunk) **Adjusted EBITDA Reconciliation (in thousands, except percentages):** | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(29,380) | $(11,391) | $(55,029) | $(29,380) | | Adjusted EBITDA | $(8,562) | $(1,615) | $(15,569) | $(4,471) | | Adjusted EBITDA margin | (6)% | (1)% | (5)% | (2)% | - Adjusted EBITDA decreased by **$6.9 million** for the three months and **$11.1 million** for the six months ended June 30, 2022, primarily due to increased operating expenses[226](index=226&type=chunk)[227](index=227&type=chunk) [Liquidity and capital resources](index=49&type=section&id=Liquidity%20and%20capital%20resources) **Cash, Cash Equivalents and Restricted Cash (in thousands):** | Date | Amount | | :--- | :--- | | June 30, 2022 | $515,795 | | December 31, 2021 | $536,768 | - The company believes existing cash and expected cash flows will be sufficient for at least the next 12 months[228](index=228&type=chunk) **Net Cash Provided by (Used in) Activities (in thousands):** | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Operating activities | $(16,435) | $(5,486) | | Investing activities | $(12,342) | $(9,791) | | Financing activities | $7,808 | $3,444 | | Net decrease | $(20,973) | $(11,833) | [Critical accounting policies and estimates](index=51&type=section&id=Critical%20accounting%20policies%20and%20estimates) - No material changes to critical accounting policies and estimates compared to the Annual Report on Form 10-K[241](index=241&type=chunk) [Recent accounting pronouncements](index=51&type=section&id=Recent%20accounting%20pronouncements) - Information regarding recently issued accounting pronouncements is provided in Note 2 to the condensed consolidated financial statements[242](index=242&type=chunk) [JOBS Act transition period](index=51&type=section&id=JOBS%20Act%20transition%20period) - The company is an Emerging Growth Company (EGC) and uses the extended transition period for new accounting standards, but will cease to be an EGC on December 31, 2022[243](index=243&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section assesses the company's exposure to market risks, concluding that hypothetical changes would not materially impact financial statements - Hypothetical **10% changes in interest rates** would not materially impact financial statements[244](index=244&type=chunk) - No hedging arrangements are in place for foreign currency risk, and a hypothetical **10% change in exchange rates** would not have a material impact on income or expense[245](index=245&type=chunk) - Credit risk on accounts receivable is mitigated by a large, diverse customer base, with **no single customer accounting for more than 10%** of total accounts receivable or revenue[246](index=246&type=chunk) [Item 4. Controls and Procedures](index=52&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated the effectiveness of disclosure controls and procedures as of June 30, 2022, concluding they were effective - Disclosure controls and procedures were deemed **effective** as of June 30, 2022[247](index=247&type=chunk) - **No material changes** to internal control over financial reporting occurred during the quarter ended June 30, 2022[248](index=248&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, which management believes will not have a material adverse effect on financial condition - A putative class action complaint (Williams v Udemy, Inc) was filed on August 23, 2021, alleging violations of California's unfair competition and false advertising statutes related to pricing practices[253](index=253&type=chunk) - The outcome of current litigation is **not expected to have a material adverse effect** on the company's business, operating results, or financial condition[252](index=252&type=chunk)[254](index=254&type=chunk) [Item 1A. Risk Factors](index=54&type=section&id=Item%201A.%20Risk%20Factors) This section details numerous risks that could materially and adversely affect Udemy's business, financial condition, and results of operations [Risks related to our Business and operations](index=55&type=section&id=Risks%20related%20to%20our%20Business%20and%20operations) Key business risks include a history of losses, intense competition, reliance on instructors, and the uncertain impact of the COVID-19 pandemic - The company has a history of losses, with net losses of **$55.0 million** for the six months ended June 30, 2022, and an accumulated deficit of **$513.6 million**, and may not achieve profitability[257](index=257&type=chunk) - Success depends on attracting and retaining new learners, instructors, and Udemy Business (UB) customers, and expanding existing relationships[263](index=263&type=chunk)[267](index=267&type=chunk) - The platform relies on a limited number of instructors for a significant portion of popular content and revenue; loss of these relationships could adversely affect the business[265](index=265&type=chunk) - The company operates in a **highly competitive** and rapidly evolving online learning market with limited barriers to entry[268](index=268&type=chunk) - The COVID-19 pandemic's long-term impact on online learning demand and the company's operations remains uncertain[274](index=274&type=chunk)[275](index=275&type=chunk) [Risks related to technology, privacy, and cybersecurity](index=68&type=section&id=Risks%20related%20to%20technology,%20privacy,%20and%20cybersecurity) This section highlights risks from evolving privacy laws, potential cybersecurity attacks, and reliance on third-party cloud infrastructure - Compliance with evolving global privacy and data protection laws (e.g., **GDPR, CCPA, CPRA, PIPL**) imposes significant burdens and costs, with potential for substantial fines for non-compliance[321](index=321&type=chunk)[322](index=322&type=chunk)[326](index=326&type=chunk) - Cybersecurity attacks or other security breaches could interrupt service, harm reputation, and lead to significant liability, despite protective measures[329](index=329&type=chunk)[332](index=332&type=chunk) - The business relies significantly on **Amazon Web Services** for platform services; any disruption or interference could negatively impact operations[337](index=337&type=chunk) - Dependence on third-party payment processors and mobile networks exposes the company to risks of service disruption, increased fees, and compliance challenges[339](index=339&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk)[342](index=342&type=chunk) [Risks related to our intellectual property](index=74&type=section&id=Risks%20related%20to%20our%20intellectual%20property) Risks include challenges in protecting intellectual property rights, potential litigation, and complexities of using open-source software - Inability to adequately obtain, maintain, protect, and enforce intellectual property and proprietary information could adversely affect the business[346](index=346&type=chunk) - Intellectual property litigation, including claims related to content on the platform, could result in significant costs, divert management attention, and harm reputation[353](index=353&type=chunk) - Use of third-party open-source software components carries risks, as non-compliance with licenses could restrict platform provision or require proprietary software disclosure[354](index=354&type=chunk)[355](index=355&type=chunk) [Risks related to financial reporting, taxation, and operations as a public company](index=77&type=section&id=Risks%20related%20to%20financial%20reporting,%20taxation,%20and%20operations%20as%20a%20public%20company) This section addresses risks associated with public company status, internal controls, tax liabilities, and currency fluctuations - As an Emerging Growth Company (EGC), the company benefits from reduced reporting requirements but will cease to be an EGC on **December 31, 2022**, leading to increased compliance burdens[357](index=357&type=chunk)[359](index=359&type=chunk) - Failure to maintain effective disclosure controls and internal control over financial reporting could impair financial statement accuracy and compliance, adversely affecting investor confidence[361](index=361&type=chunk)[363](index=363&type=chunk) - Unanticipated changes in effective tax rates, additional tax liabilities (including indirect taxes), and limitations on net operating loss (NOL) carryforwards could harm future results[367](index=367&type=chunk)[371](index=371&type=chunk)[377](index=377&type=chunk) - Fluctuations in currency exchange rates and the effects of historically high inflation could adversely impact reported financial results and operating costs[380](index=380&type=chunk)[381](index=381&type=chunk) [Risks related to ownership of our common stock](index=81&type=section&id=Risks%20related%20to%20ownership%20of%20our%20common%20stock) This section outlines risks for common stock owners, including price volatility, future dilution, and significant control by insiders - The trading price of common stock may be **volatile** due to various factors, potentially leading to loss of investment[383](index=383&type=chunk)[384](index=384&type=chunk) - Future sales of common stock, including by directors and executive officers, could depress the market price and cause dilution[385](index=385&type=chunk)[388](index=388&type=chunk) - The company **does not expect to pay dividends** in the foreseeable future, requiring stockholders to rely on stock price appreciation for gains[390](index=390&type=chunk) - Directors, executive officers, and principal stockholders beneficially own approximately **57%** of outstanding common stock, allowing them to exert significant control over stockholder-approved matters[391](index=391&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=85&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no unregistered sales of equity securities and details the use of proceeds from the company's Initial Public Offering (IPO) - No unregistered sales of equity securities occurred[399](index=399&type=chunk) - The IPO in November 2021 generated **$408.4 million** in net proceeds, with no material change in the planned use of funds[400](index=400&type=chunk)[401](index=401&type=chunk) [Item 3. Defaults Upon Senior Securities](index=85&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the company for the reporting period - Not applicable[402](index=402&type=chunk) [Item 4. Mine Safety Disclosures](index=85&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company for the reporting period - Not applicable[403](index=403&type=chunk) [Item 5. Other Information](index=85&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the company for the reporting period - Not applicable[404](index=404&type=chunk) [Item 6. Exhibits](index=86&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q - Includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) as required by SEC rules[407](index=407&type=chunk)

Financial Data and Key Metrics Changes - Revenue grew by 22% year-over-year in Q1, reaching $152 million [9][41] - Gross profit was $87.4 million, up 31% year-over-year, with a gross margin of 57%, an increase from 54% in Q1 2021 [43] - Net loss for the quarter was negative $11.2 million, or negative 7% of revenue [49] Business Line Data and Key Metrics Changes - Udemy Business revenue was $64.9 million, up 77% year-over-year, with an annual recurring revenue (ARR) of $280 million, up 80% [41][52] - Consumer business revenue was $87.3 million, down 1% year-over-year, with approximately 1.4 million monthly average buyers, a decrease of 2% [41][50] - Udemy Business customer base grew to over 11,600, reflecting a 49% increase year-over-year [41][52] Market Data and Key Metrics Changes - 53% of Udemy's revenue currently comes from outside North America, indicating strong international growth potential [16] - The company achieved nearly $500,000 in ARR in South Korea in its first quarter of selling Udemy Business [16] Company Strategy and Development Direction - The company aims to continue expanding its international footprint and enhance its platform and technology [10] - Udemy is focused on building world-class partnerships to penetrate new markets and provide accessible education [19] - The company is investing in innovation, including new assessments, labs, and a Learning Paths API to enhance user engagement [22][47] Management's Comments on Operating Environment and Future Outlook - Management highlighted strong demand for Udemy Business driven by digital transformation and the need for upskilling in the workforce [8][20] - The company expects Udemy Business to surpass consumer business revenue in Q3 2022, earlier than previously projected [9][52] - Management remains optimistic about the resilience of Udemy Business in a potential recession, citing strong tailwinds from the skills-based economy [67] Other Important Information - The company is committed to ESG initiatives and has partnered with nonprofits to provide free access to courses for underrepresented professionals [30][32] - Udemy has been recognized as a great workplace, emphasizing its commitment to equity and inclusion [34] Q&A Session Summary Question: Insights on new functionality utilization in Udemy Business - Management noted engagement with new products is gaining traction, with preset ways for customers to utilize new features [60][61] Question: Consumer gross margins and future expectations - Management explained that consumer gross margins typically increase in Q1 due to revenue recognition timing and expect a small step-up over the year [62][64] Question: Performance of Udemy Business and market fit - Management emphasized strong performance across all geographies and segments, with new partnerships contributing to growth [66] Question: Impact of macroeconomic conditions on Udemy Business - Management believes Udemy Business will perform well in tougher economic conditions due to ongoing digital transformation and employee retention needs [67] Question: Market penetration and opportunity in enterprise learning - Management indicated that Udemy is in the early stages of market penetration, with only 10% of enterprises currently using their learning products [70][72] Question: Trends in consumer buyers and retention - Management reported that over 50% of transaction-side buying comes from returning buyers, with increased engagement compared to the previous year [73][74] Question: Competitive pressure in emerging markets - Management noted limited competition in Japan and a growing presence in South Korea and China, with strong local content development [77] Question: Marketing strategies and customer acquisition - Management is continuously testing various marketing channels, including TV and social media, to optimize customer acquisition [81]

1 Udemy Investor Presentation Q1 2022 For general public use Improving lives through learning Our mission is to provide flexible, effective skill development to empower organizations and individuals. 3 Udemy at a glance | --- | --- | --- | --- | |----------------------------------------------------|---------------------------------|----------------------------------------------|-------------------------------------| | Reach | Scale | Content | Usage | | 52M learners globally | $152M Q1 2022 revenue — 22% Y/ ...