Coursera,(US:COUR)2024-08-01 20:10PART I. FINANCIAL INFORMATION This section covers Coursera's unaudited financial statements and management's analysis of financial performance and condition Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents Coursera's unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, highlighting key financial performance Condensed Consolidated Balance Sheets This section details Coursera's financial position, showing total assets of $904.4 million and total liabilities of $319.2 million as of June 30, 2024 Condensed Consolidated Balance Sheets (in thousands) | | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $820,689 | $832,486 | | Total assets | $904,364 | $920,533 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $315,904 | $298,260 | | Total liabilities | $319,190 | $304,339 | | Total stockholders' equity | $585,174 | $616,194 | | Total liabilities and stockholders' equity | $904,364 | $920,533 | Condensed Consolidated Statements of Operations This section presents Coursera's revenue, gross profit, and net loss, showing an 11% revenue increase and narrowed net loss for Q2 2024 Key Operating Results (in thousands, except per share data) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2024 | 2023 | 2024 | 2023 | | Revenue | $170,337 | $153,702 | $339,405 | $301,344 | | Gross Profit | $90,175 | $79,701 | $179,672 | $157,169 | | Loss from operations | $(31,209) | $(38,376) | $(60,951) | $(77,453) | | Net loss | $(22,974) | $(31,743) | $(44,230) | $(64,107) | | Net loss per share | $(0.15) | $(0.21) | $(0.28) | $(0.43) | Condensed Consolidated Statements of Cash Flows This section details cash flows, showing $48.3 million in positive operating cash flow and a $52.4 million net cash increase for H1 2024 Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $48,301 | $(1,679) | | Net cash provided by investing activities | $52,835 | $103,619 | | Net cash used in financing activities | $(48,694) | $(60,277) | | Net increase in cash | $52,442 | $41,663 | Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed accounting policies, segment information, and disclosures on legal proceedings and the share repurchase program - Coursera operates through three reporting segments: Consumer, Enterprise, and Degrees20 - As of June 30, 2024, the company had remaining performance obligations of $323.4 million, with approximately 69% expected to be recognized as revenue over the next 12 months33 - The company is involved in a putative class action lawsuit and related arbitration matters concerning alleged violations of the Video Privacy Protection Act (VPPA). An accrual was recorded for a settlement in principle with approximately 7,300 claimants, which was not material5456 - The $95 million share repurchase program, approved in April 2023, was completed as of May 7, 202459 Segment Revenue (in thousands) | Segment | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Consumer | $97,312 | $86,999 | $194,055 | $169,028 | | Enterprise | $58,727 | $54,180 | $116,221 | $106,353 | | Degrees | $14,298 | $12,523 | $29,129 | $25,963 | | Total | $170,337 | $153,702 | $339,405 | $301,344 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Coursera's financial performance, business trends, and outlook, highlighting revenue growth, key metrics, liquidity, and non-GAAP results Overview Coursera, a global online learning platform, reported a net loss of $23.0 million on $170.3 million revenue for Q2 2024, an improvement from prior year - As of June 30, 2024, Coursera had approximately 155 million registered learners and partnered with over 325 leading global university and industry partners83 Quarterly Financial Snapshot (in millions) | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net Loss | $(23.0) | $(31.7) | | Stock-based Comp. | $30.0 | $29.3 | | Net Loss Margin | 13% | 21% | Results of Operations Q2 2024 total revenue increased 11% to $170.3 million, driven by growth across all segments, with gross margin improving to 53% Revenue by Segment - Q2 2024 vs Q2 2023 (in thousands) | Segment | Q2 2024 | Q2 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Consumer | $97,312 | $86,999 | $10,313 | 12% | | Enterprise | $58,727 | $54,180 | $4,547 | 8% | | Degrees | $14,298 | $12,523 | $1,775 | 14% | | Total | $170,337 | $153,702 | $16,635 | 11% | - Gross margin increased to 53% in Q2 2024 from 52% in Q2 2023, primarily driven by a lower revenue content cost rate in the Consumer segment104 - Research and development expenses decreased by 18% YoY in Q2 2024, mainly due to lower personnel-related expenses107108 - General and administrative expenses increased 19% YoY in Q2 2024, driven by $3.4 million in M&A evaluation costs and $1.3 million in significant legal fees107110 Liquidity and Capital Resources Coursera maintains a strong liquidity position with $708.8 million in cash and positive operating cash flow for H1 2024 - Principal source of liquidity as of June 30, 2024, was cash and cash equivalents totaling $708.8 million114 - The company completed its $95 million share repurchase program in May 2024, having repurchased 3.1 million shares for $36.7 million during the first six months of 2024117 Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $48,301 | $(1,679) | | Net cash provided by investing activities | $52,835 | $103,619 | | Net cash used in financing activities | $(48,694) | $(60,277) | Key Business Metrics and Non-GAAP Financial Measures Key business metrics show 155.1 million registered learners and 22,600 Degrees students, with Adjusted EBITDA reaching $10.4 million for the quarter Key Business Metrics as of June 30 | Metric | 2024 | 2023 | YoY Growth | | :--- | :--- | :--- | :--- | | Total Registered Learners (millions) | 155.1 | 129.4 | 20% | | Number of Degrees Students (thousands) | 22.6 | 19.1 | 19% | | Paid Enterprise Customers | 1,511 | 1,291 | 17% | | Net Retention Rate for Paid Enterprise Customers | 93% | 97% | (4)% | Adjusted EBITDA Reconciliation (in thousands) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2024 | 2023 | 2024 | 2023 | | Net loss | $(22,974) | $(31,743) | $(44,230) | $(64,107) | | Adjusted EBITDA | $10,388 | $(2,853) | $18,701 | $(10,385) | | Adjusted EBITDA Margin | 6% | (2)% | 6% | (3)% | Free Cash Flow Reconciliation for Six Months Ended June 30 (in thousands) | | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $48,301 | $(1,679) | | Less: Capital Expenditures & Content Purchases | $(13,165) | $(9,625) | | Free Cash Flow | $35,136 | $(11,304) | Item 3. Quantitative and Qualitative Disclosures About Market Risk Coursera faces market risks from interest rate changes and foreign currency fluctuations, with potential impacts on its investment portfolio and financial statements - A hypothetical 100 basis point increase in interest rates would cause a $0.5 million decline in the fair value of the investment portfolio as of June 30, 2024155 - A hypothetical 10% increase or decrease in foreign currency exchange rates would have impacted the Q2 2024 financial statements by $0.3 million157 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal controls - The CEO and CFO concluded that as of June 30, 2024, the company's disclosure controls and procedures were effective at the reasonable assurance level159 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting160 PART II. OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings This section incorporates by reference details on legal proceedings, including a class action lawsuit regarding privacy violations - Information regarding legal proceedings is incorporated by reference from Note 9, 'Commitments and Contingencies,' in Part I, Item 1 of the report163 Item 1A. Risk Factors This section outlines various risks, including business, regulatory, litigation, privacy, cybersecurity, intellectual property, and common stock related factors Risks Related to Our Business and Industry The company faces business and industry risks, including growth sustainability, market adoption, content partnerships, and intense competition - The company's ability to grow depends on its ability to maintain and expand partnerships with its university and industry partners. Approximately 30% of total revenue for the first six months of 2024 was generated from the content of five partners176 - The market for online learning is new and may not evolve as expected, and the adoption of generative AI may not lead to increased demand for the company's offerings171172 - The company faces significant competition from a wide range of players in the online learning ecosystem, including 2U/edX, LinkedIn Learning, Udemy, and others, which could result in pricing pressure and impact market share228229 Risks Related to Regulatory Matters and Litigation Regulatory and litigation risks include reliance on uncodified DOE guidance, potential TPS classification, and ongoing privacy lawsuits - The company's Degrees business model relies heavily on the DOE's 'bundled services exception' guidance from a 2011 'Dear Colleague' Letter, which is not codified and is currently under review by the DOE, creating significant regulatory uncertainty281283 - If the DOE classifies Coursera as a Third-Party Servicer (TPS) in the future, it would fall under direct DOE oversight and be subject to joint and several liability with university partners for any HEA violations, which could adversely impact business287288 - The company is party to a class action lawsuit and faces arbitration demands for alleged violations of the Video Privacy Protection Act (VPPA) and other privacy laws, which could be time-consuming and expensive301 Risks Related to Privacy, Cybersecurity, and Infrastructure Significant risks include cyberattacks, data privacy compliance (GDPR, CCPA), and reliance on third-party infrastructure like AWS - The company collects and stores personal data, making it vulnerable to cyberattacks. A security compromise could lead to government enforcement, litigation, and loss of trust305307 - The business is subject to numerous evolving privacy laws like GDPR and CCPA, and new laws related to AI. Non-compliance could result in large penalties and require changes to business practices327328329 - The platform's reliability is critical and depends on third-party infrastructure, primarily Amazon Web Services (AWS). Any disruption in these services could significantly harm the business315 Risks Related to Intellectual Property Intellectual property risks include protecting proprietary technology, defending against infringement claims, and managing open-source software use - The company may be subject to intellectual property claims, which are costly to defend and could require payment of significant damages or limit the use of certain technologies341 - A substantial portion of the platform incorporates open-source software (OSS), which could require the company to disclose proprietary code or offer solutions for no cost if found non-compliant with OSS licenses345 Risks Related to Our Common Stock Risks related to common stock include price volatility, no foreseeable dividends, and anti-takeover provisions that may limit market price - The price of the company's common stock could be volatile due to factors like variations in operating results, analyst expectations, and general market conditions358 - The company does not intend to pay dividends for the foreseeable future, so any investment return will be limited to changes in stock value366 - Anti-takeover provisions in the company's charter and under Delaware law could delay or prevent a change of control, potentially limiting the market price of the common stock367 Risks Relating to Our Existence as a Public Benefit Corporation As a Public Benefit Corporation, Coursera faces unique risks balancing shareholder and public benefit interests, potentially impacting financial performance and takeover attractiveness - As a Public Benefit Corporation (PBC), the company's directors have a fiduciary duty to balance stockholders' pecuniary interests with the company's public benefit purpose, which may lead to actions that do not maximize financial results377 - The PBC status may make the company less attractive as a takeover target, potentially limiting an investor's ability to realize their investment through an acquisition378 - Stockholders of a PBC can file derivative lawsuits claiming directors failed to balance stockholder and public benefit interests, exposing the company to increased litigation risk384 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the completion of the $95 million share repurchase program in May 2024, including Q2 2024 repurchase activity Share Repurchases for Three Months Ended June 30, 2024 | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining (in thousands) | | :--- | :--- | :--- | :--- | | April 2024 | 1,135,280 | $13.87 | $14,892 | | May 2024 | 1,532,737 | $9.74 | $0 | | June 2024 | 0 | $— | $0 | | Total | 2,668,017 | $11.49 | $0 | Item 5. Other Information This section discloses that two directors adopted Rule 10b5-1 trading plans for future common stock sales during Q2 2024 - On June 12, 2024, director Amanda Clark adopted a Rule 10b5-1 trading plan for the sale of up to 10,896 shares, expiring May 23, 2025389 - On June 13, 2024, director Andrew Ng adopted a Rule 10b5-1 trading plan for the sale of up to 455,000 shares, expiring March 19, 2025389 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including compensation policies, separation agreements, and required certifications - The report includes several key exhibits, such as: - Amended and Restated Non-Employee Director Compensation Policy (10.1) - Separation Agreements with Leah Belsky and Shravan Goli (10.2, 10.4) - CEO and CFO Certifications (31.1, 31.2, 32.1, 32.2)392 Signatures The Form 10-Q report was signed by the company's principal executive, financial, and accounting officers on August 1, 2024 - The report was signed by Jeffrey N. Maggioncalda (CEO), Kenneth R. Hahn (CFO), and Michele M. Meyers (CAO) on August 1, 2024395