Udemy(UDMY) - 2021 Q4 - Annual Report

Part I Business Udemy operates a two-sided online learning marketplace connecting millions of learners and instructors, strategically growing its Udemy Business (UB) segment for enterprise customers - Udemy's platform serves 49 million learners with access to over 180,000 courses in more than 75 languages, provided by a community of over 64,000 instructors[241][30][83] - The Udemy Business (UB) offering caters to over 10,500 enterprise customers, including notable companies like Citi, PayPal, and 49 of the Fortune 100, focusing on employee upskilling and reskilling[23][33] - In 2021, paid instructors on the platform earned a total of $176.9 million, an increase from $161.4 million in 2020[41] - A key growth strategy is accelerating the UB segment by expanding relationships with existing customers (land-and-expand), improving course curation, and integrating with enterprise HR systems like Workday and SAP SuccessFactors[45][46] - As of December 31, 2021, the company had 1,238 full-time employees, with 45% identifying as women[70][71] Risk Factors The company faces significant risks including a history of net losses, intense market competition, reliance on key instructors, challenges in expanding its enterprise segment, and complex international and data privacy regulations History of Net Losses | Fiscal Year Ended | Net Loss (in millions) | | :--- | :--- | | December 31, 2021 | $80.0 | | December 31, 2020 | $77.6 | | December 31, 2019 | $69.7 | - As of December 31, 2021, the company had an accumulated deficit of $458.5 million[14][75] - A significant portion of the most popular content and resulting revenue is attributable to a limited number of instructors, and the loss of these relationships could adversely affect the business[14][83] - The Enterprise segment (Udemy Business) represented 36% of revenue in FY 2021, up from 24% in 2020, with failure to retain and expand these customer relationships being a key risk to growth[85] - The company operates internationally, with 61% of revenue generated outside North America in FY 2021, exposing it to risks such as foreign laws, currency fluctuations, and complex tax consequences[120] - The company is subject to evolving data privacy laws like GDPR and CCPA, and non-compliance could lead to significant fines and reputational damage[138][139][140] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - Not applicable[214] Properties Udemy's corporate headquarters is located in San Francisco, California, occupying approximately 59,000 square feet of leased space, with additional global offices - The company's corporate headquarters in San Francisco consists of approximately 59,000 square feet of leased office space[215] - Additional offices are leased in Mountain View, CA; Denver, CO; Mechanicsburg, PA; Ankara, Turkey; and Dublin, Ireland[215] Legal Proceedings The company is involved in a putative class action lawsuit regarding pricing practices, which has been stayed pending arbitration, and does not anticipate a material adverse effect - 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 regarding pricing practices[217] - On February 23, 2022, the court granted Udemy's motion to stay the litigation pending arbitration[217] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[220] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Udemy's common stock began trading on Nasdaq in October 2021 following its IPO, raising $408.4 million, and the company has no plans to pay future cash dividends - The company's common stock began trading on the Nasdaq Stock Exchange under the symbol "UDMY" on October 29, 2021[223] - The Initial Public Offering (IPO) closed on November 24, 2021, selling 15,150,000 shares at $29.00 per share, resulting in gross proceeds of $408.4 million[224] - The company has never paid cash dividends and does not anticipate doing so in the foreseeable future, intending to retain earnings for business growth[226] - As of December 31, 2021, there were 107 registered stockholders of record[227] Management's Discussion and Analysis of Financial Condition and Results of Operations Udemy's FY2021 revenue grew 20% to $515.7 million, primarily driven by an 81% increase in the Enterprise segment, which improved gross margin despite a net loss of $80.0 million FY 2021 vs. FY 2020 Revenue Breakdown (in millions) | Segment | FY 2021 | FY 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Consumer | $328.7 | $326.5 | 1% | | Enterprise | $187.0 | $103.4 | 81% | | Total Revenue | $515.7 | $429.9 | 20% | Key Financial Performance (in millions) | Metric | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Gross Profit | $279.6 | $220.6 | | Gross Margin | 54% | 51% | | Loss from Operations | $(77.9) | $(73.4) | | Net Loss | $(80.0) | $(77.6) | Key Business Metrics | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Monthly Average Buyers (thousands) | 1,345 | 1,439 | | Udemy Business Customers | 10,515 | 7,300 | | Udemy Business ARR (in millions) | $239.3 | $137.6 | | Udemy Business Net Dollar Retention | 118% | 118% | Non-GAAP Adjusted EBITDA (in millions) | Metric | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Adjusted EBITDA | $(27.9) | $(30.7) | | Adjusted EBITDA Margin | (5)% | (7)% | - As of December 31, 2021, the company had cash, cash equivalents, and restricted cash of $536.8 million, significantly increased from $177.9 million at year-end 2020, primarily due to net proceeds from its IPO[307][310] Quantitative and Qualitative Disclosures About Market Risk The company's market risks, including interest rate, foreign currency, and credit risks, are considered minimal due to its cash position, diverse global client base, and lack of significant debt - The company's cash and cash equivalents are held for working capital purposes, and it does not hold marketable securities or carry debt, making the impact of a 10% change in interest rates not material[368] - While exposed to foreign currency fluctuations, a hypothetical 10% change in exchange rates is not expected to materially impact the financial statements[369] - Credit risk is considered low due to a large, diverse client base, with no single client representing more than 10% of consolidated revenue in 2021, 2020, or 2019[370] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2019-2021, including balance sheets, statements of operations, cash flows, and equity, along with detailed notes on accounting policies, acquisitions, and tax obligations Consolidated Balance Sheet Highlights (as of Dec 31, 2021, in millions) | Account | Amount | | :--- | :--- | | Cash and cash equivalents | $533.9 | | Total Assets | $739.9 | | Deferred Revenue | $210.6 | | Total Liabilities | $350.2 | | Total Stockholders' Equity | $389.7 | Consolidated Statement of Operations Highlights (FY 2021, in millions) | Account | Amount | | :--- | :--- | | Revenue | $515.7 | | Gross Profit | $279.6 | | Total Operating Expenses | $357.5 | | Net Loss | $(80.0) | Consolidated Statement of Cash Flows Highlights (FY 2021, in millions) | Activity | Amount | | :--- | :--- | | Net cash used in Operating Activities | $(7.1) | | Net cash used in Investing Activities | $(52.7) | | Net cash provided by Financing Activities | $418.6 | - On August 24, 2021, the company acquired CorpU for a purchase price of $28.6 million to deepen its UB offerings, resulting in $12.6 million of goodwill and $15.1 million of intangible assets[502][505][506] - The company has a reserve of $17.0 million as of December 31, 2021, for estimated historical withholding taxes related to payments made to its instructors prior to March 2020[516] - As of December 31, 2021, the company had federal and state net operating loss (NOL) carryforwards of $189.2 million and $34.0 million, respectively, which are subject to a full valuation allowance[528][529][526] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal control over financial reporting during the fiscal year - The CEO and CFO concluded that as of December 31, 2021, the company's disclosure controls and procedures were effective[599] - No changes occurred during the fiscal year ended December 31, 2021, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[600] - A management report on internal control over financial reporting is not included, as permitted for newly public companies[602] Part III Directors, Executive Officers, Corporate Governance, and Other Matters Information for Items 10 through 14, covering directors, executive officers, corporate governance, compensation, security ownership, and related transactions, is incorporated by reference from the company's 2022 Definitive Proxy Statement - Information regarding Directors, Executive Officers, and Corporate Governance (Item 10) is incorporated by reference from the 2022 Proxy Statement[607] - Details on Executive Compensation (Item 11) are incorporated by reference from the 2022 Proxy Statement[607] - Security ownership details (Item 12), related party transactions (Item 13), and principal accountant fees (Item 14) are all incorporated by reference from the 2022 Proxy Statement[608][609][610] Part IV Exhibits, Financial Statement Schedules This section lists exhibits filed with the Annual Report on Form 10-K, including corporate documents, equity plans, and certifications, with all financial statement schedules omitted as information is already provided - All financial statement schedules are omitted because the information is not required or is already present in the consolidated financial statements or notes[613] - The exhibit list includes key corporate documents, equity plans (2010 Plan, 2021 Plan, ESPP), forms of executive employment and severance agreements, and required SEC certifications[615][618][620] Form 10-K Summary No Form 10-K summary is provided - None[622]