Coursera,(COUR) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Presents Coursera's unaudited condensed consolidated financial statements and detailed notes for Q3 2022 and FY 2021 Condensed Consolidated Balance Sheets (Unaudited) | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Assets | | | | Total current assets | $888,289 | $892,331 | | Total assets | $956,256 | $958,910 | | Liabilities | | | | Total current liabilities | $235,732 | $201,123 | | Total liabilities | $247,275 | $217,397 | | Equity | | | | Total stockholders' equity | $708,981 | $741,513 | - Total assets slightly decreased from $958.9 million at December 31, 2021, to $956.3 million at September 30, 2022. Total liabilities increased from $217.4 million to $247.3 million, while total stockholders' equity decreased from $741.5 million to $709.0 million[10] Condensed Consolidated Statements of Operations (Unaudited) | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $136,389 | $109,880 | $381,576 | $300,331 | | Cost of revenue | $48,821 | $42,162 | $137,972 | $122,149 | | Gross profit | $87,568 | $67,718 | $243,604 | $178,182 | | Total operating expenses | $123,917 | $99,145 | $364,958 | $273,755 | | Loss from operations | $(36,349) | $(31,427) | $(121,354) | $(95,573) | | Net loss | $(36,038) | $(32,451) | $(123,640) | $(97,477) | | Net loss per share | $(0.25) | $(0.23) | $(0.85) | $(0.93) | - Revenue increased by 24% YoY for the three months ended September 30, 2022, and by 27% YoY for the nine months ended September 30, 2022. Net loss increased for both periods, reaching $(36.0) million for the three months and $(123.6) million for the nine months ended September 30, 2022[13] Condensed Consolidated Statements of Comprehensive Loss (Unaudited) | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(36,038) | $(32,451) | $(123,640) | $(97,477) | | Change in unrealized gain (loss) on marketable securities, net of tax | $839 | $(4) | $(1,227) | $(19) | | Comprehensive loss | $(35,199) | $(32,455) | $(124,867) | $(97,496) | - Comprehensive loss for the three months ended September 30, 2022, was $(35.2) million, compared to $(32.5) million in the prior year. For the nine months, comprehensive loss was $(124.9) million, up from $(97.5) million in the prior year, primarily due to increased net loss and unrealized losses on marketable securities[16] Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) (Unaudited) - As of September 30, 2022, total stockholders' equity was $708.981 million, a decrease from $741.513 million at December 31, 2021. This change reflects the accumulated deficit of $(612.406) million and accumulated other comprehensive loss of $(1.479) million, partially offset by additional paid-in capital of $1,327.566 million[10][21] - Key activities impacting equity during the nine months ended September 30, 2022, included $80.339 million in stock-based compensation expense and a net loss of $(123.640) million[21] Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(32,609) | $941 | | Net cash (used in) provided by investing activities | $(135,402) | $178,272 | | Net cash provided by financing activities | $12,149 | $541,983 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(155,862) | $721,196 | | Cash, cash equivalents, and restricted cash —End of period | $426,857 | $803,622 | - Operating activities shifted from providing $0.9 million in cash in 2021 to using $32.6 million in 2022. Investing activities also shifted from providing $178.3 million to using $135.4 million, primarily due to increased purchases of marketable securities. Financing activities significantly decreased from providing $542.0 million in 2021 (due to IPO proceeds) to $12.1 million in 2022[24] Notes to Condensed Consolidated Financial Statements (Unaudited) 1. ORGANIZATION AND DESCRIPTION OF BUSINESS - Coursera, Inc. is an online learning platform connecting learners, educators, and institutions with world-class educational content. It partners with over 275 university and industry partners and serves approximately 113 million registered learners as of September 30, 2022[26][96] - The Company initiated an expense reduction plan on November 9, 2022, involving a global workforce reduction. This is expected to result in $10 million to $12 million in incremental operating expenses (severance, benefits) in Q4 2022 and Q1 2023, partially offset by a $7 million to $9 million reversal of stock-based compensation expense in Q1 2023, leading to a net effect on operating expenses of $1 million to $5 million[27][102] 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim reporting, reflecting normal recurring adjustments. The Company operates under three segments: Consumer, Enterprise, and Degrees[28][30] - Coursera will cease to be an emerging growth company and become a large accelerated filer on December 31, 2022, due to exceeding the $700 million public float threshold. This change will require the adoption of new accounting standards, such as ASU 2016-13 (CECL model), starting with the annual reporting period ended December 31, 2022, though no material impact is expected[39][42] 3. REVENUE RECOGNITION - Deferred revenue balances at the beginning of the year recognized as revenue were $85.754 million for the nine months ended September 30, 2022, up from $67.976 million in the prior year[43] - Remaining performance obligations as of September 30, 2022, totaled $269.160 million, with approximately 67% expected to be recognized as revenue over the next 12 months[44] - The Company recognized an impairment loss of $2.915 million during the nine months ended September 30, 2022, for deferred partner fees associated with content from Russian educator partners, recorded in general and administrative expenses[46] 4. FAIR VALUE MEASUREMENTS | Financial Assets (in thousands) | Sep 30, 2022 Fair Value | Dec 31, 2021 Fair Value | | :------------------------------ | :---------------------- | :---------------------- | | Cash equivalents—money market funds | $383,059 | $539,091 | | Marketable securities—U.S. Treasury securities | $361,025 | $241,117 | | Total financial assets | $744,084 | $780,208 | 5. MARKETABLE SECURITIES | Marketable Securities (in thousands) | Sep 30, 2022 Fair Value | Sep 30, 2022 Gross Unrealized Losses | Dec 31, 2021 Fair Value | Dec 31, 2021 Gross Unrealized Losses | | :----------------------------------- | :---------------------- | :----------------------------------- | :---------------------- | :----------------------------------- | | U.S. Treasury securities | $361,025 | $(1,479) | $241,117 | $(252) | - All marketable securities are U.S. Treasury securities, due in one year or less. As of September 30, 2022, these securities had a fair value of $361.025 million with gross unrealized losses of $(1.479) million, an increase in unrealized losses from $(0.3) million at December 31, 2021[50][51] 6. CONSOLIDATED BALANCE SHEET COMPONENTS | Property, Equipment, and Software (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------------------------- | :----------- | :----------- | | Internal-use software | $50,077 | $35,508 | | Total property, equipment, and software | $64,725 | $49,841 | | Less accumulated depreciation and amortization | $(36,607) | $(25,116) | | Net property, equipment, and software | $28,118 | $24,725 | | Intangible Assets (in thousands) | Sep 30, 2022 Net Carrying Value | Dec 31, 2021 Net Carrying Value | | :------------------------------- | :------------------------------ | :------------------------------ | | Content assets | $4,927 | $4,944 | | Developed technology | $4,058 | $5,109 | | Assembled workforce | $0 | $38 | | Total intangible assets | $8,985 | $10,091 | - Net property, equipment, and software increased to $28.1 million at September 30, 2022, from $24.7 million at December 31, 2021, driven by growth in internal-use software. Net intangible assets decreased to $8.985 million from $10.091 million over the same period, with future amortization expense projected to be $8.985 million through 2026 and thereafter[54][56][57] 7. INCOME TAXES | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Effective tax rate | (2.9)% | (2.5)% | (2.6)% | (2.0)% | - The effective tax rate for the three months ended September 30, 2022, was (2.9)%, and (2.6)% for the nine months, primarily due to a full valuation allowance against U.S. federal and state deferred tax assets, income taxes on foreign operations, U.S. state income taxes, and stock-based compensation expense[60][61] 8. REDEEMABLE CONVERTIBLE PREFERRED STOCK - All outstanding redeemable convertible preferred stock converted into 75,305,400 shares of common stock upon the Company's initial public offering (IPO). As of September 30, 2022, there were no shares of redeemable convertible preferred stock issued and outstanding[62] 9. STOCKHOLDERS' EQUITY (Deficit) - As of September 30, 2022, 9,281,162 shares were reserved for future issuance under the 2021 Stock Incentive Plan and 3,637,184 shares under the 2021 Employee Stock Purchase Plan (ESPP)[63] - An ESPP Reset during the nine months ended September 30, 2022, resulted in a stock-based compensation modification charge of $7.781 million, recognized ratably over the new offering period ending May 10, 2024[63] | Stock-Based Compensation Expense (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :---------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of revenue | $683 | $527 | $2,072 | $1,537 | | Research and development | $11,675 | $11,259 | $34,037 | $31,650 | | Sales and marketing | $7,630 | $6,846 | $21,952 | $19,504 | | General and administrative | $6,382 | $4,776 | $17,792 | $15,176 | | Total | $26,370 | $23,408 | $75,853 | $67,867 | - Total unrecognized compensation cost as of September 30, 2022, was $33.689 million for stock options (1.9 years weighted-average period), $283.426 million for RSUs (3.1 years), and $13.850 million for ESPP (0.9 years)[72] 10. NET LOSS PER SHARE | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss per share—basic and diluted | $(0.25) | $(0.23) | $(0.85) | $(0.93) | | Weighted average shares used in computing net loss per share—basic and diluted | 146,020,571 | 138,846,394 | 144,619,748 | 104,316,176 | - Potentially dilutive securities, totaling 38,629,929 for the nine months ended September 30, 2022, were excluded from diluted net loss per share calculations as their inclusion would have been anti-dilutive[74] 11. LEASES - The Company recognized an impairment loss of $2.304 million related to its operating lease right-of-use asset and $0.9 million related to property and equipment during the nine months ended September 30, 2022, due to a partial sublease of office space[76] 12. COMMITMENTS AND CONTINGENCIES - As of September 30, 2022, the Company had approximately $42.680 million in future minimum payments under noncancelable purchase obligations, primarily for cloud infrastructure and subscription arrangements, expected to be paid through 2026[77] - The Company evaluates litigation uncertainties quarterly and has determined no material exposure on an aggregate basis for legal proceedings with a reasonable possibility of loss[78] 13. 401(K) PLAN - The Company made matching contributions of $1.749 million to its 401(k) Plan for the nine months ended September 30, 2022, compared to no contributions in the prior year period[80] 14. RELATED-PARTY TRANSACTION - Content fees earned by a related party from a content sourcing agreement were $4.456 million for the nine months ended September 30, 2022, a decrease from $5.056 million in the prior year[82] 15. SEGMENT AND GEOGRAPHIC INFORMATION | Revenue by Segment (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Consumer | $78,002 | $66,482 | $215,786 | $180,432 | | Enterprise | $48,044 | $31,840 | $130,794 | $84,518 | | Degrees | $10,343 | $11,558 | $34,996 | $35,381 | | Total revenue | $136,389 | $109,880 | $381,576 | $300,331 | | Revenue by Geographic Region (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | United States | $72,466 | $55,451 | $201,250 | $152,741 | | Europe, Middle East, and Africa | $33,004 | $28,863 | $94,593 | $81,504 | | Asia Pacific | $18,290 | $15,424 | $50,591 | $39,365 | | Other | $12,629 | $10,142 | $35,142 | $26,721 | | Total | $136,389 | $109,880 | $381,576 | $300,331 | - Enterprise revenue showed the strongest growth, increasing 51% for the three months and 55% for the nine months ended September 30, 2022. Degrees revenue decreased by 11% and 1% for the respective periods[84] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of Coursera's financial performance, key metrics, liquidity, and strategic initiatives Overview - Coursera is a leading online learning platform with approximately 113 million registered learners as of September 30, 2022, partnering with over 275 global university and industry partners[96] | Metric (in millions) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(36.0) | $(32.5) | $(123.6) | $(97.5) | | Stock-based compensation expense | $26.4 | $23.4 | $75.9 | $67.9 | | Net loss margin (% of revenue) | 26% | 30% | 32% | 32% | - The Company is implementing an expense reduction initiative, including a global workforce reduction, expected to incur $10-12 million in incremental operating expenses in Q4 2022 and Q1 2023, with a net effect of $1-5 million after stock-based compensation reversals[100][102] Factors Affecting Our Performance - Key performance factors include attracting and engaging new learners, Enterprise customers, and Degrees students, sourcing in-demand content from educator partners, managing business mix shifts, converting free learners to paid, expanding international footprint, and retaining/expanding Enterprise customer relationships[104][105][107][108][109][110] - The Company is adopting a measured investment approach, focusing on select markets, offerings, technologies, and solutions to drive long-term, sustainable growth amidst indications of a global economic slowdown[111] Components of Results of Operations - Revenue is derived from three segments: Consumer and Enterprise (primarily subscriptions, recognized ratably) and Degrees (service fees from university partners, recognized ratably per term)[113][114][116] - Cost of revenue includes content costs (fees to educator partners for Consumer and Enterprise, but not Degrees) and platform operation/maintenance expenses. Content costs are a lower percentage of revenue for Enterprise offerings compared to Consumer[118][119] - Operating expenses (R&D, Sales & Marketing, G&A) are primarily personnel-related, including stock-based compensation. R&D and S&M are expected to increase in absolute dollars but generally decrease as a percentage of revenue over the long term. G&A is also expected to increase in absolute dollars due to public company costs[120][121][123][125] Results of Operations Revenue Analysis | Revenue (in thousands) | Three Months Ended Sep 30, 2022 | YoY Change % | Nine Months Ended Sep 30, 2022 | YoY Change % | | :--------------------- | :------------------------------ | :----------- | :----------------------------- | :----------- | | Total Revenue | $136,389 | 24% | $381,576 | 27% | | Consumer Revenue | $78,002 | 17% | $215,786 | 20% | | Enterprise Revenue | $48,044 | 51% | $130,794 | 55% | | Degrees Revenue | $10,343 | (11)% | $34,996 | (1)% | - Total revenue growth was driven by a 23% increase in registered learners and the addition of 375 Paid Enterprise Customers. However, future revenue growth is expected to slow due to macroeconomic headwinds, particularly in Europe, and a slowdown in new student growth in the Degrees business[135][136] - For the three months ended September 30, 2022, new learners contributed $36.3 million to Consumer revenue, while existing learners retained 63% of prior-year revenue. Enterprise revenue growth was split between new customers ($10.4 million) and existing customers ($5.8 million). Degrees revenue decreased due to lower revenue per student, partially offset by an increase in student numbers[138][139][140] Cost of Revenue, Gross Profit, and Gross Margin Analysis | Metric | Three Months Ended Sep 30, 2022 | YoY Change % | Nine Months Ended Sep 30, 2022 | YoY Change % | | :----- | :------------------------------ | :----------- | :----------------------------- | :----------- | | Cost of revenue | $48,821 | 16% | $137,972 | 13% | | Gross profit | $87,568 | 29% | $243,604 | 37% | | Gross margin | 64% | +2 pp | 64% | +5 pp | - Gross margin increased to 64% for both the three and nine months ended September 30, 2022, from 62% and 59% respectively, primarily driven by a lower revenue content cost rate in both Consumer and Enterprise segments[147][151] - Content costs as a percentage of revenue for Consumer decreased from 32% to 27% (3-month) and 36% to 28% (9-month). For Enterprise, it decreased from 33% to 29% (3-month) and 33% to 29% (9-month)[146][150] Operating Expenses Analysis | Operating Expenses (in thousands) | Three Months Ended Sep 30, 2022 | YoY Change % | Nine Months Ended Sep 30, 2022 | YoY Change % | | :-------------------------------- | :------------------------------ | :----------- | :----------------------------- | :----------- | | Research and development | $39,415 | 16% | $122,299 | 26% | | Sales and marketing | $58,504 | 29% | $165,757 | 36% | | General and administrative | $25,998 | 30% | $76,902 | 40% | | Total operating expenses | $123,917 | 25% | $364,958 | 33% | - Increases in operating expenses were primarily driven by higher personnel-related expenses due to headcount growth across all functions, increased marketing and advertising expenses, and higher content creation fees[153][155][157] - Non-recurring impairment charges of $3.5 million were recognized in general and administrative expenses for the nine months ended September 30, 2022, related to deferred partner fees from Russian educator partners and a partial sublease of office space[159] Other Income (Expense) and Income Tax Expense Analysis | Metric (in thousands) | Three Months Ended Sep 30, 2022 | YoY Change % | Nine Months Ended Sep 30, 2022 | YoY Change % | | :-------------------- | :------------------------------ | :----------- | :----------------------------- | :----------- | | Interest income | $2,301 | 3611% | $3,473 | 1430% | | Other expense, net | $(976) | 241% | $(2,574) | 925% | | Income tax expense | $1,014 | 27% | $3,185 | 69% | - Interest income significantly increased due to a rise in interest rates and higher average returns on U.S. Treasury securities. Other expense, net, increased due to unfavorable foreign exchange rates from the strengthening U.S. dollar[160] Liquidity and Capital Resources Overview of Liquidity - As of September 30, 2022, Coursera's principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $785.8 million, primarily invested in U.S. Treasury securities[162] - The Company believes existing liquidity and expected cash flows will be sufficient for at least the next 12 months. Future capital requirements depend on growth rate, R&D/S&M expenditures, market acceptance, and potential investments/acquisitions[164] Contractual Obligations and Commitments - No material changes to contractual obligations and commitments were reported for the three and nine months ended September 30, 2022, beyond those discussed in Notes 11 (Leases) and 12 (Commitments and Contingencies)[165] Cash Flows Analysis | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(32,609) | $941 | | Net cash (used in) provided by investing activities | $(135,402) | $178,272 | | Net cash provided by financing activities | $12,149 | $541,983 | - Operating cash flow shifted from a $1.0 million inflow in 2021 to a $32.6 million outflow in 2022, driven by increased net loss, higher accounts receivable, and increased prepaid expenses, partially offset by growth in deferred revenue and accounts payable[169][170][172] - Investing activities used $135.4 million in 2022, primarily due to purchases of marketable securities and capitalized internal-use software costs, a significant change from the $178.3 million provided in 2021. Financing activities provided $12.1 million in 2022, a substantial decrease from $542.0 million in 2021, which included IPO proceeds[173][174][175][176] Key Business Metrics and Non-GAAP Financial Measures Key Business Metrics | Metric (in millions, except percentages) | Sep 30, 2022 | Sep 30, 2021 | | :--------------------------------------- | :----------- | :----------- | | New Registered Learners (9 months) | 16.4 | 15.9 | | Total Registered Learners | 113.0 | 92.1 | | Total Registered Learners YoY growth | 23% | | | Number of Degrees Students | 17,723 | 16,068 | | Degrees Students YoY growth | 10% | | | Paid Enterprise Customers | 1,086 | 711 | | Net Retention Rate for Paid Enterprise Customers | 111% | 113% | - Total Registered Learners grew 23% YoY to 113.0 million. Number of Degrees Students increased 10% YoY to 17,723. Paid Enterprise Customers grew to 1,086. Net Retention Rate for Paid Enterprise Customers decreased to 111% from 113% YoY[179][183][185][187] Segment Revenue | Segment Revenue (in thousands) | Three Months Ended Sep 30, 2022 | YoY Growth % | Nine Months Ended Sep 30, 2022 | YoY Growth % | | :----------------------------- | :------------------------------ | :----------- | :----------------------------- | :----------- | | Consumer revenue | $78,002 | 17% | $215,786 | 20% | | Enterprise revenue | $48,044 | 51% | $130,794 | 55% | | Degrees revenue | $10,343 | (11)% | $34,996 | (1)% | | Total revenue | $136,389 | 24% | $381,576 | 27% | Segment Gross Profit | Segment Gross Profit (in thousands) | Three Months Ended Sep 30, 2022 | Segment Gross Margin % | Nine Months Ended Sep 30, 2022 | Segment Gross Margin % | | :---------------------------------- | :------------------------------ | :--------------------- | :----------------------------- | :--------------------- | | Consumer gross profit | $57,078 | 73% | $156,090 | 72% | | Enterprise gross profit | $33,993 | 71% | $93,059 | 71% | | Degrees gross profit | $10,343 | 100% | $34,996 | 100% | - Consumer segment gross margin increased to 73% (3-month) and 72% (9-month) due to a greater proportion of subscription sales with no associated content cost. Enterprise segment gross margin increased to 71% for both periods due to a higher proportion of revenue from subscription licenses with no associated content cost[191][192] Non-GAAP Financial Measures | Non-GAAP Metric (in thousands) | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | | :----------------------------- | :------------------------------ | :----------------------------- | | Non-GAAP gross profit | $88,254 | $245,692 | | Non-GAAP net loss | $(9,510) | $(46,896) | | Adjusted EBITDA | $(4,935) | $(31,103) | | Adjusted EBITDA Margin | (4)% | (8)% | | Free Cash Flow | N/A | $(44,077) | - Non-GAAP gross profit for the nine months ended September 30, 2022, was $245.692 million. Non-GAAP net loss was $(46.896) million. Adjusted EBITDA was $(31.103) million, with an Adjusted EBITDA Margin of (8)%. Free Cash Flow for the nine months was $(44.077) million[195][198][201] Critical Accounting Policies and Estimates - There have been no material changes to the Company's critical accounting policies and estimates compared to those described in the Annual Report on Form 10-K for the year ended December 31, 2021[203] Recent Accounting Pronouncements - Information regarding recently issued accounting pronouncements is provided in Note 2 to the unaudited condensed consolidated financial statements[204] JOBS Act Transition Period - Coursera, as an emerging growth company, has elected to use the extended transition period for complying with new or revised accounting standards. However, as of December 31, 2022, the Company will become a large accelerated filer and will no longer qualify as an emerging growth company, ceasing to be eligible for these provisions[205][206] Item 3. Quantitative and Qualitative Disclosures About Market Risk Details Coursera's market risk exposure, focusing on interest rate sensitivity and foreign currency fluctuations Interest Rate Sensitivity - As of September 30, 2022, $361.0 million of marketable securities (U.S. Treasury securities) are subject to interest rate sensitivity. A hypothetical 100 basis point increase or decrease in interest rates would result in a $1.1 million decrease or increase, respectively, in their market value[209] Foreign Currency Risk - Coursera's operating expenses are denominated in local currencies (Pound Sterling, Canadian Dollar, Indian Rupee), exposing it to foreign currency fluctuations. A 10% increase or decrease in current exchange rates would impact the quarterly unaudited condensed consolidated statement of operations by $2.3 million for the three months ended September 30, 2022[210] - The Company has not entered into hedging arrangements for foreign currency risk to date, but may consider them in the future[210] Item 4. Controls and Procedures Evaluates disclosure controls and procedures, confirming effectiveness and noting no material changes in internal control Evaluation of Disclosure Controls and Procedures - As of September 30, 2022, management, including the CEO and CFO, concluded that Coursera's disclosure controls and procedures were effective at the reasonable assurance level[212] Changes in Internal Control over Financial Reporting - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the period covered by this report[213] Inherent Limitations on Effectiveness of Controls - Management acknowledges that control systems provide only reasonable, not absolute, assurance and may not prevent or detect all errors and fraud due to inherent limitations[215] PART II. OTHER INFORMATION Item 1. Legal Proceedings Refers to legal proceedings discussed in Note 12, 'Commitments and Contingencies,' in Part I, Item 1 - Legal proceedings information is incorporated by reference from Note 12 'Commitments and Contingencies' in Item 1 of Part I[218] Item 1A. Risk Factors Outlines key risks across business, regulatory, privacy, IP, PBC status, and tax, impacting financial performance Risk Factors Summary - Key risks include fluctuations in revenue and operating results, declining revenue growth, limited operating history, anticipated net losses, impact of COVID-19, market adoption of online learning, ability to maintain partnerships, attract learners, increase Enterprise sales, and compete effectively[220] - Other significant risks involve data security, compliance with education laws, intellectual property protection, reliance on DOE guidance, platform disruptions, and the implications of operating as a public benefit corporation[220] Risks Related to Our Business and Industry - Quarterly and annual revenue and operating results are subject to significant fluctuations due to factors like customer acquisition/retention, content offerings, international expansion, timing of costs, market demand for online learning, and macroeconomic conditions[223] - The Company expects its revenue growth rate to decline compared to prior years due to more challenging comparisons, slowing demand post-COVID-19, increased competition, and market saturation[227] - Coursera has incurred significant net losses since inception ($612.4 million accumulated deficit as of Sep 30, 2022) and anticipates continued losses, with no assurance of achieving or maintaining profitability[229][230] - The success of the business depends on maintaining and expanding partnerships with university and industry partners, attracting and retaining learners, and increasing sales of Enterprise offerings. Failure in these areas, or changes in pricing models, could materially impact revenue and financial condition[242][246][274] - International expansion exposes the Company to various risks, including regulatory differences, currency fluctuations (e.g., Euro and Indian Rupee decline against USD), and geopolitical conditions, which could increase costs and constrain operations[311][312][315] Risks Related to Regulatory Matters and Litigation - Partners' failure to comply with international, federal, and state education laws and regulations, including state authorizations and accreditation, could harm Coursera's business and reputation, potentially leading to loss of operating ability or revenue[323][324][334] - The Company's business model relies on the DOE's 'bundled services exception' (DCL issued March 2011), which is not codified by statute and could be altered or removed, requiring changes to the business model and partner agreements[344][346] - Compliance with FERPA, consumer protection laws, and export/import controls is critical. Violations could lead to fines, sanctions, reputational harm, and litigation, especially as international operations expand[350][355][356] Risks Related to Privacy, Cybersecurity, and Infrastructure - Disclosure of sensitive information, cyberattacks, or security breaches could lead to platform interruptions, data loss, unauthorized PII disclosure, and significant liability, harming reputation and customer trust[362][365][366][369] - The Company relies on third-party payment processors and cloud infrastructure (AWS), making it vulnerable to disruptions in their services. Failures could impact payment processing, platform availability, and overall business operations[377][379] - Evolving global privacy laws (CCPA, CPRA, GDPR, PIPL, etc.) impose stringent requirements on personal information processing. Non-compliance could result in substantial fines, litigation, and necessitate significant changes to business practices[389][390][392][393][397] Risks Related to Intellectual Property - Failure to obtain, maintain, protect, or enforce intellectual property rights (copyright, trade secrets, patents, trademarks) could impair the ability to protect proprietary technology and brand, leading to competitive harm and significant legal expenses[402][403][404] - The Company faces risks of intellectual property claims from third parties, which are costly to defend and could require significant damages, licensing fees, or development of alternative technologies[405][406][407] - Use of open-source software could lead to litigation or requirements to disclose proprietary code. Claims from individuals appearing in content (e.g., faculty, learners) regarding rights violations also pose liability and reputational risks[411][412] Risks Relating to Our Existence as a Public Benefit Corporation - As a Delaware Public Benefit Corporation (PBC), Coursera is required to balance stockholder pecuniary interests with public benefit. There is no assurance this purpose will be achieved, and a decline in its B Corp score or perceived misalignment with values could harm its reputation[414][415][417] - The PBC structure may lead to decisions that do not maximize short-term financial results, potentially negatively impacting financial performance and stock value. It may also make the company less attractive as a takeover target[418][419] - Directors' fiduciary duty to consider both stockholder and public benefit interests could lead to conflicts, with no guarantee of resolution in favor of stockholders, potentially increasing derivative litigation and associated costs[420][421][425][426] Risks Related to Tax, Accounting, and Operations - The Company is subject to complex and evolving indirect tax laws (sales, VAT, digital service taxes), and changes or new enactments could increase tax payments, compliance costs, or reduce demand for services[429][431] - The ability to use net operating loss (NOL) carryforwards may be limited by ownership changes (Sections 382 and 383 of the Internal Revenue Code) and limitations imposed by the Tax Cuts and Jobs Act[432] - As a public company, Coursera faces substantial costs and management attention requirements for compliance with SOX and SEC regulations. Failure to maintain effective internal controls could lead to inaccurate financial reporting, loss of investor confidence, and a decline in stock price[435][436][446][447] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities or use of proceeds for the period - This item is not applicable for the reporting period[476] Item 5. Other Information Details the company's expense reduction initiative, workforce reduction, and expected financial impact - The Company enacted a plan on November 9, 2022, to reduce its global workforce to align cost structure with business objectives. This is expected to result in $10 million to $12 million in incremental operating expenses in Q4 2022 and Q1 2023, mainly for severance and benefits[477] - A reversal of $7 million to $9 million in stock-based compensation expense is anticipated, mostly in Q1 2023, due to forfeiture of unvested RSUs and stock options. The net effect on operating expenses is estimated to be $1 million to $5 million[477] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL data - Exhibits include Amended and Restated Certificate of Incorporation and Bylaws, an Offer Letter, Certifications of Principal Executive and Financial Officers (302 and 906), and Inline XBRL Instance Document and Taxonomy Extension Documents[481] Signatures Contains official signatures of Coursera's executive officers, affirming the report's submission - The report is signed by Jeffrey N. Maggioncalda (President, CEO, and Director), Kenneth R. Hahn (SVP, CFO, and Treasurer), and Michele M. Meyers (VP, Accounting and Chief Accounting Officer) on November 9, 2022[483][487][488]