Coursera Inc

1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements (Unaudited) of Coursera, Inc., a Delaware public benefit corporation, and its subsidiaries (“Coursera,” the “Company,” “we,” “us,” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. These Condensed Consolidated Financial Statements (Unaudited) have been prepared on the same basis as our annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair statement of our financial information. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other interim period or for any other future year.

These Condensed Consolidated Financial Statements (Unaudited) should be read in conjunction with the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 22, 2024 (“Form 10-K”).

Description of Business

Coursera is an online learning platform that connects learners, educators, and institutions with the goal of providing world-class educational content that is affordable, accessible, and relevant. We combine content, data, and technology into a platform that is customizable and extensible to both individual learners and institutions. We partner with university and industry partners (collectively, “educator partners”) to bring quality higher education to a broad range of individuals, businesses, organizations, and governments. We also sell directly to institutions, including employers, colleges and universities, organizations, and governments, to enable their employees, students, and citizens to gain critical skills aligned to job markets. Our corporate headquarters is located in Mountain View, California.

Reporting Segments

We conduct our operations through three reporting segments: Consumer, Enterprise, and Degrees. Refer to Note 13 for additional information.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The Condensed Consolidated Financial Statements (Unaudited) include the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements (Unaudited) in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the Condensed Consolidated Financial Statements (Unaudited), as well as the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience, current conditions, and various other factors that we believe to be reasonable under the circumstances. Significant items subject to such estimates, judgments, and assumptions include, but are not limited to, those related to the determination of principal versus agent and variable consideration in our revenue contracts; stock-based compensation expense; period of benefit for capitalized commissions; internal-use software costs; useful lives of long-lived assets; the carrying value of operating lease right-of-use assets; the valuation of intangible assets; and income tax expense, including the valuation of deferred tax assets and liabilities, among others. Actual results could differ from those estimates, and any such differences could be material to our Condensed Consolidated Financial Statements (Unaudited).

Summary of Significant Accounting Policies

There have been no significant changes to our significant accounting policies as of and for the three months ended March 31, 2024 as compared to the significant accounting policies described in our Form 10-K.

Concentrations of Risk

Financial instruments that potentially subject us to concentration of credit risk consist of cash, cash equivalents, and marketable securities. We only invest in high-credit-quality instruments and maintain our cash equivalents and marketable securities in fixed-income securities. We place our cash primarily with domestic financial institutions that are federally insured within statutory limits.

For the purpose of assessing the concentration of credit risk with respect to accounts receivable and significant customers, we treat a group of customers under common control or customers that are affiliates of each other as a single customer. For the three months ended March 31, 2024 and 2023, we did not have any customers that accounted for more than 10% of our revenue. As of March 31, 2024, we did not have any customers that accounted for more than 10% of our net accounts receivable balance.

Our business model relies on educational content and credentialing programs from educator partners. Our largest educator partner has global brand recognition and supplies a variety of in-demand content across multiple domains. The loss of or significant reduction in this partnership or one of our other largest partners could have a material impact on our results of operations and cash flows.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses and certain other segment items on an interim and annual basis if they are regularly provided to the chief operating decision maker (“CODM”). This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. We expect that the adoption of ASU 2023-07 will not have a material impact on our Condensed Consolidated Financial Statements (Unaudited) and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities on an annual basis to disclose (1) specific categories in the tax rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied on a prospective basis, though retrospective application is permitted. We are currently evaluating whether the adoption of ASU 2023-09 will have a material impact on our Condensed Consolidated Financial Statements (Unaudited) and related disclosures.

3. REVENUE RECOGNITION

Contract Balances

Contract assets and liabilities were as follows:

Revenue recognized during the three months ended March 31, 2024 and 2023 that was included in the corresponding deferred revenue balance at the beginning of each year was $70,258 and $58,733.

Remaining Performance Obligations

Remaining performance obligations represent contracted revenue that has not yet been recognized, which includes deferred revenue in the Condensed Consolidated Balance Sheets (Unaudited) and unbilled amounts that will be recognized as revenue in future periods. As of March 31, 2024, we had remaining performance obligations of $300,341 and expect to recognize approximately 70% as revenue over the next 12 months and the remainder thereafter.

Costs to Obtain and Fulfill Contracts

The following table presents our capitalization and amortization of commissions and related payroll tax expenditures recorded within sales and marketing in the Condensed Consolidated Financial Statements (Unaudited):

Deferred commissions and related payroll tax expenditures included in deferred costs and in other assets were as follows:

No impairment losses were recognized during the three months ended March 31, 2024 and 2023.

4. INVESTMENTS

Investments Measured at Fair Value on a Recurring Basis

The following table summarizes our investments measured at fair value on a recurring basis by balance sheet classification and investment type:

Gross realized gains and losses related to our cash equivalents and marketable securities were not material for the three months ended March 31, 2024 and 2023.

The following table presents the cost basis and fair value of our available-for-sale (“AFS”) marketable securities by contractual maturity date:

Investments in an unrealized loss position consisted of the following:

As of December 31, 2023, our AFS marketable securities were comprised of U.S. Treasury securities, which are backed by the full faith and credit of the U.S. government. There wereno credit or non-credit impairment losses recorded during the three months ended March 31, 2024 and 2023.

Investments Measured at Fair Value on a Nonrecurring Basis

Our existing equity investments are remeasured at fair value on a nonrecurring basis when an identifiable event or change in circumstance may have a significant adverse impact on its fair value. No such events or changes occurred during the three months ended March 31, 2024 and 2023.

5. CONSOLIDATED BALANCE SHEET COMPONENTS

Restricted Cash

The reconciliation of cash, cash equivalents, and restricted cash was as follows:

Property, Equipment, and Software, Net

Property, equipment, and software, net consisted of the following:

The following table presents depreciation and amortization expense related to property, equipment, and software as well as the portion of amortization expense related to internal-use software and website development that is recorded within cost of revenue in the Condensed Consolidated Statements of Operations (Unaudited):

Intangible Assets, Net

Intangible assets, net consisted of the following:

Capitalization of content assets and amortization expense for intangible assets was as follows:

As of March 31, 2024, future expected amortization expense for intangible assets was as follows:

6. LEASES

We have entered into various non-cancelable office space operating leases with lease periods expiring through April 2025. These leases do not contain residual value guarantees, covenants, or other restrictions.

In May 2022, we entered into an agreement to sublease a portion of our existing office space in Mountain View, California. The sublease is classified as an operating lease. The term commenced on June 1, 2022 and terminates on October 31, 2024. Sublease income from this agreement was $680 for the three months ended March 31, 2024 and 2023.

7. INCOME TAXES

Income tax expense or benefit for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, we update the estimate of the annual effective tax rate, and if the estimated tax rate changes, we record a cumulative adjustment.

Our effective tax rate for the three months ended March 31, 2024 and 2023 was (4.0%) and (4.6%). The difference between the effective tax rate and the U.S. federal statutory rate is primarily due to a valuation allowance for our federal and state net deferred tax assets, income taxes on foreign operations, U.S. state income taxes, and stock-based compensation expense.

As of March 31, 2024, we continued to have a full valuation allowance against our U.S. federal and state deferred tax assets. Management regularly evaluates the realizability of our deferred tax assets. Adjustments are recorded to income during the period in which management makes the determination a deferred tax asset is more likely than not to be realized.

8. NET LOSS PER SHARE

The following table presents the calculation of basic and diluted net loss per share:

The following potentially dilutive securities were excluded from the computation of diluted net loss per share calculations for the periods presented because the impact of including them would have been anti-dilutive:

9. COMMITMENTS AND CONTINGENCIES

Purchase Obligations

Our purchase obligations primarily relate to a third-party cloud infrastructure agreement, subscription arrangements, and service agreements used to facilitate our operations. As of March 31, 2024, we had approximately $20,254 of future minimum payments under our non-cancelable purchase obligations with a remaining term in excess of one year, which are expected to be paid through 2026.

Legal Proceedings

From time to time, we may be subject to legal proceedings, as well as demands, claims, and threatened litigation. The outcomes of legal proceedings and other contingencies are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular period. Regardless of the outcome, litigation can have an adverse impact on our business because of defense and settlement costs, diversion of management resources, and other factors. Other than the matters described below, we are not currently party to any legal proceeding that we believe, as of the filing of this Quarterly Report on Form 10-Q, could have a material adverse effect on our business, operating results, cash flows, or financial condition should such litigation or claim be resolved unfavorably.

We regularly review the status of each significant matter and assess its potential likelihood of loss or exposure. We record an accrual for loss contingencies for legal proceedings when we believe that an unfavorable outcome is both (i) probable and (ii) the amount or range of any possible loss is reasonably estimable. The Company intends to vigorously defend itself in these matters, and while there can be no assurances and the outcome of these matters is currently not determinable, the Company currently believes that, except as set forth below, these existing claims or proceedings are not likely, individually and in the aggregate, to have a material adverse effect on its financial position. Notwithstanding the foregoing, there are many uncertainties associated with any litigation and these matters or other third-party claims against the Company may cause the Company to incur costly litigation and/or substantial settlement charges. In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could adversely affect gross margins in future periods. If any of those events were to occur, the Company's business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from the Company's estimates, if any, which could result in the need to adjust the liability and record additional expenses.

Privacy Class Action Lawsuit

In November 2023, a putative class action complaint, Iman Ghazizadeh, et al v. Coursera, Inc., was filed against Coursera, Inc. in the United States District Court (the “Court”) for the Northern District of California (Case No. 5:23-cv-05646) for alleged violations of the Video Privacy Protection Act, 18 U.S.C. Section 2710 et seq. (“VPPA”). The complaint alleges, among other things, that without consent or knowledge of the plaintiff, Coursera disclosed the video viewing history and certain other information of the plaintiff to a third-party company and made similar disclosures without the knowledge or consent of other unidentified users. The plaintiff seeks monetary damages for certain violations under the VPPA, including interest and reasonable attorney’s fees. In January 2024, the Company filed a motion to dismiss, which is pending before the Court. Given the procedural posture and the nature of such litigation matter, it is not possible to reasonably estimate the probability that we will ultimately prevail or be held liable for the violations alleged in this complaint, nor is it possible to reasonably estimate the loss, if any, or range of loss that could result from this matter. We dispute the claims and intend to vigorously defend against them.

Indemnifications

In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for the potential of general indemnification obligations. Our exposure under these agreements is unknown because it involves future claims that may be made against us but have not yet been made. To date, we have not paid any material claims and have not been required to defend any actions related to our indemnification obligations; however, we may record charges in the future as a result of these indemnification obligations. In addition, we have indemnification agreements with certain of our directors, executive officers, and other employees that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service with Coursera. The terms of such obligations may vary.

10. STOCKHOLDERS' EQUITY

Share Repurchase Program

On April 26, 2023, our board of directors approved a share repurchase program with authorization to purchase up to $95 million of our common stock, excluding commissions and fees (the “Repurchase Program”). We may repurchase shares of common stock from time to time through open market purchases, in privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions. The Repurchase Program may be suspended or discontinued at any time and does not obligate us to acquire any amount of common stock.

We funded share repurchases under the Repurchase Program with our existing cash and cash equivalents. During the three months ended March 31, 2024, we repurchased an aggregate of 431,783 shares of our common stock for $6.0 million pursuant to a Rule 10b5-1 trading plan. As of March 31, 2024, we had $30.6 million, excluding commissions, remaining under the Repurchase Program, which has no expiration date and will continue unless otherwise suspended or discontinued.

In April 2024, we repurchased an aggregate of 1,135,280 shares of our common stock for $15.7 million pursuant to a Rule 10b5-1 trading plan and have $14.9 million, excluding commissions, remaining under the Repurchase Program as of the date of this filing.

11. EMPLOYEE BENEFIT PLANS

Stock Incentive Plans

Our 2021 Stock Incentive Plan (the “2021 Plan”) provides for the granting of incentive and non-statutory stock options, RSUs, PSUs, and other equity-based awards. Pursuant to our 2021 Employee Stock Purchase Plan (the “ESPP”), eligible employees may purchase shares of our common stock through payroll deductions at 85% percent of the lower of the market price of our common stock on the date of commencement of the applicable offering period or on the last day of eachsix-month purchase period.

As of March 31, 2024,16,196,764 shares and 5,861,089 shares of our common stock were reserved for future issuance under the 2021 Plan and ESPP.

Stock Options

We may grant stock options at prices not less than the grant date fair value. These stock options generally expire 10 years from the grant date. Incentive stock options and non-statutory stock options generally vest ratably over afour-year service period.

Stock option activity for the three months ended March 31, 2024 was as follows:

RSUs and PSUs

RSU grants have a service-based vesting condition, which is satisfied generally either (i) over four years with a 25% cliff vesting period afterone year and 6.25% vesting each quarter thereafter for new hires, or (ii) over four years with 6.25% vesting each quarter for new grants to existing employees. The related stock-based compensation expense is recognized on a straight-line basis over the requisite service period.

In March 2024, we granted PSUs to certain executives under the 2021 Plan. PSU grants have both performance and service-based vesting conditions. The ultimate number of units that will vest is determined based on the achievement of annual revenue against a pre-established target (with defined threshold and maximum amounts ranging from 50% to 150% of target). If annual revenue is below the threshold amount, none of the PSUs will vest. If annual revenue is equal to or exceeds the threshold amount,25% of the PSUs ultimately granted will vest afterone year, and the remaining PSUs will vest quarterly (6.25%) over the subsequent three years. The fair value of each unit is determined on the grant date, and the related stock-based compensation expense is recognized using the accelerated attribution method. We evaluate the vesting conditions on a quarterly basis and recognize stock-based compensation expense if the achievement of the performance condition is probable.

RSU and PSU activity for the three months ended March 31, 2024 was as follows:

(1) For PSUs, the number of shares granted assumes the performance condition is achieved at the target level. The actual number of shares ultimately granted once the performance period is complete may range from 0% to 150% of the target amount.

Stock-Based Compensation Expense

Stock-based compensation expense is classified in the Condensed Consolidated Statements of Operations (Unaudited) as follows:

We capitalized $1,834 and $1,311 of stock-based compensation related to our internal-use software during the three months ended March 31, 2024 and 2023.

As of March 31, 2024, there was a total of $11,834 unrecognized employee compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately 1.9 years. In addition, as of March 31, 2024, total unrecognized compensation cost related to unvested RSUs was $272,596, which is expected to be recognized over a weighted-average period of approximately 2.7 years, and total unrecognized compensation cost related to PSUs was $4,220, which is expected to be recognized over a weighted average period of approximately 2.1 years. Total unrecognized compensation cost related to ESPP Rights as of March 31, 2024 was $5,638, which is expected to be recognized over a weighted-average period of approximately 0.9 years.

Common Stock Reserved for Issuance

The following table presents total shares of our common stock reserved for future issuance:

401(k) Plan

We have a 401(k) savings plan that provides for a discretionary employer-matching contribution. We made matching contributions of $854 and $856 to the plan for the three months ended March 31, 2024 and 2023.

12. RELATED-PARTY TRANSACTIONS

We have a content sourcing agreement with DeepLearning.AI Corp (“DeepLearning.AI”), which was entered into in the normal course of business and under standard terms. Dr. Andrew Ng, one of our co-founders and Chairman of our board of directors owns DeepLearning.AI. Content fees earned by DeepLearning.AI during the three months ended March 31, 2024 and 2023 were $2,309 and $1,693, and were recorded within cost of revenue in the Condensed Consolidated Statements of Operations (Unaudited). As of March 31, 2024 and December 31, 2023, outstanding educator partner payables related to this content sourcing agreement were $2,309 and $3,895.

13. SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

Our chief operating decision maker (“CODM”) is our Chief Executive Officer. For the purposes of allocating resources and assessing performance, the CODM examines three segments, which relate to our three revenue sources: Consumer, Enterprise, and Degrees. This is also consistent with how we disaggregate revenue.

Financial information for each reportable segment was as follows:

Geographic Information

Revenue

The following table summarizes the revenue by region based on the billing address of our customers:

No single country other than the United States represented 10% or more of our total revenue during the three months ended March 31, 2024 and 2023.

Long-lived assets

The following table presents our long-lived assets, consisting of property, equipment, and software, net of depreciation and amortization, and operating lease right-of-use assets, by geographic region:

14. RESTRUCTURING RELATED CHARGES

We have been reducing our expenses, focusing our efforts, and prioritizing investments in key initiatives that are expected to drive long-term, sustainable growth.

During the three months ended March 31, 2023 we recognized a reversal of stock-based compensation expense of approximately $5.6 million, resulting from the forfeiture of RSUs and stock options associated with our November 2022 global workforce reduction.

In January 2024, we implemented a plan to restructure our Enterprise segment sales force and recognized restructuring related charges of $2.1 million during the three months ended March 31, 2024. Related cash payments of $1.8 million were made during the same period and reflected as cash used in operating activities within our Condensed Consolidated Statements of Cash Flows (Unaudited). Remaining unpaid expenses relating to this restructuring are not material as of March 31, 2024.