Coursera Inc

Previous wording

The following section discusses financial condition and results of operations of Coursera, Inc. and its subsidiaries (“Coursera,” the“Company,” “we,” “us,” or“our”) and should be read in conjunction with our Condensed Consolidated Financial Statements (Unaudited) and the related notes included in Item 1 of Part I of this report and together with our Consolidated Financial Statements and the related notes and the discussions under the heading“Management’s Discussions and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2023 included in our Form 10-K.

Current wording

The following section discusses financial condition and results of operations of Coursera, Inc. and its subsidiaries (“Coursera,” the“Company,” “we,” “us,” or“our”) and should be read in conjunction with our Condensed Consolidated Financial Statements (Unaudited) and the related notes included in Item 1 of Part I of this report and together with our Consolidated Financial Statements and the related notes and the discussions under the heading“Management’s Discussions and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2023 included 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”).

Previous wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements in this report other than statements of historical fact, including statements identified by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” or the negative of these terms, or similar expressions, are forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

Current wording

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements in this report other than statements of historical fact, including statements identified by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” or the negative of these terms, or similar expressions, are forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

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•our ability to successfully defend any current or future litigation brought against us;

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•our ability to successfully defend any current or future legal proceedings brought against us;

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•potential changes in laws and regulations applicable to us or our educator partners and ability to comply;

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•our ability to comply with potential changes in laws and regulations applicable to us or our educator partners;

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As shifts in the digital economy are increasing the need for new skills, Coursera’s online learning offerings can meet this global demand and provide access to world-class education to learners, organizations, and institutions worldwide. We partner with over 325 leading global university and industry partners to create and distribute high-quality content that is modular, flexible, and affordable. As of March 31, 2024, approxima tely 148 million learners are registered on our platform to engage with a wide range of offerings from industry microcredentials, including entry-level Professional Certificates, to bachelor’s and master’s degree programs.

Current wording

As shifts in the digital economy are increasing the need for new skills, Coursera’s online learning offerings can meet this global demand and provide access to world-class education to learners, organizations, and institutions worldwide. We partner with over 325 leading global university and industry partners to create and distribute high-quality content that is modular, flexible, and affordable. As of June 30, 2024, approximately 155 million learners are registered on our platform to engage with a wide range of offerings from industry microcredentials, including entry-level Professional Certificates, to bachelor’s and master’s degree programs.

Previous wording

For the three months ended March 31, 2024 and 2023, we generated a net loss of $21.3 million and $32.4 million, which included stock-based compensation expense of $27.9 million and $24.7 million, and a net loss margin as a percentage of revenue of 13% and 22%.

Current wording

For the three months ended June 30, 2024 and 2023, we generated a net loss of $23.0 million and $31.7 million, which included stock-based compensation expense of $30.0 million and $29.3 million, and a net loss margin as a percentage of revenue of 13% and 21%.

Previous wording

Ability to attract and engage new learners, Enterprise customers, and Degrees students. In order to grow our business, we must attract new learners, Enterprise customers, and Degrees students efficiently and increase engagement on our platform over time. Our Consumer learners are the most important source of our overall learner base, as they contribute to both our Enterprise and Degrees revenue in addition to the Consumer revenue they may provide.

Current wording

Ability to attract, engage, and retain new learners, Enterprise customers, and Degrees students. In order to grow our business, we must attract new learners, Enterprise customers, and Degrees students efficiently and increase engagement on our platform over time. Our Consumer learners are the most important source of our overall learner base, as they contribute to both our Enterprise and Degrees revenue in addition to the Consumer revenue they may provide, and increase engagement and retention on our platform over time. We continue to refine our Degrees business model and may need to adjust it as laws, regulations, and market demands change. As a result, we have experienced and may continue to experience shifts in our related customer base, including university partners and Degrees students.

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Comparison of the Three Months Ended March 31, 2024 and 2023

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Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Previous wording

Revenue for the three months ended March 31, 2024 was $169.1 million compared to $147.6 million for the three months ended March 31, 2023. Revenue increased by $21.4 million, or 15%, compared to the three months ended March 31, 2023. The increase was primarily driven by a 20% increase in the average total number of registered learners resulting in more paid learners, an 18% increase in the average total number of Paid Enterprise Customers, and a 23% increase in the number of Degrees students.

Current wording

Revenue for the three months ended June 30, 2024 was $170.3 million compared to $153.7 million for the three months ended June 30, 2023. Revenue increased by $16.6 million, or 11%, compared to the three months ended June 30, 2023. The increase was primarily driven by a 20% increase in the average total number of registered learners resulting in more paid learners, a 17% increase in the average total number of Paid Enterprise Customers, and a 19% increase in the number of Degrees students.

Previous wording

For the three months ended March 31, 2024, total Consumer revenue increased by $14.7 million, or 18%, compared to the three months ended March 31, 2023. New learners that registered after March 31, 2023 contributed $41.6 million to total Consumer revenue of $96.7 million for the three months ended March 31, 2024. The remaining Consumer revenue in the three months ended March 31, 2024 of $55.1 million is attributable to learners that were registered on our platform as of March 31, 2023, thus retaining 67% of the revenue from those registered learners.

Current wording

For the three months ended June 30, 2024, Consumer revenue increased by $10.3 million, or 12%, compared to the three months ended June 30, 2023. New learners that registered after June 30, 2023 contributed $40.0 million to Consumer revenue of $97.3 million for the three months ended June 30, 2024. The remaining $57.3 million of Consumer revenue was attributable to learners that were registered on our platform as of June 30, 2023, thus retaining 66% of the revenue from those registered learners.

Previous wording

For the three months ended March 31, 2024, total Enterprise revenue increased by $5.3 million, or 10%, compared to the three months ended March 31, 2023 attributable to an increase in new customers. Acquisitions of new customers drove an increase of $9.7 million, offset by a $4.4 million decrease attributable to contraction of existing customer spend.

Current wording

For the three months ended June 30, 2024, Enterprise revenue increased by $4.5 million, or 8%, compared to the three months ended June 30, 2023 attributable to an increase in new customers. Acquisitions of new customers drove an increase of $10.7 million, offset by a $6.2 million decrease attributable to contraction of existing customer spend.

Previous wording

For the three months ended March 31, 2024, total Degrees revenue increased by $1.4 million, or 10%, compared to the three months ended March 31, 2023. The $1.4 million increase in revenue was primarily attributable to $3.1 million in revenue from an increase in the number of Degrees students, partially offset by a decrease of $1.7 million due to lower revenue per student resulting from student growth in lower priced regions.

Current wording

For the three months ended June 30, 2024, Degrees revenue increased by $1.8 million, or 14%, compared to the three months ended June 30, 2023. The $1.8 million increase in revenue was primarily attributable to $3.2 million in revenue from an increase in the number of Degrees students, partially offset by a decrease of $1.4 million due to lower revenue per student resulting from student growth in lower-priced regions.

Previous wording

Cost of revenue for the three months ended March 31, 2024 was $79.6 million compared to $70.2 million for the three months ended March 31, 2023. The primary driver for the increase was revenue growth that resulted in an increase of $8.7 million in costs related to educator partner fees.

Current wording

Cost of revenue for the three months ended June 30, 2024 was $80.2 million compared to $74.0 million for the three months ended June 30, 2023. The primary driver for the increase was revenue growth that resulted in an increase of $6.4 million in educator partner fees and an increase of $1.0 million in amortization expense, partially offset by a decrease of $1.3 million in language translation expenses.

Previous wording

Content costs for the Consumer segment were $45.0 million and $37.4 million for the three months ended March 31, 2024 and 2023, with content costs as a percentage of revenue of 46% for both periods. Content costs for the Enterprise segment were $18.4 million and $17.2 million for the three months ended March 31, 2024 and 2023, with content costs as a percentage of revenue of 32% and 33% for the same periods, decreasing due to a shift in mix to content with a lower cost.

Current wording

Content costs for the Consumer segment were $45.0 million and $41.9 million for the three months ended June 30, 2024 and 2023, with content costs as a percentage of revenue of 46% and 48% for the same periods, due to a shift in mix to lower-cost content. Content costs for the Enterprise segment were $18.9 million and $15.5 million for the three months ended June 30, 2024 and 2023, with content costs as a percentage of revenue of 32% and 29% for the same periods, with the increase due to a one-time benefit associated with a contract amendment with one of our educator partners in the prior period.

Previous wording

Gross margin was 53% for the three months ended March 31, 2024, compared to 52% for the three months ended March 31, 2023. The increase in gross margin was driven by a lower revenue content cost rate in our Enterprise segment.

Current wording

Gross margin was 53% for the three months ended June 30, 2024, compared to 52% for the three months ended June 30, 2023. The increase in gross margin was driven by a lower revenue content cost rate in our Consumer segment.

Previous wording

Total operating expenses for thethree months ended March 31, 2024 were $119.2 million compared to $116.5 million for thethree months ended March 31, 2023.

Current wording

Total operating expenses for thethree and six months ended June 30, 2024 were $121.4 million and $240.6 million compared to $118.1 million and $234.6 million for thethree and six months ended June 30, 2023.

Previous wording

Research and development expenses for the three months ended March 31, 2024 were $34.6 million compared to $43.8 million for the three months ended March 31, 2023. The decrease was primarily due to lower personnel-related expenses of $6.0 million, including stock-based compensation expense of $2.3 million, and lower content creation costs of $2.7 million.

Current wording

Research and development expenses for the three months ended June 30, 2024 were $33.7 million compared to $41.3 million for the three months ended June 30, 2023. The decrease was primarily due to lower personnel-related expenses of $5.5 million, including stock-based compensation expense of $2.6 million, and lower content creation costs of $1.1 million.

Previous wording

Sales and marketing expenses for the three months ended March 31, 2024 were $57.6 million compared to $52.9 million for the three months ended March 31, 2023. The increase was primarily due to an increase in marketing and advertising expenses of $4.0 million.

Current wording

Sales and marketing expenses for the three months ended June 30, 2024 were $58.1 million compared to $52.0 million for the three months ended June 30, 2023. The increase was primarily due to an increase in marketing and advertising expenses of $3.7 million and an increase in personnel-related expenses of $2.4 million.

Previous wording

General and administrative expenses for the three months ended March 31, 2024 were $24.9 million compared to $25.5 million for the three months ended March 31, 2023. The decrease was primarily due to a reduction of value-added tax expense of $2.7 million. Prior to November 2023, such taxes, as applicable to our Consumer revenue, were paid by Coursera to the taxing authorities. Whereas, these taxes are now included in the fees charged to and paid by learners. This reduction was partially offset by higher personnel-related expenses of $1.1 million.

Current wording

General and administrative expenses for the three months ended June 30, 2024 were $29.6 million compared to $24.9 million for the three months ended June 30, 2023. The increase was primarily driven by $3.4 million in costs related to third party advisory, legal, and other professional fees associated with evaluating a merger and acquisition (“M&A”) transaction, $1.3 million in legal fees associated with significant and non-recurring legal matters, and an increase in personnel-related expenses of $2.9 million, including stock-based compensation expenses of $2.2 million. This increase was partially offset by a reduction of value-added tax expense of $2.4 million. Prior to November 2023, such taxes, as applicable to our Consumer revenue, were paid by Coursera to the taxing authorities. These taxes are now included in the fees charged to and paid by learners.

Previous wording

Restructuring related charges for the three months ended March 31, 2024 were $2.1 million related to a plan implemented in January 2024 to restructure our Enterprise segment sales force compared to $(5.7) million for the three months ended March 31, 2023 primarily relating to the reversal of stock-based compensation expense for the forfeitures of RSUs and stock options resulting from our global workforce reduction initiated in November 2022. Refer to Note 14, “Restructuring Related Charges,” in the notes to our Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Current wording

Restructuring related charges for the six months ended June 30, 2024 and 2023 were $2.1 million related to a plan implemented in January 2024 to restructure our Enterprise segment sales force compared to $(5.8) million for the six months ended June 30, 2023 primarily relating to the reversal of stock-based compensation expense for the forfeitures of restricted stock units (“RSUs”) and stock options resulting from our global workforce reduction initiated in November 2022. Refer to Note 14, “Restructuring Related Charges,” in the notes to our Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this Form 10-Q for further information.

Previous wording

Total other income, net for the three months ended March 31, 2024 primarily reflected interest income earned on cash and cash equivalents. Interest income was higher during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 due to a rise in interest rates and our average rate of return on investments in U.S. Treasury securities. The fluctuations in other expense, net primarily reflect changes in unrealized foreign exchange losses and gains for the periods presented. Our operating expenses are typically denominated in the local currencies of the countries in which our operations are located and are subject to fluctuations due to changes in foreign currency exchange rates. We also hold cash and cash equivalents in foreign currencies, primarily in our foreign entities to support their ongoing operations.

Current wording

Total other income, net for the three and six months ended June 30, 2024 primarily reflected interest income earned on cash and cash equivalents. Interest income was higher during the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 due to a rise in interest rates and our average rate of return on investments in U.S. Treasury securities.

Previous wording

Income tax expense for the three months ended March 31, 2024 and 2023 was primarily related to our foreign operations.

Current wording

Income tax expense for the three and six months ended June 30, 2024 and 2023 was primarily related to our foreign operations.

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As of March 31, 2024, our principal sources of liquidity were cash and cash equivalents totaling $725.4 million.

Current wording

As of June 30, 2024, our principal source of liquidity was cash and cash equivalents totaling $708.8 million.

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We believe that our existing cash and cash equivalents, and our expected cash flows from operations will be sufficient to meet our cash needs for at least the next 12 months. Over the longer term, our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our sales and marketing and research and development expenditures, the continuing market acceptance of our offerings, and any investments or acquisitions we may choose to pursue in the future. In the event that we need to borrow funds or issue additional equity, we cannot assure you that any such additional financing will be available on terms acceptable to us, if at all. In addition, any future borrowings may result in additional restrictions on our business and any issuance of additional equity would result in dilution to investors. If we are unable to raise additional capital when desired and on terms acceptable to us, our business, results of operations, and financial condition could be materially and adversely affected.

Current wording

We believe that our existing cash and cash equivalents and our expected cash flows from operations will be sufficient to meet our cash needs for at least the next 12 months. Over the longer term, our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our expenditures to support sales and marketing as well as research and development efforts, the continuing market acceptance of our offerings, and any investments or acquisitions we may choose to pursue in the future. In the event that we need to borrow funds or issue additional equity, we cannot assure you that any such additional financing will be available on terms acceptable to us, if at all. In addition, any future borrowings may result in additional restrictions on our business, and any issuance of additional equity would result in dilution to investors. If we are unable to raise additional capital when desired and on terms acceptable to us, our business, results of operations, and financial condition could be materially and adversely affected.

Previous wording

Except as discussed in Note 6, Leases, and Note 9, Commitments and Contingencies, in the notes to our Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no material changes outside of the ordinary course of business in our commitments and contractual obligations for the three months ended March 31, 2024 from the commitments and contractual obligations in“Management’s Discussion and Analysis of Financial Condition and Results of Operations”, set forth in our Form 10-K.

Current wording

Except as discussed in Note 6, Leases, and Note 9, Commitments and Contingencies, in the notes to our Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this Form 10-Q, there were no material changes outside of the ordinary course of business in our commitments and contractual obligations for the three and six months ended June 30, 2024 as compared to those in“Management’s Discussion and Analysis of Financial Condition and Results of Operations”, set forth in our Form 10-K.

Previous wording

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.

Current wording

On April 26, 2023, our board of directors approved a share repurchase program with autho rization to purchase up to $95 million of our common stock, excluding commissions and fees (the “Repurchase Program”). In May 2024, we completed the purchase authorization under the Repurchase Program, which was funded with our existing cash and cash equivalents.

Previous wording

Cash provided by operating activities mainly consists of our net loss adjusted for certain non-cash items, including stock-based compensation expense and depreciation and amortization, as well as the effect of changes in operating assets and liabilities during each period. Operating cash is primarily sourced by customer payments and is primarily used to pay for personnel-related expenses, partner fees, marketing and advertising expenses, indirect taxes, and third-party cloud infrastructure expenses.

Current wording

Cash provided by operating activities mainly consists of our net loss adjusted for certain non-cash items, including stock-based compensation expense and depreciation and amortization, as well as the effect of changes in operating assets and liabilities during each period. Operating cash is primarily sourced by customer payments and is primarily used to pay for personnel-related expenses, educator partner fees, marketing and advertising expenses, third-party cloud infrastructure expenses, and indirect taxes.

Previous wording

For the three months ended March 31, 2024, net cash provided by operating activities was $24.5 million, primarily resulting from improved operational leverage and working capital driven by (i) a decrease in accounts receivables primarily from an increase in cash collections and (ii) deferred revenue growth, partially offset by the payout of annual bonuses.

Current wording

For the six months ended June 30, 2024, net cash provided by operating activities was $48.3 million, primarily resulting from improved operating leverage and working capital driven by (i) an increase in accounts receivable collections and (ii) deferred revenue growth.

Previous wording

For the three months ended March 31, 2023, net cash provided by operating activities was $4.7 million, primarily resulting from (i) deferred revenue growth, (ii) an increase in payables related to content fees mainly resulting from the extension of a multi-year agreement with our largest educator partner, partially offset by an increase in accounts receivable primarily from invoice and collection timing.

Current wording

For the six months ended June 30, 2023, net cash used in operating activities was $1.7 million, primarily resulting from our net loss and (i) an increase in accounts receivables caused by invoice timing and collections, (ii) an increase in educator partner grant payments, and (iii) an increase in deferred commissions, offset by (iv) deferred revenue growth and (v) an increase in content fees payable to our largest educator partner resulting from the extension of our multi-year agreement with them.

Previous wording

Cash provided by operating activities increased by $19.8 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily resulting from(i) improved operational leverage and(ii) a decrease in accounts receivables primarily from an increase in cash collections, partially offset by an increase in content fees payable to our largest educator partner resulting from the extension of our multi-year agreement with them.

Current wording

Cash provided by operating activities increased by $50.0 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily resulting from (i) improved operating leverage and (ii) an increase in accounts receivables collections, partially offset by (iii) an increase in content fees payable to our largest educator partner resulting from the extension of our multi-year agreement with them.

Previous wording

For the three months ended March 31, 2024, net cash provided by investing activities was $59.6 million, primarily as a result of proceeds from maturities of marketable securities, partially offset by capitalized internal-use software costs, purchases of content assets, and capital expenditures of property, equipment and software.

Current wording

For the six months ended June 30, 2024, net cash provided by investing activities was $52.8 million, primarily as a result of (i) proceeds from maturities of marketable securities, partially offset by (ii) capitalized internal-use software costs, (iii) purchases of content assets, and (iv) capital expenditures for property, equipment, and software.

Previous wording

For the three months ended March 31, 2023, net cash used in investing activities was $50.5 million, primarily as a result of purchases of marketable securities, capitalized internal-use software costs, capital expenditures of property, equipment and software, and purchases of content assets, partially offset by proceeds from maturities of marketable securities.

Current wording

For the six months ended June 30, 2023, net cash provided by investing activities was $103.6 million, primarily as a result of (i) proceeds from maturities of marketable securities, partially offset by (ii) purchases of marketable securities, (iii) capitalized internal-use software costs, (iv) capital expenditures of property, equipment, and software, and (v) purchases of content assets.

Previous wording

For the three months ended March 31, 2024, net cash used in financing activities was $15.1 million, primarily as a result of employee payroll taxes paid for vesting of RSUs and payments related to repurchases of common stock under the Repurchase Program, partially offset by proceeds from the issuance of common stock from employee stock option exercises.

Current wording

For the six months ended June 30, 2024 and 2023, net cash used in financing activities was $48.7 million and $60.3 million, primarily as a result of (i) payments related to repurchases of common stock under the Repurchase Program and (ii) payments for tax withholdings on vesting of RSUs, partially offset by (iii) proceeds from the issuance of common stock from employee stock option exercises and (iv) proceeds from the employee stock purchase plan.

Previous wording

We count the total number of Paid Enterprise Customers that are active on our platform at the end of each period. For purposes of determining our customer count, we treat each customer account that has a corresponding contract as a unique customer, and a single organization with multiple divisions, segments, or subsidiaries may be counted as multiple customers. We define a “Paid Enterprise Customer” as a customer who purchases Coursera via our direct sales force. For purposes of determining our Paid Enterprise Customer count, we exclude our Enterprise customers who do not purchase Coursera via our direct sales force, including organizations engaging on our platform through our Coursera for Teams offering or through our channel partners. For the three months ended March 31, 2024, approximately 94% of our total Enterprise segment revenue was generated from our Paid Enterprise Customers. We believe that the number of Paid Enterprise Customers and our ability to increase this number is an important indicator of the growth of our Enterprise business and future Enterprise segment revenue trends.

Current wording

We count the total number of Paid Enterprise Customers that are active on our platform at the end of each period. For purposes of determining our customer count, we treat each customer account that has a corresponding contract as a unique customer, and a single organization with multiple divisions, segments, or subsidiaries may be counted as multiple customers. We define a “Paid Enterprise Customer” as a customer who purchases Coursera via our direct sales force. For purposes of determining our Paid Enterprise Customer count, we exclude our Enterprise customers who do not purchase Coursera via our direct sales force, including organizations engaging on our platform through our Coursera for Teams offering or through our channel partners. For the six months ended June 30, 2024, approximately 94% of Enterprise revenue was generated from our Paid Enterprise Customers. We believe that the number of Paid Enterprise Customers and our ability to increase this number is an important indicator of the growth of our Enterprise business and future Enterprise segment revenue trends.

Previous wording

We calculate annual recurring revenue (“ARR”) by annualizing each customer’s monthly recurring revenue (“MRR”) for the most recent month at period end. We calculate “Net Retention Rate” for a period by starting with the ARR from all Paid Enterprise Customers as of the 12 months prior to such period end, or “Prior Period ARR”. We then calculate the ARR from these same Paid Enterprise Customers as of the current period end, or “Current Period ARR”. Current Period ARR includes expansion within Paid Enterprise Customers and is net of contraction or attrition over the trailing 12 months but excludes revenue from new Paid Enterprise Customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at our Net Retention Rate for Paid Enterprise Customers. Our Net Retention Rate for Paid Enterprise Customers decreased to 94% as of March 31, 2024 from 104% as of March 31, 2023, mainly due to a reduction in the value of renewal and expansion contracts. Our Net Retention Rate for Paid Enterprise Customers is expected to fluctuate in future periods due to a number of factors, including the growth of our revenue base, the penetration within our Paid Enterprise Customer base, expansion of products and features, and our ability to retain and expand our Paid Enterprise Customers.

Current wording

We calculate annual recurring revenue (“ARR”) by annualizing each customer’s monthly recurring revenue (“MRR”) for the most recent month at period end. We calculate “Net Retention Rate” for a period by starting with the ARR from all Paid Enterprise Customers as of the 12 months prior to such period end, or “Prior Period ARR”. We then calculate the ARR from these same Paid Enterprise Customers as of the current period end, or “Current Period ARR”. Current Period ARR includes expansion within Paid Enterprise Customers and is net of contraction or attrition over the trailing 12 months but excludes revenue from new Paid Enterprise Customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at our Net Retention Rate for Paid Enterprise Customers. Our Net Retention Rate for Paid Enterprise Customers decreased to 93% as of June 30, 2024 from 97% as of June 30, 2023, mainly due to a reduction in the value of renewal and expansion contracts. Our Net Retention Rate for Paid Enterprise Customers is expected to fluctuate in future periods due to a number of factors, including the growth of our revenue base, the penetration within our Paid Enterprise Customer base, expansion of products and features, and our ability to retain and expand our Paid Enterprise Customers.

Previous wording

We monitor segment gross profit as a key metric to help us evaluate the financial performance of our individual segments. Segment gross profit represents segment revenue less content costs paid to educator partners; segment gross margin is the quotient of segment gross profit divided by segment revenue. Content costs only apply to the Consumer and Enterprise segments as there is no content cost attributable to the Degrees segment. Instead, in the Degrees segment, we earn a Degrees service fee based on a percentage of the total online student tuition collected by the university partner. Given that content costs are the largest individual cost of our revenue, and that these costs contractually vary as a percentage of revenue between our Consumer and Enterprise offerings while there are no content costs attributable to our Degrees offering, mix shifts between our three segments is expected to be a significant driver of our overall gross margin, financial performance, and profitability.

Current wording

We monitor segment gross profit as a key metric to help us evaluate the financial performance of our individual segments. Segment gross profit represents segment revenue less content costs paid to educator partners; segment gross margin is the quotient of segment gross profit and segment revenue. Content costs only apply to the Consumer and Enterprise segments as there is no content cost attributable to the Degrees segment. Instead, in the Degrees segment, we earn a Degrees service fee based on a percentage of the total online student tuition collected by the university partner. Given that content costs are the largest individual cost of our revenue, and that these costs contractually vary as a percentage of revenue between our Consumer and Enterprise offerings while there are no content costs attributable to our Degrees offering, mix shifts between our three segments is expected to be a significant driver of our overall gross margin, financial performance, and profitability.

Previous wording

Consumer segment gross margin remained at 54% in the three months ended March 31, 2024 and 2023. Enterprise segment gross margin slightly increased to 68% from 67% when comparing those same periods driven by a lower revenue content cost rate.

Current wording

Consumer segment gross margin increased to 54% in both the three and six months ended June 30, 2024 from 52% and 53% in the three and six months ended June 30, 2023. Enterprise segment gross margin decreased to 68% from 71% and 69% when comparing those same periods driven by a one-time benefit associated with a contract amendment with one of our educator partners in the prior period.

Previous wording

We define non-GAAP gross profit and non-GAAP net income (loss) as GAAP gross profit and GAAP net loss excludingthe impact of stock-based compensation expense, amortization of stock-based compensation capitalized as internal-use software costs, payroll tax expense related to stock-based compensation, and restructuring related charges. Non-GAAP net income (loss) per share is calculated by dividing non-GAAP net income (loss) by the diluted weighted average shares of common stock outstanding. We believe the presentation of these adjusted operating results provides useful supplemental information to investors and facilitates the analysis and comparison of our operating results across reporting periods.

Current wording

We define non-GAAP gross profit and non-GAAP net income (loss) as GAAP gross profit and GAAP net loss excluding: (i) stock-based compensation expense; (ii) amortization of stock-based compensation expense capitalized as internal-use software costs; (iii) payroll tax expense related to stock-based compensation; (iv) M&A related transaction costs; (v) costs and settlement (gains) losses related to significant and non-recurring legal matters, net of insurance recoveries; and (vi) restructuring related charges. Non-GAAP net income (loss) per share is calculated by dividing non-GAAP net income (loss) by the diluted weighted average shares of common stock outstanding. We believe the presentation of these adjusted operating results provides useful supplemental information to investors and facilitates the analysis and comparison of our operating results across reporting periods.

Previous wording

We define Adjusted EBITDA as our net loss excluding: (i) depreciation and amortization; (ii) interest income, net; (iii) income tax expense; (iv) other expense (income), net; (v) stock-based compensation expense; (vi) payroll tax expense related to stock-based compensation; and (vii) restructuring related charges. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue.

Current wording

We define Adjusted EBITDA as our GAAP net loss excluding: (i) depreciation and amortization; (ii) interest income, net; (iii) income tax expense; (iv) other expense (income), net; (v) stock-based compensation expense; (vi) payroll tax expense related to stock-based compensation; (vii) M&A related transaction costs; (viii) costs and settlement (gains) losses related to significant and non-recurring legal matters, net of insurance recoveries; and (ix) restructuring related charges. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue.

Previous wording

Free Cash Flow is calculated as net cash provided by operating activities, less cash used for purchases of property, equipment and software, capitalized internal-use software costs, and purchases of content assets as we consider these capital expenditures necessary to support our ongoing operations. Current and prior period Free Cash Flow amounts reported herein reflect the change to our definition of Free Cash Flow to include purchases of content assets.

Current wording

We define Free Cash Flow as net cash provided by (used in) operating activities, less purchases of property, equipment, and software, capitalized internal-use software costs, and purchases of content assets as we consider these capital expenditures necessary to support our ongoing operations. Current and prior period Free Cash Flow amounts reported herein reflect the change to our definition of Free Cash Flow to include purchases of content assets.