Coursera, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Comparisons are with the corresponding 2021 periods unless noted. Amounts below are in U.S. dollars.
Business context
Coursera operates an online learning platform connecting learners and institutions with university and industry content. Revenue comes from Consumer, Enterprise, and Degrees offerings. At quarter-end, the company reported approximately 106.9 million registered learners and 958 paid Enterprise customers. It had more than 275 educator partners.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $124.8M | $102.1M | $245.2M | $190.5M |
| Gross profit | $78.4M | $60.9M | $156.0M | $110.5M |
| Gross margin | 63% | 60% | 64% | 58% |
| Operating loss | $(47.8)M | $(45.8)M | $(85.0)M | $(64.1)M |
| Net loss | $(49.3)M | $(46.4)M | $(87.6)M | $(65.0)M |
| Adjusted EBITDA (non-GAAP) | $(15.6)M | $(2.9)M | $(26.2)M | $(13.0)M |
| Cash used in operating activities | Not separately stated | Not separately stated | $(37.4)M | $(9.8)M |
| Free cash flow (non-GAAP) | Not separately stated | Not separately stated | $(45.4)M | $(17.1)M |
Q2 revenue grew 22%; six-month revenue grew 29%. Consumer revenue increased 12% in Q2 and 21% year to date; Enterprise increased 55% and 57%, respectively; Degrees decreased 4% in Q2 but increased 3% year to date. Gross-margin expansion reflected lower content costs as a percentage of revenue in Consumer and Enterprise.
Operating expenses were $126.2M in Q2, up 18%, and $241.0M for the six months, up 38%. The six-month net loss included $49.5M of stock-based compensation. Q2 net loss margin improved to 40% from 45%, while the six-month margin widened to 36% from 34%.
Balance sheet, liquidity, and cash flow
At June 30, 2022, cash and cash equivalents were $380.0M and marketable securities were $403.1M, totaling $783.1M in cash, cash equivalents, and marketable securities. Total assets were $952.4M; current liabilities were $224.3M; total liabilities were $236.6M; and stockholders’ equity was $715.8M. The balance sheet reports no borrowings or debt.
Cash, cash equivalents, and restricted cash declined by $200.7M in the first half, to $382.1M. Operating cash use increased to $37.4M, primarily reflecting the net loss and working-capital movements, including higher receivables and prepayments, partly offset by deferred-revenue growth. Investing cash use was $174.5M, mainly from purchases of marketable securities. Management said existing liquidity and expected operating cash flows should cover cash needs for at least 12 months.
Current deferred revenue was $115.6M; total deferred revenue, including non-current amounts, was $118.2M. Remaining performance obligations were $276.1M, with approximately 65% expected to be recognized as revenue over the next 12 months.
Material changes, outlook, and notable items
- Enterprise was the strongest growth channel: the company added 374 paid Enterprise customers during the first half. Paid Enterprise customer net retention rate was 111%, down from 114% a year earlier.
- Management said future revenue growth was expected to slow compared with recent results, citing macroeconomic headwinds outside the U.S., particularly in Europe; slower new Degrees student growth; and pricing and payment tests that negatively affected Consumer revenue. The filing gives no quantified forward revenue or earnings guidance.
- Q2 operating expenses included $2.3M of impairment charges related to an office sublease: $1.5M in research and development, $1.2M in sales and marketing, and $0.6M in general and administrative expenses. The filing also reports a $1.9M first-half impairment of deferred partner fees for Russian educator-partner content not expected to be recovered. Total first-half general and administrative impairment charges were $2.5M, including these items.
- The company recognized $5.1M of long-lived-asset impairment in the first half, including $3.2M associated with the office sublease and $1.9M of deferred Russian partner fees. A sublease of part of its Mountain View office began June 1 and runs through October 2024.
- Non-cancelable purchase obligations were approximately $46.5M, expected to be paid through 2026. The company stated it had no material aggregate exposure from legal matters for which loss was reasonably possible, while noting litigation outcomes can involve material exposure.
- Coursera expected to cease qualifying as an emerging growth company and become a large accelerated filer on December 31, 2022. It was evaluating the impact of adopting the expected-credit-loss accounting standard for its 2022 annual reporting period.
Most important facts for investors to verify
- Whether Enterprise growth and customer expansion can offset slower Consumer and Degrees trends, and whether the 111% Enterprise net retention rate stabilizes or declines.
- Management’s slowdown commentary and the effect of economic conditions, foreign exchange, and pricing tests on revenue, enrollment, and renewal trends.
- The trajectory of operating losses and cash use, especially as operating cash outflow and non-GAAP free-cash-flow outflow increased year over year.
- The sustainability of gross-margin gains, given changing segment mix, partner content costs, translation costs, and platform expenses.
- The financial and operational impact of the office sublease, Russian partner-content impairment, and outstanding purchase obligations.
- Potential dilution from equity awards: 32.1 million potentially dilutive securities were excluded from diluted loss per share as anti-dilutive; 52.1 million shares were reserved for outstanding awards and future issuance.
- Education-sector regulatory risks, particularly the DOE guidance supporting the bundled-services exception used in the company’s university-partner business model.