Coursera, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparisons are to the same periods in 2020. Amounts are in U.S. dollars. Coursera operates an online learning platform through Consumer, Enterprise, and Degrees offerings. It reported approximately 92.1 million registered learners and more than 250 university and industry partners at quarter-end.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $109.9 million | $82.7 million | $300.3 million | $210.2 million |
| Gross profit / margin | $67.7 million / 62% | $43.7 million / 53% | $178.2 million / 59% | $111.2 million / 53% |
| Operating loss | $31.4 million | $11.9 million | $95.6 million | $40.4 million |
| Net loss | $32.5 million | $11.9 million | $97.5 million | $40.1 million |
| Adjusted EBITDA (non-GAAP) | $(3.1) million | $(4.3) million | $(16.1) million | $(22.0) million |
| Operating cash flow | Not separately stated for the quarter | $0.9 million | $2.5 million | |
| Free cash flow (non-GAAP) | Not separately stated for the quarter | $(10.0) million | $(5.7) million |
At September 30, 2021, cash and cash equivalents were $801.1 million and marketable securities were $15.0 million, totaling $816.1 million. Total current assets were $888.7 million and current liabilities were $181.4 million. The filing reports no outstanding debt balance. Management said available liquidity and expected operating cash flows should fund needs for at least 12 months.
Material changes versus the prior comparable periods
- Q3 revenue grew 33%; nine-month revenue grew 43%. Enterprise and Degrees grew faster than Consumer, increasing their combined share of revenue.
- Q3 segment revenue was Consumer $66.5 million (+16%), Enterprise $31.8 million (+75%), and Degrees $11.6 million (+59%). Nine-month revenue was $180.4 million (+29%), $84.5 million (+69%), and $35.4 million (+72%), respectively.
- Gross margin increased by 9 percentage points in Q3 and 6 points for the nine-month period. Management attributed the improvement to a shift toward Enterprise and Degrees and lower Consumer content costs as a percentage of revenue. Enterprise segment gross margin declined to 67% from 69% in Q3 and to 67% from 70% for the nine months.
- Operating expenses rose 78% in Q3 and 81% for the nine months, reflecting higher personnel costs and stock-based compensation, as well as increased marketing and public-company costs. Stock-based compensation was $23.4 million in Q3 and $67.9 million for the nine months, versus $4.7 million and $11.3 million, respectively, in 2020.
- The company completed its April 2021 IPO, generating approximately $525.3 million in net proceeds including the underwriters’ full option. Preferred stock converted into common stock; shares outstanding increased substantially.
Outlook, commentary, risks, and unusual items
- No numerical revenue, earnings, or margin guidance is provided in this filing. Management expects operating expenses to increase in absolute dollars as it invests in technology, sales and marketing, headcount, and international expansion; it also expects longer-term expense ratios to generally decline, though they may vary.
- Management warns that revenue growth may slow or become more volatile, including as pandemic-related demand changes. COVID-19 boosted online-learning demand and revenue, but the lasting effect as the pandemic wanes is uncertain.
- Remaining performance obligations were $240.6 million at September 30, 2021; approximately 64% was expected to be recognized as revenue over the next 12 months. This is not a guarantee of future revenue.
- The company continues to incur significant losses and had an accumulated deficit of $441.0 million. Q3 net loss included elevated stock-based compensation; IPO-related conversion and proceeds materially changed the capital structure and liquidity.
- Key stated risks include learner acquisition and paid conversion, Enterprise customer retention and expansion, partner concentration and content availability, competition, education regulation, and uncertainty around the Department of Education’s “dear colleague letter” and the bundled-services exception supporting aspects of the business model. Five partners’ content and programs accounted for approximately 33% of nine-month revenue.
- Other risks include privacy and cybersecurity, platform availability and dependence on third-party infrastructure, international regulation and currency exposure, and the public-benefit-corporation obligation to balance stockholder interests with other stakeholders. Management reported disclosure controls effective at a reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
- Commitments included approximately $50.7 million of future non-cancelable purchase obligations through 2026. The company stated it had no material aggregate exposure from legal proceedings that were reasonably possible at the time, while noting litigation outcomes and indemnification obligations can carry uncertainty.
Most important facts for investors to verify
- Whether rapid revenue growth, particularly Enterprise and Degrees growth, continues as pandemic effects and year-over-year comparisons change.
- Whether gross-margin gains persist, including the effects of segment mix and partner content-cost rates.
- How operating expenses and stock-based compensation evolve relative to revenue, and whether the company can progress toward profitability and positive free cash flow.
- Enterprise customer retention and expansion: paid customers increased to 711 from 318, while net retention rate rose to 113% from 108% year over year.
- Whether the $240.6 million of remaining performance obligations converts to revenue on the stated schedule, and how deferred revenue and cash flows develop.
- Exposure to partner concentration and education-law changes, particularly the continued applicability of the bundled-services exception.