Coursera, Inc. (COUR)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following section discusses the 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 Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K (“Form 10-K”). This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Form 10-K. You should review the disclosure under the heading "Risk Factors" under Part I, Item 1A in this Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

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Organization of Information

Management’s discussion and analysis provides a narrative on our financial performance and condition that should be read in conjunction with the accompanying Consolidated Financial Statements. It includes the following sections:

•Overview

•Recent Developments

•Factors Affecting Our Performance

•Impact of Macroeconomic Conditions

•Components of Results of Operations

•Results of Operations

•Liquidity and Capital Resources

•Key Business Metrics and Non-GAAP Financial Measures

•Critical Accounting Estimates

•Recent Accounting Pronouncements

In this section of the Form 10-K, we discuss our financial condition and results of operations for the years ended December 31, 2024 and 2023. Our financial condition and results of operations for the years ended December 31, 2023 and 2022 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 22, 2024.

Overview

Coursera is one of the world’s largest online learning destinations, connecting an ecosystem of learners, educators, organizations, and institutions through high-quality content, credentials, data, and technology. As the digital economy evolves, the demand for new skills increases.

We partner with over 350 university and industry partners (collectively, “educator partners”) to create and distribute high-quality, modular, flexible, and affordable content. As of December 31, 2024, we had approximately 168 million registered learners on our platform. Our learners engage with a wide range of offerings from industry microcredentials, including entry-level Professional Certificates, to bachelor’s and master’s degree programs.

Coursera serves learners where and how they want to learn—in their homes, through their employers, through their academic institutions, and through government-sponsored programs. We provide a broad range of learning content and credentials, including Clips, Guided Projects, Specializations, courses, and certificates that can build towards a broader course of study such as a degree or postgraduate diploma.

Our go-to-market strategy centers on efficiently attracting learners to our platform through world-class branded content and credentials, while promoting personalized pathways to jobs and degree programs. Our data-driven learner experience helps identify potential Enterprise prospects. complemented by our direct sales team, which finds and engages with potential business, academic, government, and other institutional customers.

Recent Developments

Leadership Transition

Effective February 3, 2025, our Board of Directors (the “Board”) appointed Gregory Hart as our President, Chief Executive Officer, and a Class III director on our Board. Refer to Note 11, “Employee Benefit Plans,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for additional information.

Restructuring and Expense Reduction Initiatives

As we refine our business strategy and hone our focus, we have also been reducing our expenses and prioritizing investments in key initiatives that are expected to drive long-term, sustainable growth.

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In November 2022, we enacted a plan to reduce our global workforce to better align our cost structure and personnel needs with our planned business objectives, growth opportunities, and operational priorities at the time. During the year ended December 31, 2022, we recognized restructuring related charges of $10.1 million that were mainly related to personnel expenses, such as employee severance and benefits costs. Related cash payments of $5.1 million and $4.8 million were made in the years ended December 31, 2023 and 2022. We also recognized a reversal of stock-based compensation expense of approximately $5.6 million during the year ended December 31, 2023, resulting from the forfeiture of RSUs and stock options.

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 year ended December 31, 2024, all of which were paid in 2024. Later in the year, we made a strategic decision to focus our efforts and investments on growing our Consumer and Enterprise businesses. We also decided to be more selective in our pursuit of Degrees partnerships and programs that are aligned with our platforms’ strengths, given the continued evolution of the Degrees market and the broader opportunities we have to serve colleges and universities. As a result, we anticipate a revenue decline in our Degrees segment for 2025. In response to these developments, in October 2024, we announced a commitment to reduce overall expenses, focus efforts, and prioritize future investments in key initiatives that we expect will drive long-term, sustainable growth.

With regards to the expense reduction initiative, we expect this initiative to generate at least $30 million in annualized structural cost savings primarily from a global workforce reduction of approximately 9%, creating capacity for targeted investments, as well as incremental profitability. During the year ended December 31, 2024, we recognized restructuring related charges of $6.8 million, mainly consisting of personnel expenses, such as employee severance and benefits. Related cash payments of $2.7 million were made in the year ended December 31, 2024. As of December 31, 2024, $4.5 million remained unpaid and was recorded primarily in accrued compensation and benefits in the Consolidated Balance Sheets. During the first quarter of 2025, we expect to recognize a reversal of stock-based compensation expense of approximately $2 million, when the forfeiture of unvested RSUs and stock options will occur, and an additional approximately $1 million in personnel restructuring related charges. We expect to complete our expense reduction efforts by March 31, 2025.

Factors Affecting Our Performance

We believe that the growth of our business and our future success are dependent upon many factors. While each of these factors present significant opportunities for us, these factors also pose challenges that we must successfully address in order to sustain the growth of our business and enhance our results of operations.

Ability to attract and engage new learners, Enterprise customers, and Degrees students. In order to grow our business, we must attract learners, Enterprise customers, and Degrees students efficiently and increase engagement on our platform over time. Our Consumer learners are vital to growing and maintaining our overall learner base, as they contribute to generating interest and ultimately revenue for both our Enterprise and Degrees segments, and increase engagement and retention on our platform over time.

In 2024, we observed weaker month-over-month retention rates for our Consumer subscription offerings. Our Enterprise revenue growth also slowed, as a result of a decline in sales activity for new and expanded business towards the end of 2023, as well as lower lower retention of existing customers in our Coursera for Government vertical. We believe that to effectively grow our Company in the long term, we need to first focus our efforts and investments on growing our Consumer and Enterprise businesses. One of our key initiatives is to continue sourcing, producing, and releasing in-demand content on our platform to attract and retain learners, but learner behavior may change over time due to a number of factors. We also decided to be more selective in our pursuit of Degrees partnerships and programs that are aligned with our platforms’ strengths, given the continued evolution of the Degrees market and the broader opportunities we have to serve colleges and universities. As a result, we anticipate a decline in Degrees revenue for 2025.

Ability to source in-demand content from our educator partners. We believe that learners and enterprises are attracted to Coursera largely because of the high quality and wide selection of content provided by our educator partners. Continuing to source in-demand content and credentials from our educator partners is important to attract learners and grow our revenue over time.

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We believe that our reach, scale, and reputation provide an attractive value proposition for leading organizations and institutions to partner with Coursera to develop and distribute content and credentials. To be the platform of choice for educator partners, we continue to invest in increasing the size and engagement of our learner base, developing AI-powered product innovations (e.g., Course Builder and Coach), providing a suite of academic integrity features (e.g., identity verification and anti-plagiarism detection), improving recommendation and personalization features, engaging in marketing efforts that drive higher conversion into paid offerings, and enhancing the analytics tools available for learners, educators, organizations, and institutions.

Impact of mix shift over time. The mix of our business amongst our Consumer, Enterprise, and Degrees segments shifts from time to time, and these shifts have and will continue to affect our financial performance. We typically incur content costs for our Consumer and Enterprise offerings in the form of a fee paid to our educator partners, determined as a percentage of total revenue generated from their content. Starting in 2025, we will compensate our educator partners based on the level of learner engagement their content generates, rather than learner completion rates. We believe this change will improve learner outcomes by incentivizing our educator partners to produce highly engaging content and will account for the varied types of content we offer beyond courses. For our Degrees offering, we do not incur any content costs as our university partners compensate us with a percentage of learner tuition.

Ability to convert free learners to paid learners. New learners typically start by engaging with our free courses on our platform, serving as a funnel to grow our total learner base and drive referrals to our other offerings, including our paid offerings. We engage our free learners through both our on-platform and off-platform marketing efforts, highlighting premium features that encourage conversion to our paid offerings, such as subscriptions. These efforts include campaigns targeting existing learners, personalized recommendations, and performance marketing on the internet.

Ability to expand our international footprint. We see a significant opportunity to expand our offerings into regions with large, underserved adult learning populations. As part of our growth strategy, we have invested, and plan to continue investing in marketing efforts to support our international expansion and grow our customer and learner base. We have also been improving the front-end experience for our Consumer learners and tailoring our pricing and check-out options, including selling our offerings in foreign currency, in select markets. Our business results and operations will depend on our ability to effectively price and package our Consumer products to meet demand and manage foreign currency risk.

Ability to retain and expand our Enterprise customer relationships. Our efforts to grow our Enterprise segment are focused primarily on business, academic, government, and other institutional customers. Despite a decline in our net retention rate for paid Enterprise customers in 2024, we believe a significant opportunity exists to expand our customers’ use of our platform by identifying new use cases that increase deployment sizes. Our business and results of operations will depend, in part, on our ability to retain and expand platform usage within our existing customer base.

Our measured investment in growth. We are actively managing our investments with a measured approach to support future business growth. While we strive for our investments to be focused on select markets, offerings, and technologies that we believe offer the best opportunities for revenue growth and improved operating results in the long term, our investments may not result in the desired outcomes.

Impact of Macroeconomic Factors

Our business and financial conditions have been, and may continue to be, impacted by adverse macroeconomic factors, including inflation, interest rates fluctuations, and volatility in foreign currency rates. Global, regional, macroeconomic, and geopolitical conditions have impacted overall student engagement and may continue to negatively impact total student enrollments.

Components of Results of Operations

Revenue

We generate revenue from contracts with customers for access to the educational content hosted on our platform and related services across our three reportable segments: Consumer, Enterprise, and Degrees.

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Consumer and Enterprise revenue primarily consists of subscriptions, with terms ranging from 30 days for certain Consumer subscriptions to one to three years for Enterprise license subscriptions. Consumer subscriptions are paid in advance, while Enterprise subscriptions are usually invoiced in advance in annual or quarterly installments. Since access to our platform represents a series of distinct services that we continually provide over the subscription term, revenue is recognized ratably over that period. We typically serve as the principal for revenue generated from sales to Consumer and Enterprise customers, as we control the performance obligation and are responsible for delivering content access.

Degrees revenue is generated from contracts with university partners to host and deliver their online bachelor’s and master’s degrees or postgraduate diplomas. We earn a service fee, determined as a percentage of the total tuition collected from Degrees students, net of refunds. University partners typically collect the tuition from Degrees students. We have a stand-ready obligation to provide services throughout the period that the degree content is hosted on our platform. Service fees are paid by the university partner for each university term. As a result, revenue generated from each term is recognized ratably from the beginning of a term through the start of the following term.

There is no direct contractual revenue arrangement between Coursera and Degrees students, who contract directly with our university partners. University partners typically have additional performance obligations to the Degrees students in the form of designing the curriculum, setting admission criteria, real-time teaching, making admissions and financial aid decisions, independently awarding credits, certificates, or degrees, and academic or career counseling. For these reasons, the university partners control the delivery of degrees and postgraduate diplomas hosted on our platform.

Cost of Revenue

Cost of revenue consists of content costs, which are fees paid to educator partners, and expenses associated with the operation and maintenance of our platform. These expenses include the cost of servicing support requests from both paid learners and educator partners, content translation and captioning, hosting and bandwidth costs, amortization of acquired technology, internal-use software, and content assets, customer payment processing fees, and facilities costs. Content costs only apply to Consumer and Enterprise offerings. There are no content costs attributable to our Degrees offering. Content costs as a percentage of revenue for the Consumer and Enterprise segments can vary based on the content mix of each segment.

Operating Expenses

Operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs, which include salaries, stock-based compensation expense, payroll taxes, commissions, bonuses, and benefits, make up the most significant component of our operating expenses. Our operating expenses also include marketing and advertising expenses, consulting and services expenses, office expenses, depreciation and amortization, and facilities costs.

Research and development. Our research and development expenses primarily consist of personnel and personnel-related costs, including stock-based compensation expense, and costs related to the ongoing management, maintenance, and expansion of content, features, and services offered on our platform. We believe that continued investment in our platform is important for future growth and for maintaining and attracting educator partners and learners. While we expect research and development expenses as a percentage of revenue to vary from period to period, we anticipate a general decrease over the long term.

Sales and marketing. Our sales and marketing expenses primarily consist of personnel and personnel-related costs, including stock-based compensation expense, as well as costs related to acquiring learners, customers, and educator partners, support efforts, and marketing. Sales and marketing expenses also include hosting and bandwidth costs. We expect sales and marketing expenses as a percentage of revenue to vary from period to period but generally decrease over the long term.

General and administrative. Our general and administrative expenses primarily consist of personnel and personnel-related costs, including stock-based compensation expense, as well as professional services fees, costs related to compliance and reporting obligations, legal settlements, and other corporate expenses. In addition, we expect general and administrative expenses as a percentage of revenue to vary from period to period but generally decrease over the long term.

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Restructuring related charges. Our restructuring related charges consist of costs associated with our restructuring and expense reduction initiatives and are primarily personnel expenses, such as employee severance and benefits costs, net of the reversal of stock-based compensation expense from forfeitures.

Interest Income, Net

Interest income, net primarily consists of interest income earned on our cash, cash equivalents, and marketable securities, along with the amortization of premiums and accretion of discounts related to our marketable securities. The amount varies each reporting period based on our average balance of cash, cash equivalents, and marketable securities during the period, as well as market interest rates.

Other Expense, Net

Other expense, net primarily consists of foreign exchange gains (losses) and impairment charges related to equity investments.

Income Tax Expense

Income tax expense primarily consists of state and foreign income taxes for jurisdictions in which we conduct business. We maintain a full valuation allowance against our U.S. federal and state deferred tax assets as the realization of these deferred tax assets, including net operating loss carryforwards and tax credits primarily related to research and development, is uncertain. We expect to maintain this full valuation allowance until it becomes more likely than not that the deferred tax assets will be realized.

Results of Operations

The following table summarizes our results of operations, which are not necessarily indicative of future results.

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(1)Includes stock-based compensation expense as follows:

The following table summarizes our results of operations as a percentage of revenue:

Comparison of the Years Ended December 31, 2024 and 2023

Revenue

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Revenue for the year ended December 31, 2024 was $694.7 million, an increase of $58.9 million, or 9%, from $635.8 million for the prior year. Revenue growth was primarily driven by a 19% 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 22% increase in the number of Degrees students. This growth was partially offset by lower learner and customer retention in our Consumer and Enterprise segments globally, as well as fewer new paid learners and Degrees students from our higher-priced regions.

Consumer revenue for the year ended December 31, 2024 increased by $32.9 million, or 9%, from the prior year. New learners who registered after December 31, 2023, contributed $107.5 million to Consumer revenue of $398.1 million for the year ended December 31, 2024. The remaining $290.6 million of Consumer revenue was attributable to learners who were registered on our platform as of December 31, 2023, representing an 80% retention of revenue from those registered learners.

Enterprise revenue for the year ended December 31, 2024 increased by $19.3 million, or 9%, from the prior year, attributable to an increase in new customers. Acquisitions of new customers drove an increase of $27.1 million, offset by a $7.8 million decrease due to contraction of existing customer spend.

Degrees revenue for the year ended December 31, 2024 increased by $6.7 million, or 13%, from the prior year. This increase was primarily attributable to $11.8 million in revenue from an increase in the number of Degrees students, partially offset by a decrease of $5.1 million due to lower revenue per student resulting from fewer new Degrees students in our higher-priced regions.

Cost of Revenue, Gross Profit, and Gross Margin

Cost of revenue for the year ended December 31, 2024 was $323.3 million, compared to $306.0 million for the prior year. The primary drivers of the increase were revenue growth, which resulted in an increase of $17.4 million in educator partner fees, a $3.3 million increase in amortization expense for internal-use software and website development costs, and a $1.7 million increase in platform costs. These increases were partially offset by savings of $3.8 million due to lower language translation costs and a decrease of $1.3 million in residual support services expenses and credit card processing fees.

Content costs for the Consumer segment were $183.8 million and $172.2 million for the years ended December 31, 2024 and 2023, with content costs as a percentage of revenue of 46% and 47% for the same periods. Content costs for the Enterprise segment were $75.0 million and $69.2 million for the years ended December 31, 2024 and 2023, with content costs as a percentage of revenue of 31% and 32% for the same periods. Content costs as a percentage of revenue for both segments decreased due to a shift to lower-cost content.

Gross margin was 53% for the year ended December 31, 2024, an increase from 52% for the prior year. The increase in gross margin was driven by lower content cost rates in both our Consumer and Enterprise segments.

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Operating Expenses

Total operating expenses for the year ended December 31, 2024 were $484.6 million, compared to $475.4 million for the prior year.

Research and development expenses for the year ended December 31, 2024 were $132.0 million, compared to $160.1 million for the prior year. This decrease was primarily due to lower personnel-related expenses of $18.3 million, including $8.4 million in stock-based compensation expense, from shifting resources to lower-cost regions, lower content creation costs of $6.1 million, lower attributed facilities costs of $1.6 million, and a decrease in consulting services expense of $1.4 million.

Sales and marketing expenses for the year ended December 31, 2024 were $234.9 million, compared to $222.8 million for the prior year. The increase was primarily due to an increase in marketing and advertising expenses of $11.6 million and an increase in commission expenses of $2.4 million. The increase was partially offset by a decrease in stock-based compensation expense of $3.3 million and reduced impairment charges of $1.3 million associated with Degrees content development grants.

General and administrative expenses for the year ended December 31, 2024 were $108.7 million, compared to $98.3 million for the prior year. The increase was primarily due to an increase in personnel-related expenses of $8.0 million, including $3.7 million in stock-based compensation expenses, a $4.8 million loss contingency recorded related to certain significant and non-recurring legal matters as described in Note 9, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K, $1.5 million in legal fees associated with these significant and non-recurring legal matters, and $3.4 million related to third party advisory, legal, and other professional fees associated with evaluating an M&A transaction. This increase was partially offset by a reduction of value-added tax expense of $7.1 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.

Restructuring related charges for the year ended December 31, 2024 were $8.9 million, compared to $(5.8) million for the prior year. For 2024, the expenses primarily consist of personnel expenses, such as employee severance and benefits costs, related to our expense reduction initiatives initiated in January and October 2024. For 2023, the amount represents 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 Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for further information.

Other Income, Net

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Total other income, net for the year ended December 31, 2024 was primarily comprised of interest income earned on cash and cash equivalents. Interest income, net was higher during the year ended December 31, 2024, compared to the prior year, due to higher interest rates and our average rate of return on investments in U.S. Treasury securities. Other expense, net for 2024 primarily reflects an impairment loss of $1.0 million on a minority interest equity investment following a recapitalization event and $1.0 million of unrealized foreign exchange losses. Our foreign subsidiaries’ operating costs are typically denominated in the local currencies for each country and are subject to foreign currency fluctuations. We also maintain foreign-currency cash and cash equivalents in our foreign subsidiaries to support their ongoing operations.

Income Tax Expense

Income tax expense for the year ended December 31, 2024 was $1.0 million, compared to $5.4 million for the prior year. The reduction in income tax expense was primarily due to the release of a reserve for an uncertain tax position pertaining to a foreign subsidiary.

Liquidity and Capital Resources

Overview

As of December 31, 2024, our principal source of liquidity was cash and cash equivalents totaling $726.1 million.

Since our inception, we have financed our operations primarily through proceeds from the issuance of redeemable convertible preferred stock, our IPO, and cash generated from business operations. Our principal uses of cash in the years ended December 31, 2024 and 2023 include the funding of our business operations, investments in our internal-use software, purchases of content assets, and repurchases of our common stock.

We believe that our existing cash and cash equivalents, along with 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. If 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. Moreover, 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.

Contractual Obligations and Commitments

Our estimated future obligations as of December 31, 2024 include both current and long-term obligations. Under our operating leases, as described in Note 6, “Leases”, to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K, we have an immaterial current obligation and a long-term obligation of $3.0 million.

Our operating lease obligations as of December 31, 2024 were approximately $4.7 million, which consisted of facility lease payments remaining on those agreements through their staggered expiration concluding in 2030. We have office facility operating leases in the U.S., Canada, the United Kingdom, India, the United Arab Emirates, and the Kingdom of Saudi Arabia.

Our purchase obligations as of December 31, 2024 were approximately $13.3 million, which primarily consisted of our commitments to purchase certain services. As described in Note 9, “Commitments and Contingencies”, to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K, we had a current obligation of $10.4 million and a long-term obligation of $2.9 million. For services that have been delivered under these arrangements as of December 31, 2024, we recorded related liabilities within other accounts payable and accrued expenses in the Consolidated Balance Sheets, which are excluded from the purchase obligation amount.

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Share Repurchase Program

On April 26, 2023, our Board approved a share repurchase program with authorization to purchase up to $95 million of our common stock, excluding commissions and fees. We funded these share repurchases with our existing cash and cash equivalents and completed the purchase authorization on May 7, 2024.

During the years ended December 31, 2024 and 2023, we repurchased an aggregate of 3,099,800 shares of our common stock for $36.7 million and 4,829,803 shares of our common stock for $58.5 million.

Capital Expenditures

Our capital expenditures primarily include investments in property, equipment, and software, capitalized internal-use software costs, and purchases of content assets. We expect our purchases of content assets during 2025 to increase relative to 2024.

Cash Flows

The following table summarizes our cash flows:

Operating Activities

Cash provided by (used in) operating activities mainly consists of our net loss adjusted for certain non-cash items, including stock-based compensation expense, depreciation and amortization, accretion of marketable securities, and impairment losses, as well as the effect of changes in operating assets and liabilities during each period. Our main source of operating cash is payments received from our customers. Our primary use of cash from operating activities is for personnel-related expenses, educator partner fees, marketing and advertising expenses, indirect taxes, and third-party cloud infrastructure expenses.

Net cash provided by operating activities for the year ended December 31, 2024 was $95.4 million, primarily the result of improved operating leverage and working capital driven by (i) deferred revenue growth, (ii) an increase in incentive compensation and severance accruals, and (iii) an acceleration of accounts receivable collections.

Net cash provided by operating activities for the year ended December 31, 2023 was $29.6 million, primarily the result of (i) a one-time benefit arising from the timing of content fee payments associated with the extension of our multi-year agreement with our largest educator partner, (ii) revenue growth paired with the results of our expense reduction initiative resulting in improved operational leverage, (iii) an increase in cash collections, and (iv) a decrease in professional services fees, offset by (v) an increase in our paid marketing spend.

Cash provided by operating activities increased by $65.7 million during the year ended December 31, 2024, compared to the prior year, primarily the resulting of (i) improved operating leverage, (ii) an improvement in the timing of accounts receivables collections, and (iii) the timing of vendor prepayments, partially offset by (iv) the timing of content fees payable to our largest educator partner resulting from the prior year extension of our multi-year agreement with them.

Investing Activities

Net cash provided by investing activities for the year ended December 31, 2024 was $29.9 million, primarily the result of proceeds from the maturities of marketable securities, partially offset by purchases of content assets, purchases of capitalized internal-use software costs, and purchases of property, equipment, and software.

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Net cash provided by investing activities for the year ended December 31, 2023 was $384.8 million, primarily the result of proceeds from maturities of marketable securities, partially offset by purchases of marketable securities, capitalized internal-use software costs, purchases of property, equipment, and software, and purchases of content assets.

Financing Activities

Net cash used in financing activities for the years ended December 31, 2024 and 2023 was $54.9 million and $79.2 million, primarily the result of payments for repurchases of common stock and payments for tax withholdings on vesting of RSUs, partially offset by proceeds from exercise of stock options and proceeds from the employee stock purchase plan.

Key Business Metrics and Non-GAAP Financial Measures

We monitor the key business metrics and non-GAAP financial measures set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. These key business metrics and non-GAAP financial measures are presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles in the U.S. (“GAAP”), and may differ from similarly titled metrics or measures presented by other companies. A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is provided in “Non-GAAP Financial Measures” below.

Key Business Metrics

Registered Learners

We count the total number of registered learners at the end of each period. For purposes of determining our registered learner count, we treat each customer account that registers with a unique email as a registered learner and adjust for any spam, test accounts, and cancellations. Our registered learner count is not intended as a measure of active engagement. New registered learners are individuals that register in a particular period. We believe that the number of registered learners is an important indicator of the growth of our business and future revenue trends.

Number of Degrees Students

We count the total number of Degrees students for each period. For purposes of determining our Degrees student count, we include all the students that are matriculated in a degree program and who are enrolled in one or more courses in such a degree program during the period, including students enrolled within any wind-down or teach-out periods of any existing programs. If a degree term spans across multiple quarters, the student is counted as active in all quarters of the degree term. For purposes of determining our Degrees student count, we do not include students who are matriculated in the degree but are not enrolled in a course in that period. We believe that the number of Degrees students is an important indicator of the growth of our Degrees business and future Degrees segment revenue trends.

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The Degrees student count is affected by the seasonality of the school class cycles, combined with the underlying growth interacting with those trends. For quarter-over-quarter fluctuations, the number of Degrees students fluctuates in part because the academic terms for each degree program often begin and/or end within different calendar quarters, and the frequency with which each degree program is offered within a given year varies. This metric is also subject to variation resulting from the addition or removal of degree programs over time.

Paid Enterprise Customers

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 year ended December 31, 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.

Net Retention Rate for Paid Enterprise Customers

We disclose Net Retention Rate for Paid Enterprise Customers as a supplemental measure of our Enterprise revenue growth. We believe Net Retention Rate for Paid Enterprise Customers is an important metric that provides insight into the long-term value of our subscription agreements and our ability to retain and grow revenue from our Paid Enterprise Customers.

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 was 87% for the year ended December 31, 2024, compared to 98% for the prior year, and was primarily the result of non-renewal of certain large government contracts in North America and the Asia Pacific regions. 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 the relationships with our Paid Enterprise Customers.

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Segment Revenue

We generate revenue from our three reportable segments: Consumer, Enterprise, and Degrees.

Segment Gross Profit

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. Content costs, which are the largest individual cost of our revenue, contractually vary as a percentage of revenue between our Consumer and Enterprise offerings, and are not applicable to our Degrees offering. Therefore, shifts in the mix between our three segments are expected to be a significant driver of our overall gross margin, financial performance, and profitability.

Consumer segment gross margin increased to 54% in the year ended December 31, 2024, up from 53% in the prior year. Similarly, Enterprise segment gross margin increased to 69% from 68% when comparing the same periods. The improvements in gross margin were primarily the result of lower content cost rates in both our Consumer and Enterprise segments for the year ended December 31, 2024, partly due to one-time benefits.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we have included non-GAAP gross profit, non-GAAP net income (loss), non-GAAP net income (loss) per share, Adjusted EBITDA, Adjusted EBITDA Margin, and Free Cash Flow, which are non-GAAP financial measures, because they are key measures used by our management to help us analyze our financial results, establish budgets and operational goals for managing our business, evaluate our performance, and make strategic decisions. Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for, or superior to, comparable GAAP financial measures and should be read only in conjunction with our Consolidated Financial Statements prepared in accordance with GAAP. Our presentation of these non-GAAP financial measures may not be comparable to similar measures used by other companies. We encourage investors to carefully consider our results under GAAP, as well as our supplemental non-GAAP information and the reconciliations of GAAP to non-GAAP financial measures to more fully understand our business.

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Non-GAAP Gross Profit, Non-GAAP Net Income (Loss), and Non-GAAP Net Income (Loss) Per Share

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.

The following tables provide a reconciliation of GAAP gross profit and GAAP net loss, the most directly comparable GAAP financial measure, to non-GAAP gross profit and non-GAAP net income (loss):

(1) For periods presented with a non-GAAP net loss, we have excluded the effect of potentially dilutive securities as their inclusion would be anti-dilutive.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA Margin are key measures used by our management to help us analyze our financial results, establish budgets and operational goals for managing our business, evaluate our performance, and make strategic decisions.

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We define Adjusted EBITDA as our GAAP net loss excluding: (i) depreciation and amortization; (ii) interest income, net; (iii) income tax expense; (iv) other (income) expense, 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.

The following table provides a reconciliation of net loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA:

Free Cash Flow

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.

We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors in understanding and evaluating our liquidity and future ability to generate cash that can be used for strategic opportunities, including investing in our business and strengthening our balance sheet, but it is not intended to represent the residual cash flow available for discretionary expenditures.

The following table provides a reconciliation of net cash provided by (used in) operating activities, the most directly comparable GAAP financial measure, to Free Cash Flow:

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Critical Accounting Estimates

Our Consolidated Financial Statements have been prepared in accordance with GAAP. The preparation of these Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent there are material differences between these estimates and our actual results, our financial position and results of operations will be affected.

We believe that of our significant accounting policies described in Note 2, “Significant Accounting Policies”, in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K, the critical accounting estimates, assumptions, and judgments that have the most significant impact on our Consolidated Financial Statements are described below.

Revenue Recognition

Determining whether we are the principal or agent in our revenue transactions requires significant judgment. We consider a range of indicators, including, but not limited to, who is primarily responsible for fulfilling the service, who has economic risk as a result of investing resources in advance of a sale transaction (“inventory risk”), and who has pricing discretion. As we control the performance obligation and are the primary obligor with respect to delivering access to course content for Consumer and Enterprise contracts and have inventory risk through recoupable advances paid to educator partners, we are the principal in such transactions. Conversely, for Degrees, the university partner controls the delivery of their degrees hosted on our platform, and we are the agent in these transactions recognizing only the service fee we receive from the university partner.

Our Degrees services revenue is determined based on a fee percentage applied to the total tuition collected from Degrees students, net of refunds, by the university partner. As a result, the revenue earned by us is dependent upon the number of learners enrolled and the tuition charged by the university partner. This is a form of variable consideration. We estimate revenue using an expected value method, which is based on what we expect to earn in return for our performance of the Degrees services, reduced by the amount, if any, considered probable of reversing in a future period. These estimates are continually evaluated until such time as the uncertainties are resolved, generally at the time the final term enrollment report is provided by the university partner.

Recent Accounting Pronouncements

Refer to Note 2, “Significant Accounting Policies”, in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for a discussion of recent accounting pronouncements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following section discusses the 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 Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K (“Form 10-K”). This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Form 10-K. You should review the disclosure under the heading "Risk Factors" under Part I, Item 1A in this Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

Organization of Information

Management’s discussion and analysis provides a narrative on our financial performance and condition that should be read in conjunction with the accompanying Consolidated Financial Statements. It includes the following sections:

•Overview

•Factors Affecting Our Performance

•Impact of Macroeconomic Conditions

•Components of Results of Operations

•Results of Operations

•Liquidity and Capital Resources

•Key Business Metrics and Non-GAAP Financial Measures

•Critical Accounting Estimates

•Recent Accounting Pronouncements

In this section of the Form 10-K, we discuss our financial condition and results of operations for the years ended December 31, 2023 and 2022. Our financial condition and results of operations for the years ended December 31, 2022 and 2021 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 23, 2023.

Overview

Coursera is one of the largest online learning destinations in the world, connecting an ecosystem of learners, educators, organizations, and institutions with a platform of high-quality content and credentials, data, and technology.

As shifts to 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 December 31, 2023, approximately 142 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.

Coursera serves learners where and how they want to learn—in their homes, through their employers, through their colleges and universities, and through government-sponsored programs. We provide a broad range of learning content and credentials, including Clips, Guided Projects, Specializations, courses, and certificates that can build towards a broader course of study such as a degree or postgraduate diploma. Our go-to-market strategy centers on efficiently attracting learners to our platform through content and credentials from world-class brands, while promoting personalized pathways to jobs and degree programs. Additionally, our data-driven learner experience identifies potential Enterprise prospects, complemented by our direct sales team, which finds and engages with potential business, academic, government, and other institutional customers.

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For the years ended December 31, 2023 and 2022, we generated a net loss of $116.6 million and $175.4 million, which included stock-based compensation expense of $109.6 million and $110.8 million, and a net loss margin of 18% and 33%.

Factors Affecting Our Performance

We believe that the growth of our business and our future success are dependent upon many factors. While each of these factors present significant opportunities for us, these factors also pose challenges that we must successfully address in order to sustain the growth of our business and enhance our results of operations.

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.

Ability to source in-demand content from our educator partners. We believe that learners and enterprises are attracted to Coursera largely because of the high quality and wide selection of content provided by our educator partners. Continuing to source in-demand content and credentials from our educator partners—from courses to degrees—is important to attract learners and increase our revenue over time.

We believe that our reach, scale, and reputation provide an attractive value proposition for leading organizations and institutions to partner with Coursera to develop and distribute content and credentials. To be the platform of choice for educator partners, we continue to invest in increasing the size and engagement of our learner base, developing a suite of academic integrity features (e.g., identity verification and anti-plagiarism detection), improving recommendation and personalization features, developing marketing capabilities that drive higher conversion into paid offerings, and improving the analytics tools available for learners, educators, organizations, and institutions.

Impact of mix shift over time. The mix of our business amongst our Consumer, Enterprise, and Degrees segments shifts from time to time, and these shifts have and will continue to affect our financial performance. We typically incur content costs in the form of a fee paid to our educator partners, determined as a percentage of total revenue generated from their content. We do not incur any content costs for our Degrees offerings, since our university partners compensate us with a percentage of learner tuition.

Ability to convert free learners to paid learners. New learners typically begin to engage with our free courses on our platform, which serves as a funnel to grow our total learner base and drive referrals to our other offerings, including our paid offerings. Through both our on-platform and off-platform marketing efforts, we engage our free learners by highlighting key features that encourage conversion to our paid offerings, including paid subscriptions. These efforts include campaigns targeting existing learners, personalized recommendations, and performance marketing on the internet.

Ability to expand our international footprint. We see a significant opportunity to expand our offerings into other regions, particularly in regions with large, underserved adult learning populations. We have invested, and plan to continue to invest, in personnel and marketing efforts to support our international growth as part of our strategy to grow our customer and learner base.

Ability to retain and expand our Enterprise customer relationships. Our efforts to grow our Enterprise segment are focused primarily on business, academic, government, and other institutional customers. We believe a significant opportunity exists to expand our customers’ use of our platform by identifying new use cases that increase the size of deployments. Our business and results of operations will depend in part on our ability to retain and expand usage of our platform within our existing customer base.

Our measured investment in growth. We are actively managing our investments to support the future growth of our business using a measured approach. We focus our investments in select markets, offerings, and technologies that we believe will provide the best opportunity to grow our revenue and improve our operating results in the long term.

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Impact of Macroeconomic Factors

Our business and financial conditions have been, and may continue to be, impacted by adverse macroeconomic factors, including inflation, higher interest rates, and volatility in foreign currency rates. Global and regional, macroeconomic, and geopolitical conditions have impacted overall student engagement and may continue to have a negative impact on total student enrollments.

Components of Results of Operations

Revenue

We generate revenue from contracts with customers for access to the educational content hosted on our platform and related services. We generate revenue from our three reportable segments: Consumer, Enterprise, and Degrees.

Both Consumer and Enterprise revenue primarily consist of subscriptions with terms varying from 30 days for certain Consumer subscriptions to one to three years for Enterprise license subscriptions. Consumer subscriptions are paid in advance, while Enterprise subscriptions are usually invoiced in advance in annual or quarterly installments. Access to our platform represents a series of distinct services, as we continually provide access and fulfill our obligation to our customers over the contract term. As a result, revenue is recognized ratably over the contract term.

We are typically the principal with respect to revenue generated from sales to Consumer and Enterprise customers as we control the performance obligation and are responsible for delivering access to content.

Degrees revenue is generated from contracts with university partners to host and deliver their online bachelor’s and master’s degrees or postgraduate diplomas. We earn a service fee that is determined as a percentage of the total tuition collected from Degrees students, net of refunds. University partners typically collect the tuition from Degrees students. We have a stand-ready obligation to provide services throughout the period that the degree content is hosted on our platform. Service fees are paid by the university partner for each university term. As a result, revenue generated from each term is recognized ratably from the beginning of a term through the start of the following term.

There is no direct contractual revenue arrangement between Coursera and Degrees students, who contract directly with our university partners. University partners typically have additional performance obligations to the Degrees students in the form of designing the curriculum, setting admission criteria, real-time teaching, making admissions and financial aid decisions, independently awarding credits, certificates, or degrees, and academic or career counseling. For these reasons, the university partners control the delivery of degrees, and postgraduate diplomas hosted on our platform.

Cost of Revenue

Cost of revenue consists of content costs in the form of fees paid to educator partners and expenses associated with the operation and maintenance of our platform. These expenses include the cost of servicing both paid learner and educator partner support requests, content translation and captioning, hosting and bandwidth costs, amortization of acquired technology, internal-use software and content assets, customer payment processing fees, depreciation, and facilities costs.

Content costs only apply to Consumer and Enterprise offerings; there are no content costs attributable to our Degrees offering. Content costs as a percentage of revenue for Enterprise and Consumer vary based on the content mix of each segment.

Operating Expenses

Operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of our operating expenses and consist of salaries, stock-based compensation expense, payroll taxes, commissions, bonus, and benefits. Our operating expenses also include marketing and advertising expenses, consulting and services expenses, office expenses, depreciation and amortization, and facilities costs.

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Research and development. Our research and development expenses primarily consist of personnel and personnel-related costs, including stock-based compensation expense, and costs related to the ongoing management, maintenance, and expansion of content, features, and services offered on our platform. We believe that continued investment in our platform is important to our future growth and to maintain and attract partners and learners to our platform. As a result, we expect research and development expenses to increase in absolute dollars. In addition, we expect research and development expenses as a percentage of revenue to vary from period to period but generally decrease over the long term.

Sales and marketing. Our sales and marketing expenses primarily consist of personnel and personnel-related costs, including stock-based compensation expense, as well as costs related to acquiring learners, customers, and educator partners, support efforts, and marketing. Sales and marketing expenses also include hosting and bandwidth costs. We expect sales and marketing expenses to increase in absolute dollars as our business grows. In addition, we expect sales and marketing expenses as a percentage of revenue to vary from period to period but generally decrease over the long term.

General and administrative. Our general and administrative expenses primarily consist of personnel and personnel-related costs, including stock-based compensation expense as well as certain indirect taxes, professional fees, and other corporate expenses.

Since our IPO on April 5, 2021, we have incurred additional expenses as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance and professional services. We expect general and administrative expenses to increase in absolute dollars as our business grows. In addition, we expect general and administrative expenses as a percentage of revenue to vary from period to period but generally decrease over the long term.

Restructuring related charges. Our restructuring related charges primarily consist of personnel expenses, such as employee severance and benefits costs, and stock-based compensation expense related to the reduction of our global workforce initiated in November 2022.

Interest Income, Net

Interest income, net primarily consists of interest income earned on our cash, cash equivalents, and marketable securities. It also includes amortization of premiums and accretion of discounts related to our marketable securities. Interest income varies each reporting period based on our average balance of cash, cash equivalents, and marketable securities during the period as well as market interest rates.

Other Expense, Net

Other expense, net primarily consists of foreign exchange gains (losses).

Income Tax Expense

Income tax expense primarily consists of income taxes in foreign jurisdictions in which we conduct business. We have a full valuation allowance against our U.S. federal and state deferred tax assets as the realization of the full amount of these deferred tax assets is uncertain, including net operating loss carryforwards and tax credits primarily related to research and development. We expect to maintain this full valuation allowance until it becomes more likely than not that the deferred tax assets will be realized.

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Results of Operations

The following table summarizes our results of operations, which are not necessarily indicative of results to be expected for future periods.

(1)Includes stock-based compensation expense as follows:

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The following table summarizes our results of operations as a percentage of revenue:

Comparison of the Years Ended December 31, 2023 and 2022

Revenue

Revenue for the year ended December 31, 2023 was $635.8 million, compared to $523.8 million for the year ended December 31, 2022. Revenue increased by $112.0 million, or 21%, compared to the year ended December 31, 2022. The increase was primarily driven by a 20% increase in the average total number of registered learners resulting in more paid learners, a 19% increase in the average total number of Paid Enterprise Customers, and a 22% increase in the number of Degrees students.

For the year ended December 31, 2023, total Consumer revenue increased by $69.6 million, or 24%, compared to the year ended December 31, 2022. New learners that registered after December 31, 2022 contributed $112.2 million to total Consumer revenue of $365.2 million for the year ended December 31, 2023. The remaining Consumer revenue in the year ended December 31, 2023 of $253.0 million is attributable to learners that were registered on our platform as of December 31, 2022, thus retaining 86% of the revenue from those registered learners.

For the year ended December 31, 2023, total Enterprise revenue increased by $38.3 million, or 21%, compared to the year ended December 31, 2022. Acquisitions of new customers drove $34.5 million of the increase, and the remaining increase of $3.8 million was attributable to growth from existing customers.

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For the year ended December 31, 2023, total Degrees revenue increased by $4.1 million, or 9%, compared to the year ended December 31, 2022. The $4.1 million increase in revenue was primarily attributable to $6.6 million in revenue from an increase in the number of Degrees students, partially offset by a decrease of $2.5 million due to lower revenue per student resulting from student growth in lower priced regions.

Cost of Revenue, Gross Profit, and Gross Margin

Cost of revenue for the year ended December 31, 2023 was $306.0 million, compared to $192.3 million for the year ended December 31, 2022. The primary drivers for the increase were revenue growth combined with higher content costs as a percentage of revenue that resulted in an increase of $105.4 million in costs related to educator partner fees, as explained in more detail below. The remaining increase was largely driven by an increase in paid learner usage on our platform, resulting in a $2.3 million cost increase in support services and credit card processing fees, an increase in amortization expense, primarily from internal-use software of $4.2 million, as well as a $2.1 million increase in content translations.

Content costs for the Consumer segment were $172.2 million and $81.3 million for the years ended December 31, 2023 and 2022, with content costs as a percentage of revenue of 47% and 27% for the same periods. Content costs for the Enterprise segment were $69.2 million and $54.7 million for the years ended December 31, 2023 and 2022, with content costs as a percentage of revenue of 32% and 30% for the same periods. Content costs as a percentage of revenue were higher mainly due to the extension of a multi-year agreement with our largest educator partner. During the year ended December 31, 2023, our largest educator partner started earning typical content fees, whereas we had historically supported their program primarily through marketing and content production efforts. Overall, the change in this agreement's structure resulted in a shift of expenses from operating expenses to cost of revenue of approximately 12% of revenue for the year ending December 31, 2023. The increase in content costs as a percentage of revenue for the Enterprise segment was partially offset by a one-time benefit associated with a contract amendment with one of our educator partners.

Gross margin was 52% for the year ended December 31, 2023, compared to 63% for the year ended December 31, 2022. The decrease in gross margin was driven by a higher revenue content cost rate in both our Consumer and Enterprise segments for the reason described above.

Operating Expenses

Total operating expenses for the year ended December 31, 2023 were $475.4 million, compared to $508.9 million for the year ended December 31, 2022.

Research and development expenses for the year ended December 31, 2023 were $160.1 million, compared to $165.1 million for the year ended December 31, 2022. The decrease was primarily due to lower consulting and services expenses of $4.0 million and other employee expenses of $2.2 million, partially offset by higher stock-based compensation expense of $1.2 million.

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Sales and marketing expenses for the year ended December 31, 2023 were $222.8 million, compared to $227.7 million for the year ended December 31, 2022. The decrease was primarily due to lower marketing and advertising expenses of $4.8 million and decreases in consulting and services expenses, other employee expenses, and commission expense totaling $3.9 million. This decrease was partially offset by higher stock-based compensation expense of $1.2 million and an impairment charge of $2.0 million associated with Degrees content development grants.

General and administrative expenses for the year ended December 31, 2023 were $98.3 million, compared to $105.9 million for the year ended December 31, 2022. The decrease was primarily due to prior year non-recurring impairment charges of $3.8 million, relating to deferred partner fees that we do not expect to recover associated with content from Russian educator partners whose content we removed from our platform and to a partial sublease of our office space. Additionally, there were decreases in consulting and services expenses of $2.5 million, offices, facilities, and indirect taxes totaling $6.4 million, as well as other employee expenses of $1.4 million. These decreases were partially offset by an increase in software expenses of $1.3 million and higher personnel-related expenses of $4.9 million, including stock-based compensation expense of $2.7 million.

Restructuring related charges for the year ended December 31, 2023 were $(5.8) million 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, compared to $10.1 million for the year ended December 31, 2022 mainly consisting of personnel expenses, such as employee severance and benefits costs, related to this global workforce reduction. Refer to Note 15, “Restructuring Related Charges”, in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for further information.

Other Income, Net

Total other income, net for the year ended December 31, 2023 primarily reflected interest income earned on cash, cash equivalents, and marketable securities. Interest income, net was higher during the year ended December 31, 2023 compared to the year ended December 31, 2022 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 maintain foreign-currency cash and cash equivalents in our foreign entities to support their ongoing operations.

Income Tax Expense

For the year ended December 31, 2023, we recognized income tax expense of $5.4 million, compared to $4.7 million for the year ended December 31, 2022. Income tax expense for the years ended December 31, 2023 and 2022 was primarily related to our foreign operations.

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Liquidity and Capital Resources

Overview

As of December 31, 2023, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $722.1 million. Our investments consist of U.S. Treasury securities.

Since our inception, we have financed our operations primarily through proceeds from issuance of redeemable convertible preferred stock, our IPO, and cash generated from business operations. Our principal uses of cash in recent periods include the funding of our business operations, investments in our internal-use software, purchases of content assets, and repurchases of our common stock, as discussed below.

We believe that our existing cash, cash equivalents, and marketable securities 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.

Contractual Obligations and Commitments

Our estimated future obligations as of December 31, 2023 include both current and long-term obligations. Under our operating leases, as described in Note 6, “Leases”, to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K, we have a current obligation of $6.6 million and an immaterial long-term obligation.

Our operating lease obligations as of December 31, 2023 were approximately $6.8 million, which consist of facility lease payments remaining on those agreements through their staggered expiration concluding in 2025. We have office facility operating leases in the U.S., Canada, the United Kingdom, India, Bulgaria, the United Arab Emirates, and the Kingdom of Saudi Arabia.

Our purchase obligations as of December 31, 2023 were approximately $23.1 million, which primarily consisted of our commitments to purchase certain services. As described in Note 9, “Commitments and Contingencies”, to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K, we have a current obligation of $9.9 million and a long-term obligation of $13.2 million. For services that have been delivered under these arrangements as of December 31, 2023, we record related liabilities within other accounts payable and accrued expenses in the Consolidated Balance Sheets, which are excluded from the purchase obligation amount.

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 number of shares to be repurchased and the timing of the repurchases will depend on several factors, including, without limitation, business, economic, and market conditions, corporate, legal, and regulatory requirements, prevailing stock prices, trading volume, and other considerations. 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 year ended December 31, 2023, we repurchased an aggregate of 4,829,803 shares of our common stock for $58.5 million pursuant to a Rule 10b5-1 trading plan. As of December 31, 2023, we had $36.6 million, excluding commissions, remaining under the Repurchase Program, which has no expiration date and will continue unless otherwise suspended or discontinued.

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Capital Expenditures

Our capital expenditures primarily include investments in property, equipment, and software, capitalized internal-use software costs, and purchases of content assets. We currently expect our purchases of content assets during 2024 to increase relative to 2023.

Cash Flows

The following table summarizes our cash flows:

Operating Activities

Cash provided by (used in) 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. Our main source of operating cash is payments received from our customers. Our primary use of cash from operating activities is for personnel-related expenses, partner fees, marketing and advertising expenses, indirect taxes, and third-party cloud infrastructure expenses.

For the year ended December 31, 2023, net cash provided by operating activities was $29.6 million, primarily resulting from (i) a one-time benefit arising from the timing of content fee payments associated with the extension of our multi-year agreement with our largest educator partner, (ii) revenue growth paired with the results of our expense reduction initiative resulting in improved operational leverage, (iii) an increase in cash collections, (iv) a decrease in professional services fees, offset by (v) an increase in our paid marketing spend.

For the year ended December 31, 2022, net cash used in operating activities was $38.1 million, primarily resulting from (i) an increase in personnel related expenses driven by headcount growth, (ii) an increase in content costs due to Enterprise segment growth, (iii) an increase in our marketing and advertising spending, and (iv) an increase in our content creation costs.

Cash provided by operating activities increased by $67.7 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the timing of (i) content fees payable to our largest educator partner resulting from the extension of our multi-year agreement with them and (ii) customer invoicing and collections.

Investing Activities

For the year ended December 31, 2023, net cash provided by investing activities was $384.8 million primarily resulting from proceeds from maturities of marketable securities, partially offset by purchases of marketable securities, capitalized internal-use software costs, purchases of property, equipment and software, and purchases of content assets.

For the year ended December 31, 2022, net cash used in investing activities was $234.0 million, primarily resulting from purchases of marketable securities, capitalized internal-use software costs, purchases of property, equipment and software, and purchases of content assets, partially offset by proceeds from maturities of marketable securities.

Financing Activities

For the year ended December 31, 2023, net cash used in financing activities was $79.2 million, primarily resulting from payments for repurchases of common stock and payments for tax withholding on vesting of RSUs, partially offset by proceeds from exercise of stock options and proceeds from employee stock purchase plan.

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For the year ended December 31, 2022, net cash provided by financing activities was $12.2 million, primarily resulting from proceeds from exercise of stock options and proceeds from employee stock purchase plan, offset by payments for tax withholding on vesting of RSUs and payment of deferred offering costs.

Key Business Metrics and Non-GAAP Financial Measures

We monitor the key business metrics and non-GAAP financial measures set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. These key business metrics and non-GAAP financial measures are presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may differ from similarly titled metrics or measures presented by other companies. A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is provided in “Non-GAAP Financial Measures” below.

Key Business Metrics

Registered Learners

We count the total number of registered learners at the end of each period. For purposes of determining our registered learner count, we treat each customer account that registers with a unique email as a registered learner and adjust for any spam, test accounts, and cancellations. Our registered learner count is not intended as a measure of active engagement. New registered learners are individuals that register in a particular period. We believe that the number of registered learners is an important factor in the growth of our business and future revenue trends.

Number of Degrees Students

We count the total number of Degrees students for each period. For purposes of determining our Degrees student count, we include all the students that are matriculated in a degree program and who are enrolled in one or more courses in such a degree program during the period. If a degree term spans across multiple quarters, the student is counted as active in all quarters of the degree term. For purposes of determining our Degrees student count, we do not include students who are matriculated in the degree but are not enrolled in a course in that period. We believe that the number of Degrees students is an important indicator of the growth of our Degrees business and future Degrees segment revenue trends.

The Degrees student count is affected by the seasonality of the school class cycles, combined with the underlying growth interacting with those trends. For quarter-over-quarter fluctuations, the number of Degrees students fluctuates in part because the academic terms for each degree program often begins and/or ends within different calendar quarters, and the frequency with which each degree program is offered within a given year varies.

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Paid Enterprise Customers

We count the total number of Paid Enterprise Customers 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, which include organizations engaging on our platform through our Coursera for Teams offering or through our channel partners. For the year ended December 31, 2023, 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.

Net Retention Rate for Paid Enterprise Customers

We disclose Net Retention Rate for Paid Enterprise Customers as a supplemental measure of our Enterprise revenue growth. We believe Net Retention Rate for Paid Enterprise Customers is an important metric that provides insight into the long-term value of our subscription agreements and our ability to retain and grow revenue from our Paid Enterprise Customers.

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” as of a period end by starting with the ARR from all Paid Enterprise Customers as of the 12 months prior to such period end (“Prior Period ARR”). We then calculate the ARR from these same Paid Enterprise Customers as of the current period end (“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 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 our Paid Enterprise Customers.

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Segment Revenue

We generate revenue from our three reportable segments: Consumer, Enterprise, and Degrees.

Segment Gross Profit

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.

Consumer segment gross margin decreased to 53% in the year ended December 31, 2023 from 73% in the year ended December 31, 2022. Content costs were higher mainly due to the extension of a multi-year agreement with our largest educator partner. During the three months ended March 31, 2023, our largest educator partner started earning typical content fees, whereas we had historically supported their program primarily through marketing and content production efforts.

Enterprise segment gross margin decreased to 68% from 70% when comparing those same periods due to an increase in content costs from the extension of the multi-year agreement with our largest educator partner described above.

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Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we have included non-GAAP gross profit, non-GAAP net income (loss), non-GAAP net income (loss) per share, Adjusted EBITDA, Adjusted EBITDA Margin, and Free Cash Flow, which are non-GAAP financial measures, because they are key measures used by our management to help us analyze our financial results, establish budgets and operational goals for managing our business, evaluate our performance, and make strategic decisions. Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for, or superior to, comparable GAAP financial measures and should be read only in conjunction with our Consolidated Financial Statements prepared in accordance with GAAP. Our presentation of these non-GAAP financial measures may not be comparable to similar measures used by other companies. We encourage investors to carefully consider our results under GAAP, as well as our supplemental non-GAAP information and the reconciliations of GAAP to non-GAAP financial measures to more fully understand our business.

Non-GAAP Gross Profit, Non-GAAP Net Income (Loss), and Non-GAAP Net Income (Loss) Per Share

We define non-GAAP gross profit and non-GAAP net income (loss) as GAAP gross profit and GAAP net loss excluding the 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.

The following tables provide a reconciliation of GAAP gross profit and GAAP net loss, the most directly comparable GAAP financial measure, to non-GAAP gross profit and non-GAAP net income (loss):

(1) For periods presented with a non-GAAP net loss, we have excluded the effect of potentially dilutive securities as their inclusion would be anti-dilutive.

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Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA Margin are key measures used by our management to help us analyze our financial results, establish budgets and operational goals for managing our business, evaluate our performance, and make strategic decisions.

We define Adjusted EBITDA as our net loss excluding: (i) depreciation and amortization; (ii) interest income, net; (iii) income tax expense; (iv) other expense, 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.

The following table provides a reconciliation of net loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA: