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OFFON

COURSERA, INC.

(COUR)
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COURSERA, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/10/2021 | 04:26pm EST

The following discussion of our financial condition and results of operations should be read in conjunction with our condensed

consolidated financial statements and the related notes included in Item 1 of Part I of this report, and together with our audited consolidated financial statements and the related notes included in the final prospectus for our initial public offering filed with the Securities and Exchange Commission, pursuant to Rule 424(b)(4) on March 31, 2021 (the "Prospectus"). Historic results are not necessarily indicative of future results.

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All


statements in this report other than statements of historical fact, including
statements identified by words such as "believe," "may," "will," "estimate,"
"continue," "anticipate," "intend," "expect" and similar expressions, are
forward-looking statements. Forward-looking statements include, but are not
limited to, statements about:



?
trends in the higher education market and the market for online education, and
expectations for growth in those markets;
?
the acceptance, adoption, and growth of online learning and credentialing by
businesses, governments, educational institutions, faculty, learners, employers,
accreditors, and state and federal licensing bodies;
?
the demand for, and market acceptance of, our platform;
?
the potential benefits of our solutions to partners and learners;
?
anticipated launch dates of new partner programs;
?
our business model;
?
our future financial performance, including our expectations regarding our
revenue and expenses, and our ability to achieve and maintain future
profitability;
?
our ability to expand the content and credentialing programs available on our
platform and our ability to develop new platform features;
?
our ability to manage or sustain our growth and to effectively expand our
customer base and operations, including internationally;
?
our ability to acquire new partners and expand program offerings with existing
partners;
?
our ability to acquire prospective learners and to affect or increase learner
enrollment and retention;
?
our growth strategies, plans, objectives, and goals;
?
our ability to compete and the future competitive landscape;
?
our ability to attract and retain key employees;
?
the scalability of our platform and operations;
?
our ability to develop and protect our brand;
?
the increased expenses including regulatory compliance costs, associated with
being a public company;
?
the size of our addressable markets, market share, and market trends;
?
the affordability and convenience of our platform;
?
the effect of COVID-19 on our business and operations, including the demand for
online learning following the COVID-19 pandemic;
?
our ability to obtain, maintain, protect, and enforce our intellectual property
and proprietary rights and successfully defend against claims of infringement,
misappropriation, or other violations of third-party intellectual property;
?
the availability of capital to grow our business;
?
our ability to successfully defend any future litigation brought against us;
?
our ability to implement, maintain, and improve effective internal controls;

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?
potential changes in laws and regulations applicable to us or our partners and
our partners' ability to comply therewith; and
?
the amount of time for which we expect our cash balances and other available
financial resources to be sufficient to fund our operations.



In addition, any statements contained herein that are not statements of historical facts are deemed to be forward-looking


statements. Forward-looking statements are subject to a number of risks and
uncertainties that could cause actual results to differ materially from those
expected or referenced in these forward-looking statements. These risks and
uncertainties include, but are not limited to, those risks discussed in Part II,
Item 1A "Risk Factors" of this report. Moreover, we operate in a very
competitive and rapidly changing environment. New risks emerge from time to
time. It is not possible for our management to predict all risks, nor can we
assess the impact of all factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements we may make. Given these
uncertainties, you should not place undue reliance on these forward-looking
statements. We qualify all of the forward-looking statements in this report by
these cautionary statements.



You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations


reflected in the forward-looking statements are reasonable, we cannot guarantee
that the future results, levels of activity, performance, or events and
circumstances reflected in the forward-looking statements will be achieved or
occur. We undertake no obligation to update publicly any forward-looking
statements for any reason after the date of this report to conform these
statements to actual results or to changes in our expectations, except as
required by law.

Overview

Coursera is one of the largest online learning destinations in the world, connecting an ecosystem of learners, educators, 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 learning to learners and institutions worldwide. We
partner with over 250 leading global university and industry partners to create
and distribute content that is modular, stackable, flexible, and affordable. As
of September 30, 2021, approximately 92 million learners are registered on our
platform to engage with a wide range of offerings from Guided Projects to
bachelor's and master's degree programs.

Coursera is a platform that enables a global ecosystem of educators, learners,
and institutions. Coursera serves learners in their homes, through their
employers, through their colleges and universities, and through
government-sponsored programs. We provide a broad range of learning offerings:
Guided Projects, courses, Specializations, certificates, postgraduate diplomas
and degrees. Our go-to-market strategy centers on efficiently attracting
learners to our platform and connecting them to content and degree programs
tailored to them, after which our data-driven learner experience identifies
potential Enterprise prospects, complemented by our direct sales team which
finds and engages with potential business, academic, and government customers.



For the three months ended September 30, 2020 and 2021, we generated a net loss
of $11.9 million and $32.5 million, respectively, which included $4.7 million
and $23.4 million, respectively, of stock-based compensation expense, and a net
loss margin as a percentage of revenue for the three months ended September 30,
2020 and 2021 of (14)% and (30)%, respectively. Our Adjusted EBITDA and Adjusted
EBITDA Margin as a percentage of revenue were $(4.3) million and (5)%, and
$(3.1) million and (3)%, for the three months ended September 30, 2020 and 2021,
respectively.



For the nine months ended September 30, 2020 and 2021, we generated a net loss
of $40.1 million and $97.5 million, respectively, which included $11.3 million
and $67.9 million, respectively, of stock-based compensation expense, and a net
loss margin as a percentage of revenue for the nine months ended September 30,
2020 and 2021 of (19)% and (32)%, respectively. Our Adjusted EBITDA and Adjusted
EBITDA Margin as a percentage of revenue were $(22.0) million and (10)%, and
$(16.1) million and (5)%, for the nine months ended September 30, 2020 and 2021,
respectively.



See "Non-GAAP Financial Measures" for more information and for a reconciliation
of net loss and net loss margin, the most directly comparable GAAP financial
measures, to Adjusted EBITDA and Adjusted EBITDA Margin.



Initial Public Offering



On April 5, 2021, we completed our initial public offering ("IPO") of common
stock, in which we sold 14,664,776 shares. The shares were sold at a price to
the public of $33.00 per share for net proceeds of $452.5 million after
deducting underwriting discounts and commissions of $31.5 million. Additionally,
offering costs incurred by us were approximately $6.4 million. Upon the closing
of our IPO, all outstanding shares of our redeemable convertible preferred stock
automatically converted into 75,305,400 shares of

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common stock on a one-for-one basis.



On April 19, 2021, the underwriters exercised in full the right to purchase
2,359,500 additional shares of common stock from us, resulting in additional net
proceeds of $72.8 million after deducting underwriting discounts and commissions
of $5.1 million.

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 our Enterprise and Degrees revenue.

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 our educator partners
offer, and that continuing to source in-demand content and credentials from our
educator partners-from courses to Degrees-will be an important factor in
attracting free and paid customers and increasing our revenue over time.

We believe that our reach, scale, and reputation provide an attractive value
proposition for leading 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, improving recommendation and personalization features, developing
marketing capabilities that drive higher conversion into paid offerings, and
improving the analytics tools available for learners, educators, and
institutions.

Impact of mix shift over time


Our mix of business amongst our Consumer, Enterprise, and Degrees channels is
shifting, and this shift will affect our financial performance. We incur content
costs in the form of a fee paid to our university and industry partners,
determined as a percentage of total revenue generated from their content. We
incur no content costs for our Degrees offerings since our university partners
pay us a percentage of learner tuition. If either our Degrees or Enterprise
revenue grow faster than our Consumer revenue, which we presently expect, our
overall margins will benefit from this shift in revenue mix.

Ability to convert free learners to paid learners


New learners to our platform typically begin to engage with our free courses,
which serve 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. These efforts
include campaigns targeting existing learners, personalized recommendations, and
performance marketing across leading social media platforms.

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 and expand our international
operations as part of our strategy to grow our customer and learner base,
particularly among our Enterprise customers.

Ability to retain and expand our Enterprise customer relationships


Our efforts to grow our Enterprise business are focused primarily on business,
academic and government customers. We believe a significant opportunity exists
for us to expand our existing customers' use of our platform by identifying new
use cases in additional departments and divisions and increasing 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.

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Our investment in growth


We are actively investing in our business. In order to support our future growth
and expanding set of offerings, we expect this investment to continue. We
anticipate that our operating expenses will increase as we continue to build our
sales and marketing efforts, expand our employee base, and invest in our
technology development. The investments we make in our platform are designed to
grow our revenue opportunity and to improve our operating results in the long
term.

Impact of COVID-19


The COVID-19 pandemic has resulted, and is likely to continue to result, in significant global, social, and business disruption.


As of the date of this filing, significant uncertainty continues to exist
concerning the magnitude of the impact and duration of the COVID-19 pandemic.
While some restrictions on travel and activities have been lifted, the current
rise in cases due to a variant of the virus may result in restrictions being
reinstated. While the impact of the ongoing COVID-19 pandemic is severe,
widespread, and continues to evolve, it has accelerated the need for
online-delivered education. Both individuals and institutions have relied and
are continuing to rely on online learning to navigate change and disruption. As
a result, our revenue significantly increased due primarily to an increase in
the number of enrollments during the COVID-19 pandemic. Likewise, we have
experienced a significant increase in our operating costs associated with our
services, primarily driven by our freemium offerings and marketing efforts. As
the pandemic made remote work and online learning more widespread, it is
uncertain what impact the tapering of the COVID-19 pandemic could have on our
operating results. Once COVID-19 wanes, our growth rates may increase or
decrease. The full extent of the impact of the pandemic and its aftermath on our
operations, key metrics, and financial performance depends on future
developments that are uncertain and unpredictable, including the duration and
spread of the pandemic, its impact on capital and financial markets, and any new
information that may emerge concerning the severity of the COVID-19 virus. We
will continue to actively monitor the situation, including progress made through
vaccinations, and we will make further changes to our business operations as may
be required by federal, state, or local authorities or that we determine are in
the best interests of our employees, customers, partners, suppliers, and
stockholders.

Components of Results of Operations

Revenue

We derive revenue from contracts with customers for access to the learning content hosted on our platform and related services. We derive our revenue from three sources: Consumer, Enterprise, and Degrees.


Consumer and Enterprise revenue both consist primarily of subscriptions with
terms varying from 30 days for certain Consumer subscriptions to one to three
years for Enterprise license subscription contracts. Consumer subscriptions are
paid in advance, generally after a 7-day free trial period. Enterprise
subscriptions are generally invoiced in quarterly or annual installments. Access
to our platform represents a series of distinct services, as we continually
provide access to, and fulfill our obligation to, the customer over the contract
term. As a result, revenue is recognized ratably over the contract term.

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

Degrees revenue is generated from contracts with university partners for the
delivery of online bachelor's and master's degrees or postgraduate diplomas
awarded by the university. We earn a Degrees service fee that is determined as a
percentage of the total tuition collected from Degrees students, net of refunds.
University partners generally collect the tuition from Degrees students, however
in the case of some MasterTrack Certificate offerings this obligation can be our
responsibility. We have a stand ready obligation to perform degree services
continually throughout the period that the degree content is hosted on our
platform. Degrees revenue is received and paid by the university partner for
each university term. As a result, revenue generated from each term is
recognized ratably from the start of a term through the start of the following
term.

There is no direct contractual arrangement between Coursera and Degrees
students, who contract directly with the university partners. University
partners typically have additional performance obligations to the Degrees
students in the form of real-time teaching, financial aid, and academic or
career counseling. Although some MasterTrack Certificate learners are required
to accept our terms and conditions prior to tuition payment, our core
performance obligations remain similar to the services provided to university
partners for their online bachelor's and master's degrees or postgraduate
diplomas. For these reasons, we have determined that the university partners
control the delivery of degrees, postgraduate diplomas and MasterTrack
Certificates hosted on our platform. As a result, we recognize Degrees revenue
as the service fee we earn from our contracts with university partners.

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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 of our platform. These
expenses include the cost of servicing both paid learner and educator partner
support requests, hosting and bandwidth costs, amortization of acquired
technology, internal-use software and content assets, customer payment
processing fees, and allocated depreciation and facilities costs.

Content costs only apply to Consumer and Enterprise offerings; there is no
content cost attributable to our Degrees offering. Content costs as a percentage
of revenue are lower for our Enterprise offerings, due to a lower effective
percentage payable to educator partners compared with sales to Consumer
customers. We expect Enterprise and Degrees to become a larger portion of the
overall business, and as our mix changes, content costs will decrease as a
percentage of total revenue.

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, benefits, bonuses,
stock-based compensation, commissions, and payroll taxes. Our operating expenses
also include allocated costs of facilities, information technology,
depreciation, and amortization. Although our operating expenses may fluctuate
from period to period, we currently expect our operating expenses to increase in
absolute dollars over time.

Research and development. Our research and development expenses consist
primarily of personnel and personnel-related costs, including stock-based
compensation 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 consist primarily of
personnel and personnel-related costs, including stock-based compensation and
costs related to learner and partner acquisition, support efforts, and brand
marketing. Sales and marketing expenses also consist of hosting and bandwidth
costs and learner support costs related to the provisioning of services to free
learners. 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 consist primarily of personnel and personnel-related costs, including stock-based compensation and costs related to our legal, finance, and human resources departments, as well as indirect taxes, professional fees, and other corporate expenses.


We expect to incur additional expenses as a result of operating 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.

Interest Income

Interest income consists primarily 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 and market
interest rates.

Other Income (Expense), Net

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

Income Tax Expense


Our income tax provision consists primarily of income taxes in certain 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 related primarily 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 for the periods
presented. The results below are not necessarily indicative of results to be
expected for future periods.



                                          Three Months Ended
                                             September 30,             Nine Months Ended September 30,
                                         2020             2021              2020                2021
                                                               (in thousands)
Revenue                               $   82,674$  109,880$        210,249$  300,331
Cost of revenue(1)                        38,970           42,162               99,082          122,149
Gross profit                              43,704           67,718              111,167          178,182
Operating expenses:
Research and development(1)               19,620           33,935               53,449           97,079
Sales and marketing(1)                    26,162           45,268               72,272          121,743
General and administrative(1)              9,810           19,942               25,839           54,933
Total operating expenses                  55,592           99,145              151,560          273,755
Loss from operations                     (11,888 )        (31,427 )            (40,393 )        (95,573 )
Other income (expense):
Interest income                              119               62                1,080              227
Interest expense                               -                -                  (12 )              -
Other income (expense), net                  227             (286 )                  9             (251 )
Loss before income taxes                 (11,542 )        (31,651 )            (39,316 )        (95,597 )
Income tax expense                           325              800                  781            1,880
Net loss                              $  (11,867 )$  (32,451 )$        (40,097 )$  (97,477 )

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




                                          Three Months Ended September 30,          Nine Months Ended September 30,
                                              2020                  2021              2020                  2021
                                                                        (in thousands)
Cost of revenue                          $           135         $       527     $           360       $         1,537
Research and development                           1,917              11,259               4,686                31,650
Sales and marketing                                1,175               6,846               2,717                19,504
General and administrative                         1,473               4,776               3,514                15,176

Total stock-based compensation expense $ 4,700 $ 23,408$ 11,277$ 67,867

The following table summarizes our results of operations as a percentage of revenue for each of the periods indicated:




                                             Three Months Ended September 30,            Nine Months Ended September 30,
                                              2020                     2021               2020                     2021
Revenue                                             100 %                    100 %              100 %                    100 %
Cost of revenue                                      47                       38                 47                       41
Gross profit                                         53                       62                 53                       59
Operating expenses:
Research and development                             23                       31                 26                       32
Sales and marketing                                  32                       42                 34                       41
General and administrative                           12                       18                 12                       18
Total operating expenses                             67                       91                 72                       91
Loss from operations                                (14 )                    (29 )              (19 )                    (32 )
Other income (expense):
Interest income                                       -                        -                  -                        -
Interest expense                                      -                        -                  -                        -
Other income (expense), net                           -                        -                  -                        -
Loss before income taxes                            (14 )                    (29 )              (19 )                    (32 )
Income tax expense                                    -                        1                  -                        -
Net loss                                            (14 )%                   (30 )%             (19 )%                   (32 )%




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Comparison of the Three and Nine Months Ended September 30, 2020 and 2021

Revenue



                    Three Months Ended                                 

Nine Months Ended September

                      September 30,                   Change                        30,                        Change
                  2020             2021           $            %           2020             2021           $            %
                                                           (dollars in thousands)
Revenue:
Consumer        $  57,234$   66,482$  9,248          16 %   $  139,845$  180,432$ 40,587          29 %
Enterprise         18,161           31,840       13,679          75 %       49,881           84,518       34,637          69 %
Degrees             7,279           11,558        4,279          59 %       20,523           35,381       14,858          72 %
Total revenue   $  82,674$  109,880$ 27,206          33 %   $  210,249$  300,331$ 90,082          43 %




Revenue for the three months ended September 30, 2020 was $82.7 million,
compared to $109.9 million for the three months ended September 30, 2021.
Revenue increased by $27.2 million, or 33%, compared to the three months ended
September 30, 2020. For the three months ended September 30, 2020, Consumer,
Enterprise, and Degrees revenue were $57.2 million, $18.2 million, and $7.3
million, or approximately 69%, 22%, and 9% of total revenue, respectively,
compared to $66.5 million, $31.8 million, and $11.6 million, or approximately
61%, 29%, and 10% of total revenue, respectively, for the three months ended
September 30, 2021. The increase in revenue was primarily driven by a 29%
increase in registered learners, which resulted in an increase in paying
Consumer customers, the addition of 393 Paid Enterprise Customers, and an
increase in the number of Degrees students. These trends accelerated in 2020 in
part due to the effects of the COVID-19 pandemic and its continued impact into
2021.

For the three months ended September 30, 2021, total Consumer revenue increased
by $9.2 million, or 16%, compared to the three months ended September 30, 2020.
The new learners that registered after September 30, 2020 added $31.4 million in
revenue to the total revenue of $66.5 million for the three months ended
September 30, 2021. The remaining Consumer revenue in the three months ended
September 30, 2021 of $35.1 million is attributable to learners that were
registered in our platform as of September 30, 2020, thus retaining 61% of the
revenue from those registered learners.

For the three months ended September 30, 2021, total Enterprise revenue
increased by $13.7 million, or 75%, compared to the three months ended September
30, 2020. Approximately $11.5 million of the increase in revenue was
attributable to new customers, and the remaining increase of $2.2 million was
attributable to growth from existing customers.

For the three months ended September 30, 2021, total Degrees revenue increased
by $4.3 million, or 59%, compared to the three months ended September 30, 2020.
The increase in the number of Degrees students added $2.9 million in revenue,
and the remaining increase of $1.4 million was attributable to an increase in
revenue per student per quarter.

Revenue for the nine months ended September 30, 2020 was $210.2 million,
compared to $300.3 million for the nine months ended September 30, 2021. Revenue
increased by $90.1 million, or 43%, compared to the nine months ended September
30, 2020. For the nine months ended September 30, 2020, Consumer, Enterprise,
and Degrees revenue were $139.8 million, $49.9 million, and $20.5 million, or
approximately 66%, 24%, and 10% of total revenue, respectively, compared to
$180.4 million, $84.5 million, and $35.4 million, or approximately 60%, 28%, and
12% of total revenue, respectively, for the nine months ended September 30,
2021. The increase in revenue was primarily driven by a 29% increase in
registered learners, which resulted in an increase in paying Consumer customers,
the addition of 393 Paid Enterprise Customers, and an increase in the number of
Degrees students. These trends accelerated in 2020 in part due to the effects of
the COVID-19 pandemic and its continued impact into 2021.

For the nine months ended September 30, 2021, total Consumer revenue increased
by $40.6 million, or 29%, compared to the nine months ended September 30, 2020.
The new learners that registered after September 30, 2020 added $70.2 million in
revenue to the total revenue of $180.4 million for the nine months ended
September 30, 2021. The remaining Consumer revenue in the nine months ended
September 30, 2021 of $110.2 million is attributable to learners that were
registered in our platform as of September 30, 2020, thus retaining 79% of the
revenue from those registered learners.

For the nine months ended September 30, 2021, total Enterprise revenue increased
by $34.6 million, or 69%, compared to the nine months ended September 30, 2020.
Approximately $24.2 million of the increase in revenue was attributable to new
customers, and the remaining increase of $10.4 million was attributable to
growth from existing customers.

For the nine months ended September 30, 2021 total Degrees revenue increased by
$14.9 million, or 72%, compared to the nine months ended September 30, 2020. The
increase in the number of Degrees students added $13.4 million in revenue, and
the remaining increase of $1.5 million was attributable to an increase in
revenue per student per quarter.

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Cost of Revenue, Gross Profit and Gross Margin




               Three Months Ended                                 Nine 

Months Ended September

                  September 30,                 Change                        30,                       Change
              2020            2021           $           %           2020             2021           $           %
                         (dollars in thousands)                                 (dollars in thousands)
Cost of
revenue     $  38,970$  42,162$  3,192          8 %   $   99,082$  122,149$ 23,067         23 %
Gross
profit      $  43,704$  67,718$ 24,014         55 %   $  111,167$  178,182$ 67,015         60 %
Gross
margin             53 %            62 %                                   53 %             59 %




Cost of revenue for the three months ended September 30, 2020 was $39.0 million,
compared to $42.2 million for the three months ended September 30, 2021. The mix
in partner revenue resulted in a decrease of $0.3 million in costs related to
partner fees. Content costs for the Consumer and Enterprise segments were $26.1
million and $5.6 million for the three months ended September 30, 2020,
respectively, compared to $21.0 million and $10.4 million for the three months
ended September 30, 2021, respectively. Content costs as a percentage of revenue
for the Consumer and Enterprise segments were 46% and 31% for the three months
ended September 30, 2020, respectively, compared to 32% and 33% for the three
months ended September 30, 2021, respectively. We experienced an increase in
usage by paid learners on our platform which resulted in a $2.0 million cost
increase from support services, hosting costs, and credit card processing.
Additionally, there was an increase of $1.5 million in amortization expense.



Gross margin was 53% for the three months ended September 30, 2020, compared to
62% for the three months ended September 30, 2021. The increase in gross margin
was due to a shift in mix of revenue toward Enterprise and Degrees and a lower
revenue content cost rate for our Consumer segment revenue.



Cost of revenue for the nine months ended September 30, 2020 was $99.1 million,
compared to $122.1 million for the nine months ended September 30, 2021. The
increase in revenue resulted in an increase of $13.2 million in costs related to
partner fees. Content costs for the Consumer and Enterprise segments were $63.8
million and $15.1 million for the nine months ended September 30, 2020,
respectively, compared to $64.5 million and $27.5 million for the nine months
ended September 30, 2021, respectively. Content costs as a percentage of revenue
for Consumer and Enterprise segments were 46% and 30% for the nine months ended
September 30, 2020, respectively, compared to 36% and 33% for the nine months
ended September 30, 2021, respectively. We experienced a significant increase in
usage by paid learners on our platform which resulted in a $6.8 million cost
increase from support services, hosting costs, and credit card processing.
Additionally, there was an increase of $3.1 million in amortization expense.



Gross margin was 53% for the nine months ended September 30, 2020, compared to
59% for the nine months ended September 30, 2021. The increase in gross margin
was due to a shift in mix of revenue toward Enterprise and Degrees and a lower
revenue content cost rate for our Consumer segment revenue.

Operating Expenses



                    Three Months Ended                                 Nine

Months Ended September

                       September 30,                 Change                        30,                       Change
                   2020            2021           $           %           2020             2021            $           %
                              (dollars in thousands)                                 (dollars in thousands)
Operating
expenses:
Research and
development      $  19,620$  33,935$ 14,315         73 %   $   53,449$   97,079$  43,630        82 %
Sales and
marketing           26,162          45,268       19,106         73 %       72,272          121,743        49,471        68 %
General and
administrative       9,810          19,942       10,132        103 %       25,839           54,933        29,094       113 %
Total
operating
expenses         $  55,592$  99,145$ 43,553         78 %   $  151,560$  273,755$ 122,195        81 %



Total operating expenses for the three and nine months ended September 30, 2020 were $55.6 million and $151.6 million,

respectively, compared to $99.1 million and $273.8 million for the three and nine months ended September 30, 2021, respectively.




Research and development expenses for the three months ended September 30, 2020
were $19.6 million, compared to $33.9 million for the three months ended
September 30, 2021. The increase was primarily due to higher personnel-related
expenses of $12.9 million, driven by additional headcount, and additional
stock-based compensation expense of $9.3 million. Other research and development
expenses including recruiting fees, consulting and services expenses, and
facilities allocation increased by $1.4 million.



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Research and development expenses for the nine months ended September 30, 2020
were $53.4 million, compared to $97.1 million for the nine months ended
September 30, 2021. The increase was primarily due to higher personnel-related
expenses of $38.4 million, driven by additional headcount, and additional
stock-based compensation expense of $27.0 million. Consulting and services
expenses increased by $3.1 million. Other research and development expenses
including facilities allocation, office expenses, and recruiting fees increased
by $2.1 million.



Sales and marketing expenses for the three months ended September 30, 2020 were
$26.2 million, compared to $45.3 million for the three months ended September
30, 2021. The increase in sales and marketing expenses was primarily due to
higher personnel-related expenses of $11.5 million, driven by additional
headcount, and stock-based compensation expense of $5.7 million. Marketing and
advertising expenses increased by $4.7 million and consulting and services
expenses increased by $1.5 million. Other increases in sales and marketing
expenses including general overhead expenses, office expenses and recruiting
fees increased by $1.4 million.



Sales and marketing expenses for the nine months ended September 30, 2020 were
$72.3 million, compared to $121.7 million for the nine months ended September
30, 2021. The increase in sales and marketing expenses was primarily due to
higher personnel-related expenses of $35.7 million, driven by additional
headcount, and additional stock-based compensation expense of $16.8 million.
Marketing and advertising expenses including freemium costs increased by $7.1
million, consulting and services expenses increased by $3.5 million, and
software subscription fees increased by $1.5 million. Other sales and marketing
expenses including general overhead expenses, office expenses and recruiting
fees increased by $1.6 million.



General and administrative expenses for the three months ended September 30,
2020 were $9.8 million, compared to $19.9 million for the three months ended
September 30, 2021. The increase in general and administrative expenses was
primarily due to higher personnel-related expenses of $5.0 million, driven by
additional headcount, and additional stock-based compensation expense of $3.3
million. There was also an increase of $2.2 million in consulting and services
and $1.4 million in insurance expense. Other general and administrative
expenses, which included office expenses, recruiting fees and facilities
allocation increased by $1.5 million.



General and administrative expenses for the nine months ended September 30, 2020
were $25.8 million, compared to $54.9 million for the nine months ended
September 30, 2021. The increase in general and administrative expenses was
primarily due to higher personnel-related expenses of $17.0 million, mainly
driven by additional headcount, and additional stock-based compensation expense
of $11.7 million. There was also an increase of $5.7 million in consulting and
professional services, $2.8 million in insurance expense, $1.7 million related
to indirect taxes, and $1.4 million in software subscription fees. Other general
and administrative expenses, which included office expenses, recruiting fees and
facilities allocation increased by $0.5 million.

Other Income (Expense)



                      Three Months Ended September                                 Nine Months Ended
                                  30,                        Change                  September 30,                   Change
                         2020                2021         $          %           2020              2021          $            %
                                    (dollars in thousands)                                   (dollars in thousands)
Interest income      $         119         $     62$  (57 )      (48 )%   $   1,080$    227$   (853 )       (79 )%
Interest expense                 -                -          -          -            (12 )              -           12        (100 )%
Other income
(expense), net                 227             (286 )     (513 )     (226 )%           9             (251 )       (260 )     (2889 )%
Total other income
(expense)            $         346         $   (224 )$ (570 )     (165 )%   $   1,077$    (24 )$ (1,101 )      (102 )%




Total other income for the three months ended September 30, 2020 was $0.3
million, compared to total other expense of $0.2 million for the three months
ended September 30, 2021. Other income for the three months ended September 30,
2020 and 2021 consists primarily of foreign exchange gains and losses.



Total other income for the nine months ended September 30, 2020 was $1.1
million, and was immaterial for the nine months ended September 30, 2021. Total
other income for the nine months ended September 30, 2020 primarily reflected
interest income earned on invested cash balances. Total other income for the
nine months ended September 30, 2021 primarily reflected interest income earned
on invested cash balances, offset by foreign exchange losses. Interest income
was lower during the nine months ended September 30, 2021 compared to the nine
months ended September 30, 2020 due to lower interest rates.

Income Tax Expense



                         Three Months Ended September 30,               Change           Nine Months Ended September 30,          Change
                          2020                      2021             $          %            2020                2021           $          %
                                         (dollars in thousands)                                         (dollars in thousands)
Income tax expense   $           325           $           800     $  475        146 %   $        781$    1,880$ 1,099       141 %




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For the three and nine months ended September 30, 2020, we recognized income tax
expense of $0.3 million and $0.8 million, respectively, compared to $0.8 million
and $1.9 million for the three and nine months ended September 30, 2021,
respectively. Income tax expense for three and nine months ended September 30,
2020 and 2021 was primarily related to foreign taxes.

Liquidity and Capital Resources


Since our inception, we have financed our operations primarily through proceeds
from our redeemable convertible preferred stock issuances, as well as from cash
generated from our business operations. As of September 30, 2021, our principal
sources of liquidity were cash, cash equivalents, and marketable securities
totaling $816.1 million. Our investments consist of U.S. government treasury
bills.

We believe that our existing cash and 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.

Cash Flows

The following table summarizes our cash flows for the periods indicated:



                                                           Nine Months Ended September 30,
                                                             2020                   2021
                                                                   (in thousands)
Net cash provided by operating activities              $          2,542       $            941
Net cash provided by (used in) investing activities             (91,629 )              178,272
Net cash provided by financing activities                       136,582                541,983
Net increase in cash, cash equivalents, and
restricted cash                                        $         47,495       $        721,196




Operating Activities

Cash provided by operating activities mainly consists of our net loss adjusted
for certain non-cash items, including stock-based compensation 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 nine months ended September 30, 2020, net cash provided by operating
activities was $2.5 million, primarily consisting of our net loss of $40.1
million, adjusted for non-cash charges of $18.0 million, and net cash inflows of
$24.6 million provided by changes in our operating assets and liabilities. The
main drivers of the changes in operating assets and liabilities were a $24.1
million increase in deferred revenue, resulting primarily from our Consumer and
Enterprise business growth, a $15.7 million increase in educator partners and
other accounts payable mainly due to timing of partner fee payments, partially
offset by a $4.7 million increase in accounts receivable due to our business
growth, and a $10.2 million increase in prepaid expenses and other assets mainly
due to deferred partner fees.

For the nine months ended September 30, 2021, net cash provided by operating
activities was $1.0 million, primarily consisting of our net loss of $97.5
million, adjusted for non-cash charges of $79.0 million and net cash inflows of
$19.4 million provided by changes in our operating assets and liabilities. The
main drivers of the changes in operating assets and liabilities were a $14.1
million increase in deferred revenue, resulting primarily from our business
growth from Enterprise, a $7.3 million increase in accrued and other liabilities
mainly due to ESPP contributions from employees and a $4.5 million decrease in
accounts receivable due to timing of billings, partially offset by a $5.7
million increase in prepaids and other assets primarily due to deferred partner
fees and increase in deferred commissions.

Cash provided by operating activities decreased by $1.6 million during the nine
months ended September 30, 2021, compared to the nine months ended September 30,
2020, primarily due to our business growth.

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Investing Activities


For the nine months ended September 30, 2020, net cash used in investing
activities was $91.6 million, primarily as a result of purchases of marketable
securities, capital expenditures of property, equipment and software, and
capitalized internal-use software costs, offset by proceeds from maturities of
marketable securities.

For the nine months ended September 30, 2021, cash provided by investing
activities was $178.3 million, primarily as a result of proceeds from maturities
of marketable securities, partially offset by capital expenditures of property,
equipment and software, capitalized internal-use software costs, and purchases
of content assets.

Financing Activities

For the nine months ended September 30, 2020, net cash provided by financing
activities was $136.6 million, primarily as a result of net proceeds for
issuance of redeemable convertible preferred stock, and proceeds from issuance
of common stock following employee stock option exercises.

For the nine months ended September 30, 2021, net cash provided by financing
activities was $542.0 million, primarily as a result of net proceeds from our
IPO, and proceeds from issuance of common stock following employee stock option
exercises, offset by payment of deferred offering costs and employee payroll
taxes paid for vesting of restricted stock units.

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 indicator of the growth of our business and
future revenue trends.



                                              Three Months Ended September 30,             Nine Months Ended September 30,
                                                2020                    2021                2020                    2021
                                                                    (in millions, except percentages)
New Registered Learners                                8.0                     5.5                25.5                    15.9
Total Registered Learners                             71.6                    92.1                71.6                    92.1
Total Registered Learners YoY Growth                                            29 %                                        29 %




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 bachelor's, master's or postgraduate diploma 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 said 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. 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.



                               As of September 30,
                                2020           2021
Number of Degrees Students        11,504       16,068
YoY Growth                                         40 %




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,
which include organizations engaging on our platform through our Coursera for
Teams offering or through our channel partners. For the nine months ended
September 30, 2021, approximately 84% 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.



                               As of September 30,
                              2020            2021
Paid Enterprise Customers         318             711
YoY Growth                                        124 %



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 twelve 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 twelve months but excludes revenue
from new Paid 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
increased from 108% as of September 30, 2020 to 113% as of September 30, 2021.
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.

Segment Revenue

Our revenue is generated from three sources: Consumer, Enterprise, and Degrees, each of which is an individual segment of our business. "Segment Revenue" represents the revenue recognized from each of these three sources.

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                              Three Months Ended September 30,         

Nine Months Ended September 30,

                                   2020                2021               2020                   2021
                                                   (in thousands, except percentages)
Consumer Revenue              $        57,234$    66,482$        139,845$        180,432
YoY Growth                                                   16 %                                        29 %
Enterprise Revenue            $        18,161$    31,840     $         49,881       $         84,518
YoY Growth                                                   75 %                                        69 %
Degrees Revenue               $         7,279       $    11,558     $         20,523       $         35,381
YoY Growth                                                   59 %                                        72 %
Total Revenue                 $        82,674$   109,880$        210,249$        300,331
YoY Growth                                                   33 %                                        43 %




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" is
defined as Segment Revenue less content costs paid to educator partners;
"Segment Gross Margin" is the quotient of Segment Gross Profit and Segment
Revenue. Content costs only apply to the Consumer and Enterprise segments as
there is no content cost attributable to the Degrees segment. Instead, in the
Degrees segment, we earn a Degrees service fee based on a percentage of the
total online student tuition collected by the university partner. Given that
content costs are the largest individual cost of our revenue, and contractually
vary as a percentage of revenue between our Consumer and Enterprise offerings,
and the fact that no content costs are payable in our Degrees offering, shifts
in mix between our three segments is expected to be a significant driver of our
overall financial performance and profitability.



                               Three Months Ended September 30,           

Nine Months Ended September 30,

                                  2020                  2021                2020                  2021
                                                   (in thousands, except percentages)
Consumer Gross Profit        $        31,160$        45,499$       76,040$        115,891
Segment Gross Margin %                    54 %                  68 %               54 %                   64 %
Enterprise Gross Profit      $        12,520$        21,414$       34,822       $         57,011
Segment Gross Margin %                    69 %                  67 %               70 %                   67 %
Degrees Gross Profit         $         7,279       $        11,558$       20,523       $         35,381
Segment Gross Margin %                   100 %                 100 %              100 %                  100 %




Consumer Segment Gross Margin increased from 54% in the three months ended
September 30, 2020 to 68% in the three months ended September 30, 2021 due to a
greater proportion of Consumer Revenue generated from sales of subscriptions
with no associated content cost. Conversely, Enterprise Segment Gross Margin
decreased from 69% to 67% when comparing the same periods due to a lower
proportion of Enterprise Revenue generated from subscription licenses where
learners enrolled in content with no associated content cost.



Consumer Segment Gross Margin increased from 54% in the nine months ended
September 30, 2020 to 64% in the nine months ended September 30, 2021 due to a
greater proportion of Consumer Revenue generated from sales of subscriptions
with no associated content cost. Conversely, Enterprise Segment Gross Margin
decreased from 70% to 67% when comparing the same periods due to a lower
proportion of Enterprise Revenue generated from subscription licenses where
learners enrolled in content with no associated content cost.

Non-GAAP Financial Measures

Non-GAAP Gross Profit and Non-GAAP Net Loss




We define non-GAAP gross profit and non-GAAP net loss as GAAP gross profit and
GAAP net loss excluding the impact of stock-based compensation and payroll tax
expense related to stock-based activities. We believe the presentation of
operating results that exclude these non-cash items provides useful supplemental
information to investors and facilitates the analysis of our operating results
and comparison of operating results across reporting periods.



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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 loss (in thousands, except number of shares and per
share amounts):



                                  Three Months Ended September 30, 2020                               Nine Months Ended September 30, 2020
                                                         Payroll tax                                                        Payroll tax
                                                           expense                                                            expense
                                                         related to                                                         related to
                                       Stock-based       stock-based                                       Stock-based      stock-based
                         GAAP          compensation      activities       Non-GAAP            GAAP        compensation      activities       Non-GAAP
Revenue              $      82,674   $              -   $           -   $      82,674$    210,249   $             -   $           -   $    210,249
Cost of revenue             38,970               (135 )             -          38,835           99,082              (360 )             -         98,722
Gross profit                43,704                135               -          43,839          111,167               360               -        111,527
Operating expenses:
Research and
development                 19,620             (1,917 )           (17 )        17,686           53,449            (4,686 )           (20 )       48,743
Sales and marketing         26,162             (1,175 )             2          24,989           72,272            (2,717 )           (10 )       69,545
General and
administrative               9,810             (1,473 )          (156 )         8,181           25,839            (3,514 )          (157 )       22,168
Total operating
expenses                    55,592             (4,565 )          (171 )        50,856          151,560           (10,917 )          (187 )      140,456
Loss from operations       (11,888 )            4,700             171          (7,017 )        (40,393 )          11,277             187        (28,929 )
   Interest income             119                  -               -             119            1,080                 -               -          1,080
   Interest expense              -                  -               -               -              (12 )               -               -            (12 )
Other income
(expense), net                 227                  -               -             227                9                 -               -              9
Loss before income
taxes                      (11,542 )            4,700             171          (6,671 )        (39,316 )          11,277             187        (27,852 )
Income tax expense             325                  -               -             325              781                 -               -            781
Net loss             $     (11,867 ) $          4,700   $         171   $      (6,996 )$    (40,097 )$        11,277   $         187   $    (28,633 )
Net loss per share
attributable to
common
stockholders-basic
and diluted          $       (0.31 )$       (0.18 )$      (1.10 )$      (0.78 )
Weighted-average
shares used in
computing net loss
per share
attributable to
common
stockholders-basic
and diluted             37,828,682                                        
37,828,682       36,564,569                                       36,564,569




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                                   Three Months Ended September 30, 2021                                 Nine Months Ended September 30, 2021
                                                          Payroll tax                                                          Payroll tax
                                                            expense                                                              expense
                                                          related to                                                           related to
                                         Stock-based      stock-based                                         Stock-based      stock-based
                           GAAP         compensation      activities       Non-GAAP             GAAP         compensation      activities       Non-GAAP
Revenue               $      109,880   $             -   $           -   $     109,880$     300,331   $             -   $           -   $     300,331
Cost of revenue               42,162              (527 )           (37 )        41,598            122,149            (1,537 )           (53 )       120,559
Gross profit                  67,718               527              37          68,282            178,182             1,537              53         179,772
Operating expenses:
Research and
development                   33,935           (11,259 )          (480 )        22,196             97,079           (31,650 )          (604 )        

64,825

Sales and marketing           45,268            (6,846 )          (127 )        38,295            121,743           (19,504 )          (162 )       102,077
General and
administrative                19,942            (4,776 )          (385 )        14,781             54,933           (15,176 )          (494 )        39,263
Total operating
expenses                      99,145           (22,881 )          (992 )        75,272            273,755           (66,330 )        (1,260 )       206,165
Loss from operations         (31,427 )          23,408           1,029          (6,990 )          (95,573 )          67,867           1,313         (26,393 )
   Interest income                62                 -               -              62                227                 -               -             227
Other income
(expense), net                  (286 )               -               -            (286 )             (251 )               -               -            (251 )
Loss before income
taxes                        (31,651 )          23,408           1,029          (7,214 )          (95,597 )          67,867           1,313         (26,417 )
Income tax expense               800                 -               -             800              1,880                 -               -           1,880
Net loss              $      (32,451 )$        23,408$       1,029$      (8,014 )$     (97,477 )$        67,867$       1,313$     (28,297 )
Net loss per share
attributable to
common
stockholders-basic
and diluted           $        (0.23 )$       (0.06 )$       (0.93 )$       (0.27 )
Weighted-average
shares used in
computing net loss
per share
attributable to
common
stockholders-basic
and diluted              138,846,394                                       138,846,394        104,316,176                                       104,316,176



Adjusted EBITDA and Adjusted EBITDA Margin

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


We define Adjusted EBITDA as our net loss excluding: (1) depreciation and
amortization; (2) interest income, net; (3) stock-based compensation; (4) income
tax expense; and (5) payroll tax expense related to stock-based activities. 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.



                                              Three Months Ended September 30,              Nine Months Ended September 30,
                                                2020                    2021                 2020                    2021
                                                                   (in thousands, except percentages)
Net loss                                   $       (11,867 )       $       

(32,451 ) $ (40,097 )$ (97,477 )

   Depreciation and amortization                     2,509                   4,137                6,873                  10,508
   Interest income, net                               (119 )                   (62 )             (1,068 )                  (227 )
   Stock-based compensation                          4,700                  23,408               11,277                  67,867
   Income tax expense                                  325                     800                  781                   1,880
   Payroll tax expense related to
stock-based activities                                 171                   1,029                  187                   1,313
Adjusted EBITDA                            $        (4,281 )$        (3,139 )$       (22,047 )$       (16,136 )
Adjusted EBITDA Margin                                  (5 )%                   (3 )%               (10 )%                   (5 )%




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Free Cash Flow

"Free Cash Flow" is a non-GAAP financial measure that we calculate as net cash
(used in) provided by operating activities, less cash used for purchases of
property, equipment, and software, and capitalized internal-use software costs.
We exclude purchases of property, equipment and software, and capitalized
internal-use software costs as we consider these capital expenditures to be a
necessary component of 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 (used in) provided by operating activities, the most directly

comparable GAAP financial measure, to Free Cash Flow.



                                                    Nine Months Ended September 30,
                                                      2020                   2021
                                                             (in thousands)
Net cash provided by (used in) operating
activities                                      $          2,542       $    

941

Less: purchases of property, equipment and
software                                                  (2,234 )                (1,228 )
Less: capitalized internal-use software costs             (6,035 )                (9,712 )
Free Cash Flow                                  $         (5,727 )     $          (9,999 )
Net cash provided by (used in) investing
activities                                      $        (91,629 )     $    

178,272

Net cash provided by financing activities $ 136,582 $

541,983

Contractual Obligations and Commitments


Except as discussed in Note 11, Leases and Note 12, Commitments and
Contingencies, of the notes to our unaudited condensed consolidated financial
statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q,
there were no material changes outside of the ordinary course of business in our
commitments and contractual obligations for the three and nine months ended
September 30, 2021 from the commitments and contractual obligations in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", set forth in our Prospectus.

Off-Balance Sheet Arrangements


During the periods presented, we did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates


Our unaudited condensed consolidated financial statements and the related notes
thereto included elsewhere in this Quarterly Report on Form 10-Q have been
prepared in accordance with generally accepted accounting principles in the
United States ("GAAP"). The preparation of these condensed 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 that there are material differences between
these estimates and our actual results, our future financial statements will be
affected.

There have been no material changes to our critical accounting policies and estimates as compared to those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Prospectus.

Recent Accounting Pronouncements

See Note 2 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding recently issued accounting pronouncements.

                                       32

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Table of Contents

JOBS Act Transition Period


We are an emerging growth company as defined in the JOBS Act. The JOBS Act
provides that an emerging growth company can take advantage of an extended
transition period for complying with new or revised accounting standards. This
provision allows an emerging growth company to delay the adoption of some
accounting standards until those standards would otherwise apply to private
companies. We have elected to use the extended transition period under the JOBS
Act for the adoption of certain accounting standards until the earlier of the
date we (i) are no longer an emerging growth company or (ii) affirmatively and
irrevocably opt out of the extended transition period provided in the JOBS Act.
As a result, our consolidated financial statements may not be comparable to
companies that comply with new or revised accounting pronouncements as of public
company effective dates.

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