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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number              001-40956
Udemy, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware27-1779864
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer Identification No.)
600 Harrison Street, 3rd Floor
San Francisco, California
94107
(Address of Principal Executive Offices)(Zip Code)
(415) 813-1710
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00001 par valueUDMYThe Nasdaq Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer 
Accelerated filer 
Non-accelerated filer  
Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes     No 
As of April 26, 2023, 146,774,569 shares of the registrant’s common stock were outstanding.


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Summary of risk factors
Our business is subject to numerous risks and uncertainties, including those highlighted in the section of this report titled “Risk Factors.” The following is a summary of the principal risks we face, any of which could adversely affect our business, operating results, financial condition, or prospects:
We have a history of losses, and we may not be able to generate sufficient revenue to achieve or maintain profitability in the future.
We operate in an emerging and dynamic market, which makes it difficult to evaluate our future results of operations.
•     Our results of operations may fluctuate significantly from period to period due to a wide range of factors, which makes our future results difficult to predict.
•     Our rapid growth may not be sustainable and depends on our ability to attract new learners, instructors, and organizations and retain existing ones.
•     Our platform relies on a limited number of instructors who create a significant portion of the most popular content on our platform, and the loss of these instructor relationships could adversely affect our business, financial condition, and results of operations.
•     If we fail to maintain and expand our relationships with Udemy Business (“UB” or “Enterprise”) customers, our ability to grow our business and revenue will suffer.
•     We operate in a highly competitive market, and we may not be able to compete successfully against current and future competitors.
•     The market for online learning solutions is relatively new and may not grow as we expect, which may harm our business, financial condition, and results of operations.
•     Adherence to our values and our focus on long-term sustainability may negatively impact our short- or medium-term financial performance.
•     Acquisitions and other strategic investments may expose us to significant risks, any of which could materially adversely affect our business, financial condition, and results of operations.
•     Changes in laws or regulations relating to privacy, data protection, or cybersecurity, including those relating to the protection or transfer of data relating to individuals, or any actual or perceived failure by us to comply with such laws and regulations or any other obligations could adversely affect our business.
•     We may be unable to adequately obtain, maintain, protect, and enforce our intellectual property and proprietary information, which could adversely affect our business, financial condition, and results of operations.
•     We could face liability, or our reputation might be harmed, as a result of courses posted to our platform.
•     Intellectual property litigation, including litigation related to content available on our platform, could result in significant costs and adversely affect our business, financial condition, results of operations, and reputation.
•     The trading price of our common stock may be volatile, and you could lose all or part of your investment.
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Special note regarding forward-looking statements

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these terms or other similar expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about:
our expectations regarding our financial and operating performance, including our expectations regarding our revenue, costs, monthly average buyers, number of UB customers, UB Annual Recurring Revenue, UB Net Dollar Retention Rate, UB Large Customer Net Dollar Retention Rate, segment revenue, segment gross profit, adjusted EBITDA, and adjusted EBITDA margin;
our ability to successfully execute our business and growth strategy;
our ability to attract and retain learners, instructors, and enterprise customers;
the timing and success of new features, integrations, capabilities, and other platform enhancements by us, or by our competitors to their offerings, or any other changes in the competitive landscape of our markets and industry;
anticipated trends, developments, and challenges in our industry, business, and the markets in which we operate;
the size of our addressable markets, market share, and market trends, including our ability to grow our business internationally;
the effects of the COVID-19 pandemic on our business, the market for online learning solutions, and the global economy generally;
the sufficiency of our cash, cash equivalents, and investments to meet our liquidity needs;
our ability to develop and protect our brand and reputation;
our expectations and management of future growth;
our expectations concerning relationships with third parties;
our ability to attract, retain, and motivate our skilled personnel, including members of our senior management team;
our expectations regarding the effects of existing and developing laws and regulations, including with respect to taxation and privacy, data protection, and cybersecurity;
our ability to maintain the security and availability of our platform;
our ability to successfully defend litigation brought against us;
our ability to successfully identify, execute, and integrate any potential acquisitions or strategic investments;
our expectations regarding our income and other tax liabilities;
our ability to effectively manage our exposure to fluctuations in foreign currency exchange rates;
our ability to obtain, maintain, protect, and enforce our intellectual property and proprietary information; and
the increased expenses associated with being a public company.
Actual events or results may differ from those expressed in forward-looking statements. As such, you should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, prospects, strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions, and other factors described in the section titled “Risk Factors” and elsewhere in this Form 10-Q. Moreover, we operate in a highly competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Form 10-Q. While we believe that such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
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The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.
Investors and others should note that we may announce material information to the public through filings with the Securities and Exchange Commission, our website (udemy.com), press releases, public conference calls, and public webcasts. We encourage our investors and others to review the information disclosed through such channels as such information could be deemed to be material information. Please note that this list may be updated from time to time.

Market and industry data

Certain market and industry data included in this Form 10-Q has been obtained from third party sources that we believe to be reliable. Market estimates are calculated by using independent industry publications, government publications, and third-party forecasts in conjunction with our assumptions about our markets. We have not independently verified such third-party information. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed in this Form 10-Q in the section titled “Special Note Regarding Forward-Looking Statements” and in Part II, Item 1A, “Risk Factors.”

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PART I.
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Udemy, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)

March 31,December 31,
20232022
Assets
Current assets:
Cash and cash equivalents$275,633 $313,685 
Marketable securities169,613 151,687 
Accounts receivable, net 96,423 104,530 
Prepaid expenses and other current assets17,418 14,878 
Deferred contract costs, current35,929 30,234 
Total current assets595,016 615,014 
Property and equipment, net6,206 7,012 
Capitalized software, net29,045 27,412 
Operating lease right-of-use assets9,849 11,377 
Restricted cash, non-current3,629 3,629 
Deferred contract costs, non-current36,510 35,411 
Strategic investments12,104 12,104 
Intangible assets, net8,264 9,331 
Goodwill12,646 12,646 
Other assets3,631 3,632 
Total assets$716,900 $737,568 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$10,792 $14,529 
Accrued expenses and other current liabilities26,420 31,247 
Content costs payable35,019 37,310 
Accrued compensation and benefits27,335 22,882 
Operating lease liabilities, current6,910 7,002 
Deferred revenue, current276,050 273,937 
Total current liabilities382,526 386,907 
Operating lease liabilities, non-current4,920 6,545 
Deferred revenue, non-current4,348 4,342 
Other liabilities, non-current21 464 
Total liabilities391,815 398,258 
Note 8 – Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.00001 par value - 50,000,000 shares authorized; zero shares issued and outstanding as of March 31, 2023, and December 31, 2022.
  
Common stock, $0.00001 par value - 950,000,000 shares authorized; 146,627,024 and 145,013,786 shares issued and outstanding as of March 31, 2023, and December 31, 2022, respectively.
1 1 
Additional paid-in capital982,128 951,946 
Accumulated other comprehensive loss(96)(233)
Accumulated deficit(656,948)(612,404)
Total stockholders’ equity325,085 339,310 
Total liabilities and stockholders' equity$716,900 $737,568 
See accompanying notes to condensed consolidated financial statements.
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Udemy, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)
Three Months Ended March 31,
20232022
Revenue$176,430 $152,223 
Cost of revenue76,701 66,438 
Gross profit99,729 85,785 
Operating expenses
Sales and marketing79,657 66,878 
Research and development30,887 22,570 
General and administrative26,334 21,653 
Restructuring charges10,128  
Total operating expenses147,006 111,101 
Loss from operations(47,277)(25,316)
Other income (expense)
Interest income, net3,932 243 
Other expense, net(142)(244)
Total other income (expense), net3,790 (1)
Net loss before taxes(43,487)(25,317)
Income tax provision(1,057)(332)
Net loss $(44,544)$(25,649)
Net loss per share
Basic and diluted$(0.31)$(0.18)
Weighted-average shares used in computing net loss per share
Basic and diluted145,737,709 139,405,294 
See accompanying notes to condensed consolidated financial statements.
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Udemy, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)


Three Months Ended March 31,
20232022
Net loss$(44,544)$(25,649)
Foreign currency translation gain (loss), net of tax(11)10 
Change in unrealized loss on marketable securities, net of tax148  
Comprehensive loss$(44,407)$(25,639)
See accompanying notes to condensed consolidated financial statements.
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Udemy, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
(unaudited)

Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance—December 31, 2022
145,013,786 $1 $951,946 $(233)$(612,404)$339,310 
Stock-based compensation— — 28,733 — — 28,733 
Exercise of stock options355,516 — 1,449 — — 1,449 
Vesting of restricted stock units1,257,722 —  — —  
Other comprehensive loss— — — 137  137 
Net loss— — — — (44,544)(44,544)
Balance—March 31, 2023
146,627,024 $1 $982,128 $(96)$(656,948)$325,085 
Balance—December 31, 2021
139,164,693 $1 $848,229 $(1)$(458,529)$389,700 
Stock-based compensation— — 14,930 — — 14,930 
Exercise of stock options376,578 — 1,517 — — 1,517 
Vesting of restricted stock units32,145 —  — —  
Cumulative translation adjustment— — — 10 — 10 
Net loss— — — — (25,649)(25,649)
Balance—March 31, 2022
139,573,416 $1 $864,676 $9 $(484,178)$380,508 
See accompanying notes to condensed consolidated financial statements.
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Udemy, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

Three Months Ended March 31,
20232022
Cash flows from operating activities:
Net loss$(44,544)$(25,649)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization5,786 4,967 
Amortization of deferred sales commissions10,508 6,582 
Stock-based compensation26,283 13,342 
Allowance for credit losses301 110 
Accretion of marketable securities(1,815) 
Non-cash operating lease expense1,572 1,573 
Other375 75 
Changes in operating assets and liabilities:
Accounts receivable7,805 5,371 
Prepaid expenses and other assets(2,434)198 
Deferred contract costs(17,302)(13,038)
Accounts payable, accrued expenses and other liabilities(4,499)(21,964)
Content costs payable(2,292)(4,355)
Operating lease liabilities(1,759)(1,151)
Deferred revenue2,120 19,964 
Net cash used in operating activities(19,895)(13,975)
Cash flows from investing activities:
Purchases of marketable securities(58,463) 
Proceeds from maturities of marketable securities42,500  
Purchases of property and equipment(100)(156)
Capitalized software costs(3,256)(3,121)
Purchases of strategic investments (5,000)
Net cash used in investing activities(19,319)(8,277)
Cash flows from financing activities:
Net proceeds from exercise of stock options1,180 1,658 
Payment of deferred offering costs (1,586)
Net cash provided by financing activities1,180 72 
Effect of foreign exchange rates on cash flows(18)6 
Net decrease in cash, cash equivalents and restricted cash(38,052)(22,174)
Cash, cash equivalents and restricted cash—Beginning of period
317,314 536,768 
Cash, cash equivalents and restricted cash—End of period
$279,262 $514,594 
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Three Months Ended March 31,
20232022
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$275,633 $510,965 
Restricted cash3,629 3,629 
Total cash, cash equivalents and restricted cash$279,262 $514,594 
Supplemental disclosures of cash flow information:
Interest paid$488 $2 
Income taxes paid$44 $64 
Supplemental disclosure of non-cash investing and financing activities:
Stock-based compensation in capitalized costs$2,305 $1,311 
Change in unrealized loss on marketable securities$149 $ 
See accompanying notes to condensed consolidated financial statements.
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Udemy, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Organization and description of business
Description of business
Udemy, Inc. (“Udemy” or the “Company”) was incorporated in January 2010 under the laws of the state of Delaware. The Company is headquartered in San Francisco, California.
Udemy is a global learning company whose online platform empowers organizations and individuals with flexible and effective skill acquisition and development. The Company’s learning marketplace platform enables tens of thousands of subject matter experts to develop, distribute and enhance content that reaches Udemy’s broad global audience of learners. Udemy leverages technology, data and insights to deliver personalized and effective learning experiences. The Company further curates its highest-quality content from the marketplace for Udemy Business, which enables companies around the world to offer engaging, effective, on-demand learning for all employees, immersive laboratory-style learning for tech teams, and cohort-based learning focused on leadership development.

2. Summary of significant accounting policies
Basis of consolidation and presentation The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation, and all other normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results of the periods presented have been made.

Segment information On March 1, 2023, Greg Brown became the Company’s new Chief Executive Officer and chief operating decision maker (“CODM”). The Company defines its segments as those operations the CODM regularly reviews to allocate resources and assess performance. For the three months ended March 31, 2023 and 2022, the Company operated under two operating and reportable segments: Enterprise and Consumer. The Company continually monitors and reviews its segment reporting structure in accordance with Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, to determine whether any changes have occurred that would impact its reportable segments. For further information on the Company’s segment reporting, see Note 13 – Segment and geographic information.

Use of estimates— The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the results of operations during the reporting periods.
Significant estimates and assumptions reflected in the condensed consolidated financial statements include, but are not limited to, allowance for credit losses, capitalization of internally developed software and associated useful lives, stock-based compensation, determination of the income tax valuation allowance and the potential outcome of uncertain tax positions, estimated instructor withholding tax obligations, estimated service period for consumer single course purchases, the period of benefit for deferred commissions, the fair value and associated useful lives of intangible assets and goodwill acquired via business combinations, and the valuation of privately-held strategic investments, including impairments. Management periodically evaluates such estimates and assumptions for continued reasonableness.
Actual results may ultimately differ from management’s estimates and such differences could be material to the Company’s financial position and results of operations.
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Concentration of credit risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, restricted cash, and accounts receivable. For cash and restricted cash, the Company is exposed to credit risk in the event of default by the financial institutions to the extent the amounts recorded on the accompanying condensed consolidated balance sheets are in excess of federal insurance limits. The Company’s investments, classified as cash equivalents and marketable securities, consist of high-credit-quality instruments and fixed-income securities.
The Company generally does not require collateral or other security in support of accounts receivable. To reduce credit risk, management performs ongoing evaluations of its customers’ financial condition and maintains an allowance based upon expected credit losses of outstanding receivables. The Company had one customer, a reseller partner for the Enterprise segment, who accounted for more than 10% of total accounts receivable as of March 31, 2023. The Company had no customers which accounted for more than 10% of total accounts receivable as of December 31, 2022. No customer accounted for more than 10% of total revenue during the three months ended March 31, 2023 or 2022.

Summary of significant accounting policies— Except as described below, there were no significant changes to the Company’s significant accounting policies disclosed in Note 2 – Summary of significant accounting policies of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 27, 2023 (the “Annual Report”).
Stock-based compensation— The Company accounts for its stock-based compensation pursuant to ASC Topic 718, Compensation-Stock Compensation.
The Company granted performance-based restricted stock units (“PSUs”) in the first quarter of 2023, which vest based on the achievement of predefined corporate performance metrics and are subject to ongoing service conditions. The Company determines the fair value of PSUs based on the fair value of the Company’s common stock on the date of grant. Because PSUs have both performance and service-based vesting conditions, the Company separately attributes stock-based compensation expense for each vesting tranche of the award over their requisite service periods.
Management estimates the number of PSUs that are expected to vest based on the anticipated achievement of the specified performance metrics. If the performance-based vesting condition is considered probable of being achieved, the Company recognizes expense over the requisite service period based on the probable outcome of achievement. If the performance goals are not met, or are considered improbable, no compensation cost is recognized, and any previously recognized compensation cost is reversed.
Accounts receivable, net Accounts receivable primarily represent amounts owed to the Company for Enterprise subscriptions. Also included in accounts receivable are amounts due from payment processors or mobile application store partners that settle over a period longer than five business days. Accounts receivable balances are recorded at the invoiced amount and are non-interest-bearing. Accounts receivable is presented net of allowance for credit losses in the accompanying condensed consolidated balance sheets.
The Company maintains an allowance based upon expected credit losses of outstanding receivables. Management derives its estimate using a variety of factors, including historical collection and loss patterns; the current aging of receivables; geographic and other customer-specific credit risk factors; and reasonable and supportable forecasts of future economic conditions which inform adjustments to historical loss patterns. The provision for expected credit losses is recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations. Accounts receivable deemed to be uncollectible are written off, net of expected or actual recoveries.
Balance at Beginning of PeriodCharged to ExpensesCharges Utilized/Written-off, Net of RecoveriesBalance at End of Period
Allowance for credit losses (in thousands)
Three Months Ended March 31, 2023$1,528 $301 $(213)$1,616 
Three Months Ended March 31, 2022
$678 $110 $(110)$678 

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Self-insurance Beginning in 2023, the Company became self-insured for medical benefits offered to certain employees, up to certain stop-loss limits. Such costs are accrued based on known claims and estimates of incurred but not reported (“IBNR”) claims. IBNR claims are estimated using historical claim information and actuarial estimates. As of March 31, 2023, the accrued liability for self-insurance totaled $1.0 million and is included in accrued compensation and benefits on the condensed consolidated balance sheets.

Recently Adopted Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted
There are no recently issued accounting pronouncements that are expected to have a material impact on the Company’s condensed consolidated financial statements.
3. Revenue recognition

Deferred revenue Revenue recognized for the three months ended March 31, 2023, from amounts included in deferred revenue as of December 31, 2022 was $134.6 million. Revenue recognized for the three months ended March 31, 2022, from amounts included in deferred revenue as of December 31, 2021 was $111.4 million.

The below table presents a summary of deferred revenue balances by reportable segment (in thousands):
March 31,December 31, December 31,
202320222021
Deferred revenue:
Enterprise$221,157 $219,030 $148,966 
Consumer59,241 59,249 61,588 
Total deferred revenue$280,398 $278,279 $210,554 

Remaining performance obligations Remaining performance obligations represent the aggregate amount of the transaction price in contracts for performance obligations not delivered, or partially undelivered, as of the end of the reporting period. Remaining performance obligations primarily relate to unearned and unbilled revenue from multi-year Enterprise subscription contracts with future installment payments, as well as unearned revenue from Consumer single course purchases and subscriptions at the end of any given period. As of March 31, 2023, the aggregate transaction price for remaining performance obligations was $502.3 million, of which 70% is expected to be recognized over the next twelve months and the remainder thereafter.

Deferred contract costs The following table represents a rollforward of the Company’s deferred contract costs (in thousands):
Balance at Beginning of PeriodAdditionsAmortization ExpenseBalance at End of Period
Three Months Ended March 31, 2023$65,645 $17,302 $(10,508)$72,439 
Three Months Ended March 31, 2022$44,545 $13,038 $(6,582)$51,001 

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4. Investments and fair value measurements

The Company’s assets and liabilities that are measured at fair value on a recurring or nonrecurring basis within the fair value hierarchy are as follows (in thousands):

As of March 31, 2023
Level 1Level 2Level 3
Cash equivalents:
Money market funds$237,819 $ $ 
Marketable securities:
U.S. government securities$ $169,613 $ 
Non-current assets:
Strategic investments$ $ $12,104 
Current liabilities— accrued compensation and benefits:
Cash settled stock appreciation rights$ $ $243 
Non-current liabilities:
Cash settled stock appreciation rights$ $ $21 

As of December 31, 2022
Level 1Level 2Level 3
Cash equivalents:
Money market funds$130,377 $ $ 
U.S. government securities 48,900  
Total cash equivalents$130,377 $48,900 $ 
Marketable securities:
U.S. government securities$ $151,687 $ 
Non-current assets:
Strategic investments$ $ $12,104 
Non-current liabilities:
Cash settled stock appreciation rights$ $ $462 

The Company’s money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices in active markets. The Company’s investments in U.S. government securities are classified within Level 2 of the fair value hierarchy because they have been valued using inputs other than quoted prices in active markets that are directly or indirectly observable. The Company’s strategic investment and stock appreciation rights (“SARs”) are classified within Level 3 of the fair value hierarchy because they have been valued using significant unobservable inputs for which the Company has been required to develop its own assumptions.

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A summary of the changes in the fair value of Level 3 financial instruments, of which remeasurement of SARs are recognized in the condensed consolidated statements of operations, is as follows (in thousands):

Stock Appreciation RightsStrategic Investments
Balance— December 31, 2022
$462 $12,104 
Vesting and remeasurement of SARs(198) 
Balance— March 31, 2023
$264 $12,104 
Balance— December 31, 2021
$818 $10,000 
Vesting and remeasurement of SARs, net(310) 
Purchases of strategic investments 5,000 
Balance— March 31, 2022
$508 $15,000 

The Company evaluates its strategic investment for impairment at each reporting period. This evaluation consists of several potential qualitative and quantitative impairment indicators including, but not limited to, the investee's financial metrics, whether there were any significant adverse changes in the economic environment or general market conditions of the geographies and industries in which the investee operates, and any other publicly available information that may affect the value of the investment. No impairment losses were recorded in the three months ended March 31, 2023. The difference between the strategic investment’s cost basis of $15.0 million and the carrying value of $12.1 million is due to an impairment charge of $2.9 million, which was recorded in the third quarter of 2022.

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5. Consolidated balance sheet components

Cash, cash equivalents, and marketable securities The amortized cost, unrealized gains and losses, and estimated fair value of cash, cash equivalents, and marketable securities consisted of the following (in thousands):

As of March 31, 2023
Amortized CostUnrealized GainsUnrealized LossesFair Value
Cash and cash equivalents:
Cash$37,814 $ $ $37,814 
Money market funds237,819   237,819 
Total cash and cash equivalents275,633   275,633 
Marketable securities:
U.S. government securities169,677 40 (104)169,613 
Total cash, cash equivalents, and marketable securities$445,310 $40 $(104)$445,246 

As of December 31, 2022
Amortized CostUnrealized GainsUnrealized LossesFair Value
Cash and cash equivalents:
Cash$134,408 $ $ $134,408 
Money market funds130,377   130,377 
U.S. government securities48,899 4 (3)48,900 
Total cash and cash equivalents313,684 4 (3)313,685 
Marketable securities:
U.S. government securities151,900 30 (243)151,687 
Total cash, cash equivalents, and marketable securities$465,584 $34 $(246)$465,372 

Cash equivalents and marketable securities in an unrealized loss position consisted of the following (in thousands):
March 31, 2023December 31, 2022
Fair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
Cash equivalents:
U.S. government securities$ $ $24,960 $(3)
Marketable securities:
U.S. government securities37,102 (104)59,057 (243)
Total securities in an unrealized loss position
$37,102 $(104)$84,017 $(246)

Realized gains and losses reclassified from accumulated other comprehensive loss to other income (expense), net were zero for the three months ended March 31, 2023.

No securities had been in a continuous unrealized loss position for twelve months or longer as of March 31, 2023 or December 31, 2022. The Company does not intend to sell available-for-sale marketable debt securities in unrealized loss positions, and it is more likely than not that the Company will hold these securities until maturity or recovery of the cost basis. As of March 31, 2023 and December 31, 2022, the Company did not have an allowance for credit losses related to its available-for-sale debt securities due to a zero loss expectation for the portfolio which consists solely of U.S. government securities.

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As of March 31, 2023, the entirety of the Company’s marketable securities portfolio had remaining contractual maturities of one year or less.

Property and equipment, netProperty and equipment, net consisted of the following (in thousands):
March 31,December 31,
20232022
Computers and equipment$7,756 $7,820 
Furniture and fixtures4,678 4,870 
Purchased software383 383 
Leasehold improvements19,017 19,109 
Construction in progress8  
Total property and equipment31,842 32,182 
Less accumulated depreciation and amortization(25,636)(25,170)
Property and equipment, net$6,206 $7,012 
Depreciation expense was $0.8 million and $1.2 million for the three months ended March 31, 2023 and 2022, respectively.
Capitalized software, netCapitalized software, net consisted of the following (in thousands):
March 31,December 31,
20232022
Capitalized software$69,284 $63,748 
Less accumulated amortization(40,239)(36,336)
Capitalized software, net$29,045 $27,412 
Amortization expense of capitalized software was $3.9 million and $2.7 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, expected amortization expense for capitalized software over the remaining asset lives was as follows (in thousands):

Remainder of 2023$11,583 
202411,496 
20255,630 
2026336 
Total expected amortization$29,045 

Intangible assets, net and goodwill— As of March 31, 2023, intangible assets, net acquired as part of the CorpU business combination were as follows (in thousands):

Estimated Useful LivesIntangible Assets, GrossAccumulated AmortizationIntangible Assets, Net
Customer relationships6 years$5,500 $(1,469)$4,031 
Vendor relationships 3 years4,500 (2,403)2,097 
Developed technology3 years4,200 (2,243)1,957 
Tradename2 years900 (721)179 
Total$15,100 $(6,836)$8,264 

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As of December 31, 2022, intangible assets, net acquired as part of the CorpU business combination were as follows (in thousands):
Estimated Useful LivesIntangible Assets, GrossAccumulated AmortizationIntangible Assets, Net
Customer relationships6 years$5,500 $(1,239)$4,261 
Vendor relationships 3 years4,500 (2,028)2,472 
Developed technology3 years4,200 (1,893)2,307 
Tradename2 years900 (609)291 
Total$15,100 $(5,769)$9,331 

Amortization expense of intangible assets for the three months ended March 31, 2023 and 2022 was $1.1 million and $1.1 million, respectively.

The expected future amortization expense for intangible assets as of March 31, 2023 was as follows (in thousands):

Remainder of 2023$3,041 
20242,795 
2025917 
2026917 
2027594 
Total expected amortization$8,264 

Goodwill in the amount of $12.6 million was established as part of the CorpU acquisition on August 24, 2021, and allocated to the Enterprise segment. This amount represents the excess of the purchase price over the fair value of net assets acquired. There have been no adjustments to the carrying amount of goodwill as of March 31, 2023.

The Company tests for impairment at least annually, or whenever events or changes in circumstances occur that could impact the recoverability of these assets. No such triggering events were noted for the three months ended March 31, 2023 and 2022.


6. Leases

The Company applies the guidance under Topic 842 for leases of real estate facilities under non-cancelable operating leases with various expiration dates through fiscal year 2026. The Company recognized the following amounts related to its operating leases in its condensed consolidated statements of operations and cash flows (in thousands):
Three Months Ended March 31,
20232022
Operating lease costs$1,670 $1,701 
Variable lease costs$314 $204 
Cash paid for operating leases$1,923 $1,151 

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Future minimum lease payments under noncancellable operating leases with initial lease terms in excess of one year as of March 31, 2023, were as follows (in thousands):

2023$5,279 
20245,790 
2025809 
2026410 
Gross lease payments12,288 
Less imputed interest(458)
Present value of operating lease liabilities$11,830 

7. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
March 31,December 31,
20232022
Accrued expenses$7,262 $8,494 
Indirect tax reserves4,158 6,627 
Indirect tax payables7,968 9,137 
Other current liabilities7,032 6,989 
Accrued expenses and other current liabilities$26,420 $31,247 
Indirect tax payables relate to amounts collected from customers on behalf of third-party taxing authorities, primarily on sales in the U.S. and in international jurisdictions. Indirect tax payables also include withholding taxes on payments made to the Company’s instructors before remitting these amounts to the taxing authorities.

As of March 31, 2023, indirect tax reserves consist of the residual interest payable on the Company’s instructor withholding tax reserves and other indirect tax reserves.

Instructor withholding tax reserves

Prior to March 2020, the Company had not obtained appropriate taxpayer identification forms from instructors, nor remitted applicable tax withholding amounts to the U.S. Internal Revenue Service (“IRS”) where required. In accordance with GAAP, the Company recorded a provision for its tax exposure when it was both probable that a liability had been incurred and the amount of the exposure could be reasonably estimated.

Beginning in March 2020, the Company began collecting appropriate taxpayer identification forms from its instructors, assessing whether the forms justified a reduced rate of withholding or withholding exemption, and remitting withholding tax payments to the IRS where required. The Company also began reporting payments to its non-U.S. instructors and the IRS annually where required to do so.

In 2020, the Company approached the IRS to address the historical tax withholding amounts for instructors and engaged in a voluntary disclosure program. As of March 31, 2023, the Company has filed all outstanding withholding tax returns and has paid the associated tax obligation to the IRS. The estimated interest associated with the reserve is still outstanding.

Changes in the estimated amount the Company has determined it will owe are recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations. Estimated interest is recorded in interest income (expense), net in the accompanying condensed consolidated statement of operations.

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Changes to the instructor withholding tax reserve are as follows (in thousands):

Three Months Ended March 31,
20232022
Balance, beginning of period$2,528 $17,036 
Amounts charged to (released from) expense44 (1,343)
Net payments and settlements  
Balance, end of period$2,572 $15,693 

8. Commitments and contingencies
Noncancellable purchase commitments The Company has contractual commitments with its cloud infrastructure provider, network service providers and paid advertising vendors that are noncancellable. As of March 31, 2023, the Company had $55.4 million worth of future minimum payments under the Company’s noncancellable purchase commitments which are expected to be paid through 2026.
IndemnificationThe Company enters into indemnification provisions under agreements with other parties in the ordinary course of business, including certain business partners, investors, contractors, and the Company’s officers, directors, and certain employees. The Company has agreed to indemnify and defend the indemnified party’s claims and related losses suffered or incurred by the indemnified party resulting from actual or threatened third-party claims because of the Company’s activities or, in some cases, non-compliance with certain representations and warranties made by the Company. In general, the Company does not record any liability for these indemnities in the accompanying condensed consolidated balance sheets as the amounts cannot be reasonably estimated and are not considered probable. The Company does, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable. To date, losses recorded in the Company’s condensed consolidated statements of operations in connection with the indemnification provisions have not been material.
LitigationFrom time to time, in the ordinary course of business, the Company is subject to legal proceedings, claims, investigations, and other proceedings, including claims of alleged infringement of third-party patents and other intellectual property rights, and commercial, employment, and other matters. In accordance with generally accepted accounting principles, the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least annually and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. The outcome of such litigation is not expected to have a material effect on the financial position, results of operation and cash flows of the Company. The Company has recorded an immaterial amount related to all outstanding litigation matters in the accompanying condensed consolidated balance sheets, within accrued expenses and other current liabilities as of March 31, 2023, and December 31, 2022.

9. Income taxes

The provision for income taxes for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that are taken into consideration in the relevant period. Each quarter, the Company updates the estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company records a cumulative adjustment to the provision.

The Company had an effective tax rate of (2.43)% and (1.30)% for the three months ended March 31, 2023 and 2022, respectively. The difference between the 21% statutory federal tax rate and the effective tax rate was primarily a result of income earned in jurisdictions with higher statutory tax rates, foreign withholding taxes, and tax credits offset by change in valuation allowance.

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As of March 31, 2023 and December 31, 2022, the Company has provided a valuation allowance against U.S. federal and state deferred tax assets. Management continues to evaluate the realizability of deferred tax assets and the related valuation allowance. If management's assessment of the deferred tax assets or the corresponding valuation allowance were to change, the Company would record the related adjustment to income during the period in which management makes the determination.

The Company recognizes interest and penalties associated with uncertain tax positions as part of the income tax provision. To date, the Company has not recognized any interest and penalties in its condensed consolidated statements of operations, nor has it accrued for or made payments for interest and penalties.

The Company is subject to taxation in the U.S. and various foreign jurisdictions. Due to NOL carryforwards and tax credit carryforwards, the statutes of limitations remain open for tax years from inception of the Company through 2022. There are currently no income tax audits underway by U.S. federal or state tax authorities. There are income audits in Turkey and India that began in the year ended December 31, 2022, but no notices or assessments have been issued at this time.

10. Related party transactions
Naspers Ltd. (“Naspers”), through an investment entity controlled by Prosus N.V. (“Prosus”), beneficially owns more than 5% of the Company’s outstanding capital stock. A current member of the Company’s Board of Directors is an executive officer of a Prosus operating subsidiary, OLX Global B.V. A former member of the Company’s Board of Directors, who resigned in September 2022, was an executive officer of Prosus. Naspers and certain entities directly and indirectly controlled by Naspers are customers of the Company’s Enterprise subscription offering. The Company recorded $0.3 million and $0.4 million of revenue from services provided to these customers during the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023 and December 31, 2022, the Company had an accounts receivable balance of $0.1 million with these customers.
Insight Partners, where a member of the Company’s Board of Directors is a Managing Director, is affiliated with certain vendors that the Company has contracted to provide technology and software solutions. For each of the three months ended March 31, 2023 and 2022, the Company recorded $0.2 million of operating expenses with these vendors. The Company did not have an accounts payable balance with these vendors as of March 31, 2023 or December 31, 2022.

Certain members of the Company’s Board of Directors also serve as executive officers for customers of the Company’s Enterprise subscription offering. During the three months ended March 31, 2023 and 2022, the Company recorded $0.1 million and an immaterial amount, respectively, of revenue from services provided to these customers. As of March 31, 2023 and December 31, 2022, the Company had an accounts receivable balance with these customers of zero and $0.4 million, respectively.

11. Stockholders' equity
Preferred stock In connection with the IPO, the Company’s amended and restated certificate of incorporation became effective, which authorized the issuance of 50,000,000 shares of undesignated preferred stock with a par value of $0.00001 per share with rights and preferences, including voting rights, designated from time to time by the board of directors.

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Common stock— Common stockholders are entitled to one vote per share. As of March 31, 2023 and December 31, 2022, the following shares of common stock were available for future issuance:
March 31,December 31,
20232022
2010 Equity Incentive Plan:
Stock options outstanding9,925,732 10,333,771 
2021 Equity Incentive Plan:
RSUs outstanding and PSUs(1)
17,713,184 16,178,101 
Shares available for future issuance under:
2021 Equity Incentive Plan7,324,533 2,814,126 
2021 Employee Stock Purchase Plan3,379,715 1,929,578 
Total shares of common stock reserved38,343,164 31,255,576 
(1) The number of PSUs reserved for issuance is based on the maximum achievement of the corporate performance metric.
Equity incentive plans In 2010, the Company adopted the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan provided for incentive stock options (“ISOs”), non-statutory stock options (“NSOs”, collectively with ISOs, “stock options”), SARs, restricted stock, and restricted stock units (“RSUs”) to be granted to eligible employees, directors, and consultants. The 2010 Plan was terminated in October 2021 in connection with the IPO but continues to govern the terms and conditions of the outstanding awards granted pursuant to the 2010 Plan. No further equity awards will be granted under the 2010 Plan.
The Company adopted the 2021 Equity Incentive Plan (the "2021 Plan") in September 2021, which became effective on October 28, 2021 (collectively with the 2010 Plan, the “Equity Incentive Plans”) and was approved by the Company’s stockholders. The 2021 Plan provides for the granting of ISOs, NSOs, SARs, restricted stock, RSUs, and performance awards to eligible employees, directors, and consultants.

The Company initially reserved 13,800,000 shares for issuance under the 2021 Plan. The amount available for issuance is subject to an annual increase on the first day of each calendar year, beginning on January 1, 2023, in an amount equal to 5% of the outstanding shares of the Company’s common stock on the last day of the immediately preceding calendar year or a lesser amount determined by the Company’s Board of Directors or compensation committee. The amount available for issuance shall also include Returning Shares, which are any shares subject to awards granted under the 2010 Plan that, on or after October 29, 2021, expire or otherwise terminate without having been exercised in full, are tendered to or withheld by the Company for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by the Company due to failure to vest. On January 1, 2023, the shares available for future grants under the 2021 Plan automatically increased by 7,250,689 pursuant to the above evergreen provision of the 2021 Plan.

Stock options The Company may grant stock options at exercise prices not less than the fair market value at the date of grant. These options generally expire 10 years from the date of grant. The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period for each award, which is generally even over four years.

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The following is a summary of activity for stock options having only service-based vesting conditions under the Equity Incentive Plans:

Options OutstandingWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
(In Thousands)
Balance - December 31, 2022
10,283,771 $4.18 6.38$66,234 
Granted   
Exercised (355,516)4.10 
Canceled (52,523)11.28 
Balance - March 31, 2023
9,875,732 $4.15 3.06$47,212 
Vested & expected to vest as of March 31, 2023
9,875,732 $4.15 3.06$47,212 
Exercisable as of March 31, 2023
8,973,521 $3.92 2.89$44,616 
There were no stock options granted during the three months ended March 31, 2023 or 2022. The decrease in weighted average remaining contractual term during the period is due to stock options held by the Company’s former CEO, Mr. Coccari, which will expire if not exercised by the end of the 90-day post-termination exercise window that begins upon completion of his transition agreement in February 2024. Refer to further discussion below under other equity transactions.

As of March 31, 2023, total unrecognized stock-based compensation expense related to unvested stock options was $2.2 million, which will be recognized over a weighted average period of 0.8 years.

Stock appreciation rights The Company may grant SARs at exercise prices not less than the fair market value at the date of grant. The SARs are liability-classified awards that generally expire 10 years from the date of grant. The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period for each award, which is generally even over four years.

The following is a summary of activity for SARs under the Equity Incentive Plans:
SARs OutstandingWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
(In Thousands)
Balance - December 31, 2022
81,770 $5.44 6.90$418 
Granted   
Exercised   
Canceled(9,289)6.58 
Balance - March 31, 2023
72,481 $5.29 0.57$257 
Vested & expected to vest as of March 31, 2023
72,481 $5.29 0.57$257 
Exercisable as of March 31, 2023
71,706 $5.28 0.50$254 

There were no SARs granted during the three months ended March 31, 2023 or 2022. The decrease in weighted average remaining contractual term during the period is due to SARs held by employees impacted by the workforce reduction, as described in Note 14. Such SARs will expire if not exercised by the end of their respective 90-day post-termination exercise windows.

As of March 31, 2023, total unrecognized stock-based compensation expense related to unvested SARs was immaterial.

Restricted stock units and performance-based restricted stock units The fair value of RSUs is determined using the fair value of the Company’s common stock on the date of grant. The Company recognizes stock-based compensation expense for RSUs with service-based vesting conditions on a straight-line basis over the requisite service period for each award, which typically vest over a three or four-year period.

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During the first quarter of 2023, the Company granted 645,833 PSUs to certain executives at target. Each PSU conveys a right to receive one share of the Company’s common stock on the date it vests, provided that the number of PSUs that will ultimately vest may vary from 0% to 150% of target based upon the achievement of the corporate performance metric at the end of the performance period. One quarter of the eligible PSUs vest upon certification of the corporate performance metric in the first quarter of 2024, and the remaining 75% will vest equally over the following 12 quarters thereafter, subject to continual service by the grantee. Total stock-based compensation expense to be recognized may fluctuate during the performance period due to changes in forecasted achievement. The corporate performance metric associated with these awards has been considered probable of being achieved since the grant date, and the Company assumed 100% achievement as of March 31, 2023.

A summary of RSU and PSU activity under the 2021 Plan is as follows:
RSUs OutstandingWeighted Average Grant Date Fair ValuePSUs OutstandingWeighted Average Grant Date Fair Value
Unvested - December 31, 2022
16,178,101$17.37  $ 
Granted 2,290,999$9.84 645,833