Risk Factors Update Summary

• Revenue recognition changes: Added details on revenue sources, billing practices, and refund reserves. This change might result in improved transparency and understanding of revenue recognition practices.
• Added depreciation and amortization value of $22,270 in 2023 compared to $18,503 in 2022.
• The Indian Parliament passed the Digital Personal Data Protection Act, 2023, overhauling India's privacy regime.
• Gross unrecognized tax benefits increased by $6,164 million from $16,371 million to $22,535 million.
• Revenue growth rate may decline compared to prior years, with revenue growing from $523.8 million in 2022 to $635.523 million in 2023.
• Total Consumer revenue increased by $20 million, or 10%, from $196 million in 2022 to $216 million in 2023.
• President Biden signed Executive Order 14110 impacting private businesses with unclear effects.
• Net loss per share decreased from $1.21 to $0.77 for the year ended December 31, 2023.
• Total Enterprise revenue decreased by $22 million, or 12%, from $181 million in 2022 to $159 million in 2023.
• Contract balances update: Significant changes in contract assets and liabilities. Total contract assets decreased from $67,418 to $53,734. Total contract liabilities decreased from $140,089 to $118,777.
• Addition of a Senior Vice President position with an annual base salary of $380,000.
• Stock-based compensation expense increased to $110,570 in 2023 from $91,183 in 2022.
• The company implemented a Senior Executive Compensation Recoupment Policy to comply with Dodd-Frank regulations.
• Historical growth may not be indicative of future growth, with net losses of $116.6 million in 2023, $175.4 million in 2022, and $145.2 million in 2021.
• Covered Executives must forfeit or repay excess Incentive-Based Compensation in case of a Restatement.
• The EU's AI Act introduces compliance obligations and fines, potentially impacting certain AI systems.
• Net loss decreased to $116,554 in 2023 from $175,357 in 2022.
• Stock-based compensation expense decreased by $496 million from $3,089 million to $2,593 million.
• The number of Paid Enterprise Customers increased by 6%, from 1,149 in 2022 to 1,218 in 2023.
• Change in accounting estimate: Expected period of benefit increased from three to four years. This change resulted in a $3,496 benefit to sales and marketing.
• Introduction of an equity compensation award totaling $1,600,000, split between RSUs and stock options.
• Increased focus on generative AI technology and potential risks associated with AI incorporation in business operations.
• Long-lived assets decreased by $5,554 million from $36,701 million to $31,147 million.
• A class action lawsuit alleging VPPA violations could be expensive to defend.
• The Policy allows recoupment of Incentive-Based Compensation regardless of fault or timing of restated financial statements.
• Net Retention Rate for Paid Enterprise Customers decreased by 9%, from 108% in 2022 to 98% in 2023.
• Inclusion of accelerated vesting provisions for stock options and RSUs in case of Termination without Cause.
• Potential impact of new privacy laws on operations, including the Colorado Privacy Act and Connecticut Data Privacy Act effective from July 1, 2023.
• Free Cash Flow changed due to the inclusion of purchases of content assets.
• Impairment losses update: Impairment loss of $2,915 in 2022 on deferred partner fees. In 2023, an impairment loss of $2,008 on content development grants related to the Degrees segment.
• Changes from 19 to 20 issued patents may impact the protection and enforcement of intellectual property.
• Content costs for the Consumer segment increased by $12 million, driven by higher content fees.
• Lease agreements: Recognition of an impairment loss related to an operating lease right-of-use asset of $2,304 in 2022. Lease costs decreased from $6,856 to $5,510 in 2023.
• Interest income, net decreased to $9,144 in 2023 from $320 in 2022.
• Unrecognized employee compensation cost decreased by $2 million from $14 million to $12 million.
• Risks related to compliance with laws and regulations, including FERPA violations and potential legal challenges.
• Incorporating open-source software may affect the ability to offer solutions and incur additional costs.
• Concerns regarding the impact of geopolitical tensions, such as military conflicts in Ukraine and the Middle East, on business operations.
• Operating expenses decreased by $33 million, from $509 million in 2022 to $476 million in 2023.
• Adjusted EBITDA improved to ($10,000) in 2023 from ($36,945) in 2022.
• Deferred tax assets and liabilities: Valuation allowance increased by $39,907 in 2023 and $33,838 in 2022. Net deferred tax assets increased from $814 to $1,157.
• Restructuring related charges of $4.8 million were paid in the year ended December 31, 2022.
• Risks associated with the use of AI technology, including cybersecurity incidents and potential reputational damage.
• Incremental operating expenses related to restructuring are expected to be $2-3 million in the first quarter of 2023.
• Non-GAAP Gross Profit increased by $83 million, from $337 million in 2022 to $420 million in 2023.
• Comprehensive loss: Added details on comprehensive loss components, including net loss and other comprehensive income. This change might provide a more comprehensive view of the company's financial performance.
• Change in unrealized gain on marketable securities, net of tax, increased to $777 in 2023 from ($466) in 2022.
• Loss of B Corp certification could harm reputation and commitment to shared values.