Announces Nathan Schultz as incoming CEO, Dan
Rosensweig to become Executive Chairman
Chegg, Inc. (NYSE:CHGG), the leading student-first connected
learning platform, today reported financial results for the three
months ended March 31, 2024.
“Nathan has been core to Chegg’s success from our earliest days
as a textbook rental company, to leveraging AI today to create a
truly personalized learning assistant,” said Dan Rosensweig, CEO
& President of Chegg, Inc. “As we are seeing encouraging signs
of how our new AI enabled platform will serve more students, in
more ways, it’s the right time for Nathan to step in and lead, and
I could not be more excited about Chegg’s future.”
“We had a very productive first quarter and successfully rolled
out the first of many AI enabled experiences that will strengthen
our product-market fit in 2024 and beyond,” said Nathan Schultz,
incoming CEO & President. “The investments we are making in our
new product are designed to increase our value to students, enhance
their learning experience, and expand the audiences we can serve.
We are also working to align our expense base relative to current
revenue trends, with the goal of 30% or greater Adjusted EBITDA
margin for 2025.”
First Quarter 2024
Highlights
- Total Net Revenues of $174.4 million, a decrease of 7%
year-over-year
- Subscription Services Revenues of $154.1 million, a
decrease of 9% year-over-year
- Gross Margin of 73%
- Non-GAAP Gross Margin of 75%
- Net Loss was $1.4 million
- Non-GAAP Net Income was $29.6 million
- Adjusted EBITDA was $46.7 million
- 4.7 million Subscription Services subscribers, a
decrease of 8% year-over-year
Total net revenues include revenues from Subscription Services
and Skills and Other. Subscription Services includes revenues from
our Chegg Study Pack, Chegg Study, Chegg Writing, Chegg Math, and
Busuu offerings. Skills and Other includes revenues from Chegg
Skills, Advertising, and any other revenues not included in
Subscription Services.
For more information about non-GAAP net income, non-GAAP gross
margin and adjusted EBITDA, and a reconciliation of non-GAAP net
income to net (loss) income, gross margin to non-GAAP gross margin
and adjusted EBITDA to net (loss) income, see the sections of this
press release titled, “Use of Non-GAAP Measures,” “Reconciliation
of Net (Loss) Income to EBITDA and Adjusted EBITDA,” and
“Reconciliation of GAAP to Non-GAAP Financial Measures.”
Business Outlook
Second Quarter 2024
- Total Net Revenues in the range of $159 million to $161
million
- Subscription Services Revenues in the range of $144
million to $146 million
- Gross Margin between 70% and 71%
- Adjusted EBITDA in the range of $38 million to $40
million
For more information about the use of forward-looking non-GAAP
measures, a reconciliation of forward-looking net income to EBITDA
and adjusted EBITDA for the second quarter 2024, see the below
sections of the press release titled “Use of Non-GAAP Measures,”
and “Reconciliation of Forward-Looking Net Income to EBITDA and
Adjusted EBITDA.”
An updated investor presentation and an investor data sheet can
be found on Chegg’s Investor Relations website
https://investor.chegg.com.
Prepared Remarks - Dan Rosensweig, CEO
& President, Chegg, Inc.
Thank you, Tracey, and welcome everyone to Chegg’s Q1 2024
earnings call. It’s a truly exciting day for Chegg as I am thrilled
to announce that Nathan Schultz is being promoted to Chegg’s
President & CEO, effective June 1st. The board and I have been
focused on succession planning for the last several years to put
Chegg in the best position to continue to drive the future of
education. Nathan has spent the last 16 years helping build Chegg
into the leading global online learning platform that it is today.
From our earliest days as a textbook rental company to leveraging
AI today, Nathan has been at the core of our success. Nathan has
always led with a student-first mindset and a passion for
innovating how, when, and where people learn. I will be stepping in
to the role of Executive Chairman and working with Nathan and the
board during this next exciting phase of the company. Over the last
few years, Nathan has worked to bolster our current leadership team
by adding a new Chief Marketing Officer, a new SVP of Business
Operations, and a new Chief Product Officer to work alongside Chuck
Geiger, our Chief Technology Advisor. The board and I are excited
about this management team and the future of the business under
Nathan’s leadership.
We see the proliferation of AI, and our ability to uniquely
harness its potential in education, as a transformative moment for
Chegg. We’ve embraced AI and have completely rebuilt our user
experience and services, rolling out a multi-year product-led
growth plan to emerge from the post-covid period and return to
revenue and profit growth. The transition will take time, but we
are already seeing encouraging signs of how our new AI enabled
platform will serve more students, in more ways, than ever before.
This makes this the right time for Nathan to step in to this new
role and write the next chapter of the Chegg story. So, with that,
I will turn it over to Nathan. Congratulations, Nathan.
Prepared Remarks - Nathan Schultz,
Incoming CEO & President, Chegg, Inc.
Thank you, Dan. I want to take a moment to acknowledge the
tremendous impact you have had over the last 14 years, both on
Chegg and on me, personally. I am grateful for your leadership,
your wisdom, and your counsel as we re-founded the company so many
years ago, expanding the vision for how Chegg could serve learners
around the world. From print textbooks to our IPO, from homework
help to becoming a fully digital learning platform, you have helped
steer us through so many critical transitions and we would not be
where we are today without you. And where we are today is a company
that is truly revolutionizing how we serve students around the
world. We have rolled out a new interface for Q&A and developed
a proprietary AI platform, including our own 26 large language
models, uniquely verticalized for education. We are only just
starting to realize our vision for Chegg as a personalized learning
assistant, and we will continue to iterate and develop how we bring
a best-in-class learning experience to our customers.
We had a productive first quarter, continuing to roll out, and
improve upon, our AI enabled experiences that will strengthen our
product-market fit in 2024 and beyond. Executing against a
multi-year product roadmap is essential to returning to subscriber
growth, as we continue to cycle through the customer expansion, we
experienced during the pandemic. We are focused on increasing our
relevancy with students and getting Chegg back to consistent
positive growth in total revenue, Adjusted EBITDA, and free-cash
flow. We are already seeing encouraging trends in two important and
early indicators: retention rate, which for Q1 is up over 100 basis
points year-over-year, and engagement. We have designed the Chegg
platform with students at the center, focusing on providing a
learning experience that capitalizes on immediacy, accuracy, and
quality. To give you a sense of how quickly this is scaling, in Q1
of this year we had over 9 million questions asked compared to 3.9
million new questions asked at the same time last year. And, as
more questions are asked, we generate more content, which drives
more traffic, which we believe will lead to new customers in future
quarters. This is the power of the Chegg flywheel. In fact, our
question increase in Q1 has already driven a return to growth in
the U.S. new customer funnel for Chegg Study. There is a growing
opportunity to reach more customers with our new and expanded user
experience, made possible by proprietary AI technology that is
resonating with students and delivering real value.
As we develop an education focused AI platform, we believe it is
essential to own our large language models and quality assurance
layer. This allows Chegg to verticalize our AI for education
specifically and is essential in our pursuit to control quality and
accuracy at a lower cost than leveraging generic AI platforms.
Chegg was built for this moment. Our unique assets, such as our
over 100 million pieces of education content, our reach with
learners around the globe, and our over 150,000 subject-matter
experts, come together to deliver the most effective learning
experience possible.
Over the next few quarters, we are focused on rolling out
enhancements and features that deliver an even richer personalized
learning experience. Whether that means real time conversational
support with our AI tutor, generating flashcards, generating
practice problems, or creating a focused study guide. Our platform
is designed to anticipate, generate, and deliver personalized
solutions, which we expect will increase our value to students and
expand the audiences we can serve in a cost-efficient way.
We have been testing pricing and packaging in the U.S. and
internationally. In the U.S., we’ll continue to test different
options throughout 2024. Outside the U.S., where we have tested for
almost a year now, our pricing and packaging strategy has
solidified. We are focused on seven key markets for education that
represent an incredible opportunity for Chegg, with an addressable
market larger than the United States. In these priority markets,
we’ve seen an increase in new accounts, which grew 2.3%
year-over-year. Internationally, we will continue to roll out
pricing and packaging optimization as well as strengthen our
product market-fit through continued content and product
localization.
As we look ahead, I could not be more excited for the future and
the path Chegg is on. Reimagining and reinventing how we can best
serve learners around the world is our mission at Chegg, and the
opportunity to deliver a truly personalized learning experience has
never been bigger nor more critical. And I am grateful to have this
opportunity to expand where, when, and how we serve learners
because of Dan’s leadership. On behalf of our employees, the board,
and our leadership team, I want to take a moment again to thank
you, Dan, for everything you have done for Chegg over the last 14
years. Your legacy will always be the way you care deeply for the
people around you and how you always root for their success;
whether that is championing an employee to reach their potential or
encouraging a student to realize their dreams, you have changed
many lives during your tenure at Chegg, including mine, and we are
all deeply indebted.
And with that I will turn it over to David…
Prepared Remarks - David Longo, CFO,
Chegg, Inc.
Thank you, Nathan, and congratulations. Dan, I also want to
thank you and I look forward to your continued guidance as you
transition to your executive chairman role.
Today, I will present our financial performance for the first
quarter of 2024, as well as our outlook for Q2.
As Nathan mentioned, we had a very productive quarter. We were
acutely focused on delivering our new AI-driven experience to
global learners and making progress on crucial metrics, like
engagement and retention. We believe these actions will support
both revenue and Adjusted EBITDA growth over time. We continued to
deliver strong profitability and cash flows in the quarter, and our
balance sheet remains very healthy. We are prioritizing creating
shareholder value and emphasizing prudent expense management, as we
navigate the path back to growth.
Focusing on our first quarter performance, total revenue was
$174 million, down 7% year-over-year, including Subscription
Services revenue of $154 million. We had 4.7 million subscribers in
the quarter, with 25% coming from international. Skills and Other
revenue was $20 million, an increase of 6% year-over-year.
First quarter Adjusted EBITDA of $46.7 million represented a
margin of 27%. We maintained a prudent approach to expense
management and offset some of the year-over-year revenue decline
with lower expenses. We are working on aligning our expense base
relative to the current revenue trends. We expect to accelerate our
efficiency efforts as we progress through the year with the goal of
stronger margins in the second half, leading to 30% or greater
Adjusted EBITDA margin for 2025.
Free Cash Flow was $25.3 million in the first quarter,
representing a 54% conversion from Adjusted EBITDA. As a reminder,
while interest income continues to contribute positively, adding $7
million in the quarter, we are comping against a higher cash
balance in 2023.
Looking at the balance sheet, we ended the quarter with cash and
investments of $612 million and a net cash balance of $12 million.
During the quarter, we completed the previously announced $150
million accelerated share repurchase, with approximately 86% of the
shares delivered back to us in the fourth quarter of 2023. Our
end-of-quarter share count was down 15% year-over-year, as we have
continued to return capital to shareholders. In 2023 alone, we
returned over $300 million to investors through equity repurchases
and $597 million through convertible debt repurchases.
The progress we are making with the product experience and
refueling the flywheel, starting with automated solutions and
engagement, will take time to build our new account acquisitions
and renewal base before we see a positive impact on total
subscribers and revenue. As a reminder, our unique subscription
business model is reliant on two large customer acquisition
periods—Q1 and Q4—as well as the student lifecycle. Meanwhile, as
mentioned previously, we will increase our focus on efficiently
managing expenses to maintain strong profitability and cash
flows.
With respect to Q2 guidance we expect:
- Total revenue between $159 and $161 million, with Subscription
Services revenue between $144 and $146 million;
- Gross margin to be in the range of 70 and 71 percent;
- And adjusted EBITDA between $38 and $40 million.
In closing, we are seeing encouraging signs in the business and
are excited about the continued development of our personalized and
interactive student interface. We believe we are well-positioned to
meet the current and future needs of learners. The opportunity
ahead for Chegg is tremendous and I am confident in our team and
our ability to execute.
With that, I’ll turn the call over to the operator for your
questions.
Conference Call and Webcast
Information
To access the call, please dial 1-877-407-4018, or outside the
U.S. +1-201-689-8471, five minutes prior to 1:30 p.m. Pacific Time
(or 4:30 p.m. Eastern Time). A live webcast of the call will also
be available at https://investor.chegg.com under the Events &
Presentations menu. An audio replay will be available beginning at
4:30 p.m. Pacific Time (or 7:30 p.m. Eastern Time) on April 29,
2024, until 8:59 p.m. Pacific Time (or 11:59 p.m. Eastern Time) on
May 6, 2024, by calling 1-844-512-2921, or outside the U.S.
+1-412-317-6671, with Conference ID 13745716. An audio archive of
the call will also be available at https://investor.chegg.com.
Use of Investor Relations Website for
Regulation FD Purposes
Chegg also uses its media center website,
https://www.chegg.com/press, as a means of disclosing material
non-public information and for complying with its disclosure
obligations under Regulation FD. Accordingly, investors should
monitor https://www.chegg.com/press, in addition to following press
releases, Securities and Exchange Commission filings and public
conference calls and webcasts.
About Chegg
Millions of people all around the world learn with Chegg. No
matter the goal, level, or style, Chegg helps learners learn with
confidence. We provide 24/7 on-demand support, and our personalized
learning assistant leverages the power of artificial intelligence
(“AI”), more than a hundred million pieces of proprietary content,
as well as a decade of learning insights. Our platform also helps
learners build essential life and job skills to accelerate their
path from learning to earning, and we work with companies to offer
learning programs for their employees. Chegg is a publicly held
company based in Santa Clara, California and trades on the NYSE
under the symbol CHGG. For more information, visit
www.chegg.com.
Use of Non-GAAP Measures
To supplement Chegg’s financial results presented in accordance
with generally accepted accounting principles in the United States
(GAAP), this press release and the accompanying tables and the
related earnings conference call contain non-GAAP financial
measures, including adjusted EBITDA, non-GAAP cost of revenues,
non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating
expenses, non-GAAP income from operations, non-GAAP net income,
non-GAAP weighted average shares, non-GAAP net income per share,
and free cash flow. For reconciliations of these non-GAAP financial
measures to the most directly comparable GAAP financial measures,
please see the section of the accompanying tables titled,
“Reconciliation of Net (Loss) Income to EBITDA and Adjusted
EBITDA,” “Reconciliation of GAAP to Non-GAAP Financial Measures,”
“Reconciliation of Net Cash Provided by Operating Activities to
Free Cash Flow,” and “Reconciliation of Forward-Looking Net Income
to EBITDA and Adjusted EBITDA.”
The presentation of these non-GAAP financial measures is not
intended to be considered in isolation from, as a substitute for,
or superior to, the financial information prepared and presented in
accordance with GAAP, and may be different from non-GAAP financial
measures used by other companies. Chegg defines (1) adjusted EBITDA
as earnings before interest, taxes, depreciation and amortization
or EBITDA, adjusted for share-based compensation expense, other
income, net, acquisition-related compensation costs, and
transitional logistic charges; (2) non-GAAP cost of revenues as
cost of revenues excluding amortization of intangible assets,
share-based compensation expense, acquisition-related compensation
costs, and transitional logistic charges; (3) non-GAAP gross profit
as gross profit excluding amortization of intangible assets,
share-based compensation expense, acquisition-related compensation
costs, and transitional logistic charges; (4) non-GAAP gross margin
is defined as non-GAAP gross profit divided by net revenues, (5)
non-GAAP operating expenses as operating expenses excluding
share-based compensation expense, amortization of intangible
assets, and acquisition-related compensation costs; (6) non-GAAP
income from operations as loss from operations excluding
share-based compensation expense, amortization of intangible
assets, acquisition-related compensation costs, and transitional
logistic charges; (7) non-GAAP net income as net (loss) income
excluding share-based compensation expense, amortization of
intangible assets, acquisition-related compensation costs,
amortization of debt issuance costs, the income tax effect of
non-GAAP adjustments, gain on sale of strategic equity investment,
and transitional logistic charges; (8) non-GAAP weighted average
shares outstanding as weighted average shares outstanding adjusted
for the effect of shares for stock plan activity and shares related
to our convertible senior notes, to the extent such shares are not
already included in our weighted average shares outstanding; (9)
non-GAAP net income per share is defined as non-GAAP net income
divided by non-GAAP weighted average shares outstanding; and (10)
free cash flow as net cash provided by operating activities
adjusted for purchases of property and equipment. To the extent
additional significant non-recurring items arise in the future,
Chegg may consider whether to exclude such items in calculating the
non-GAAP financial measures it uses.
Chegg believes that these non-GAAP financial measures, when
taken together with the corresponding GAAP financial measures,
provide meaningful supplemental information regarding Chegg’s
performance by excluding items that may not be indicative of
Chegg’s core business, operating results or future outlook. Chegg
management uses these non-GAAP financial measures in assessing
Chegg’s operating results, as well as when planning, forecasting
and analyzing future periods and believes that such measures
enhance investors’ overall understanding of our current financial
performance. These non-GAAP financial measures also facilitate
comparisons of Chegg’s performance to prior periods.
As presented in the “Reconciliation of Net (Loss) Income to
EBITDA and Adjusted EBITDA,” “Reconciliation of GAAP to Non-GAAP
Financial Measures,” “Reconciliation of Forward-Looking Net Income
to EBITDA and Adjusted EBITDA,” and “Reconciliation of Net Cash
Provided by Operating Activities to Free Cash Flow,” tables below,
each of the non-GAAP financial measures excludes or includes one or
more of the following items:
Share-based compensation expense.
Share-based compensation expense is a non-cash expense that
varies in amount from period to period and is dependent on market
forces that are often beyond Chegg's control. As a result,
management excludes this item from Chegg's internal operating
forecasts and models. Management believes that non-GAAP measures
adjusted for share-based compensation expense provide investors
with a basis to measure Chegg's core performance against the
performance of other companies without the variability created by
share-based compensation as a result of the variety of equity
awards used by other companies and the varying methodologies and
assumptions used.
Amortization of intangible assets.
Chegg amortizes intangible assets, including those that
contribute to generating revenues, that it acquires in conjunction
with acquisitions, which results in non‑cash expenses that may not
otherwise have been incurred. Chegg believes excluding the expense
associated with intangible assets from non-GAAP measures allows for
a more accurate assessment of its ongoing operations and provides
investors with a better comparison of period-over-period operating
results. No corresponding adjustments have been made related to
revenues generated from acquired intangible assets.
Acquisition-related compensation costs.
Acquisition-related compensation costs include compensation
expense resulting from the employment retention of certain key
employees established in accordance with the terms of the
acquisitions. In most cases, these acquisition-related compensation
costs are not factored into management's evaluation of potential
acquisitions or Chegg's performance after completion of
acquisitions, because they are not related to Chegg's core
operating performance. In addition, the frequency and amount of
such charges can vary significantly based on the size and timing of
acquisitions and the maturities of the businesses being acquired.
Excluding acquisition-related compensation costs from non-GAAP
measures provides investors with a basis to compare Chegg’s results
against those of other companies without the variability caused by
purchase accounting.
Amortization of debt issuance costs.
The difference between the effective interest expense and the
contractual interest expense are excluded from management's
assessment of our operating performance because management believes
that these non-cash expenses are not indicative of ongoing
operating performance. Chegg believes that the exclusion of the
non-cash interest expense provides investors with a better
comparison of period-over-period operating results.
Income tax effect of non-GAAP adjustments.
We utilize a non-GAAP effective tax rate for evaluating our
operating results, which is based on our current mid-term
projections. This non-GAAP tax rate could change for various
reasons including, but not limited to, significant changes
resulting from tax legislation, changes to our corporate structure
and other significant events. Chegg believes that the inclusion of
the income tax effect of non-GAAP adjustments provides investors
with a better comparison of period-over-period operating
results.
Gain on sale of strategic equity investment.
The gain on sale of strategic equity investment represents a
one-time event to record the sale of our equity investment in Sound
Ventures. We believe that it is appropriate to exclude the gain
from non-GAAP financial measure because it is the result of an
event that is not considered a core-operating activity and we
believe its exclusion provides investors with a better comparison
of period-over-period operating results.
Transitional logistics charges.
The transitional logistics charges represent incremental
expenses incurred as we transition our print textbooks to a third
party. Chegg believes that it is appropriate to exclude them from
non-GAAP financial measures because it is the result of an event
that is not considered a core-operating activity and we believe its
exclusion provides investors with a better comparison of
period-over-period operating results.
Effect of shares for stock plan activity.
The effect of shares for stock plan activity represents the
dilutive impact of outstanding stock options, RSUs, and PSUs
calculated under the treasury stock method.
Effect of shares related to convertible senior notes.
The effect of shares related to convertible senior notes
represents the dilutive impact of our convertible senior notes, to
the extent such shares are not already included in our weighted
average shares outstanding as they were antidilutive on a GAAP
basis.
Free cash flow.
Free cash flow represents net cash provided by operating
activities adjusted for purchases of property and equipment. Chegg
considers free cash flow to be a liquidity measure that provides
useful information to management and investors about the amount of
cash generated by the business after the purchases of property and
equipment, which can then be used to, among other things, invest in
Chegg's business and make strategic acquisitions. A limitation of
the utility of free cash flow as a measure of financial performance
is that it does not represent the total increase or decrease in
Chegg's cash balance for the period.
Forward-Looking
Statements
This press release contains forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, which include, without limitation,
statements regarding our future growth and the future of learning,
the impact of artificial intelligence (AI) technology on our
financial condition and results of operations, Mr. Schultz's
planned promotion to President and CEO and the timing of such
promotion, Mr. Rosensweig's planned transition to the role of
Executive Chairman and the timing of such transition, our belief
that the proliferation of AI, and our ability to harness its
potential in education, is a transformative moment for Chegg, our
ability to execute on our multi-year product-led growth plan and
return to revenue and profit growth, our AI enabled platform being
able to serve more students, in more ways, than ever before, our
ability to revolutionize how we serve students around the world,
our vision for Chegg as a personalized learning assistant, our
iteration and development of how we bring a best-in-class learning
experience to our customers, our AI enabled experiences
strengthening our product-market fit in 2024 and beyond, our
execution against a multi-year product roadmap and our ability to
return to subscriber growth, our ability to cycle through the
customer expansion that Chegg experienced during the pandemic, our
ability to get back to consistent positive growth in total revenue,
Adjusted EBITDA, and free-cash flow, trends in retention rate and
engagement, our focus on providing a learning experience that
capitalizes on immediacy, accuracy, and quality, the power of the
Chegg flywheel, our belief that we will gain traffic and new
customers in future quarters as a result of the generation of more
content as more questions are asked, our belief that there is a
growing opportunity to reach more customers with our new and
expanded user experience, our development of an education focused
AI platform, our belief that it is essential to own our own large
language models and quality assurance layer, which allows us to
verticalize our AI for education specifically and is essential in
our pursuit of control quality and accuracy at a lower cost than
leveraging generic AI platforms, our belief that Chegg is built for
this moment, our unique assets, such as our over 100 million pieces
of education content, our reach with learners around the globe, and
our over 150,000 subject-matter experts, coming together to deliver
the most effective learning experiences possible, our focus over
the next few quarters on rolling out enhancements and features that
deliver an even richer personalized learning experience, the
features of our personalized learning experience, including real
time conversational support with our AI tutor, generating
flashcards, generating practice problems, or creating a focused
study guide, our expectation that our platform being designed to
anticipate, generate, and deliver personalized solutions will
increase our value to students and expand the audiences we can
serve in a cost-efficient way, our continued testing of pricing and
packaging options in the U.S. in 2024, our focus on seven key
international markets for education and how these markets represent
an incredible opportunity for Chegg, rolling out international
pricing and packaging optimization, strengthening our product
market-fit through continued content and product localization,
excitement for the future and the path Chegg is on, our mission
being the reimagination and reinvention of how we can best serve
learners around the world, our belief that the opportunity to
deliver a truly personalized learning experience has never been
bigger nor more critical, our acute focus on delivering our new
AI-driven experience to global learners, making progress on crucial
metrics like engagement and retention, the fact that improved
engagement and retention will support both revenue and Adjusted
EBITDA growth over time, our prioritization of creating shareholder
value and emphasizing prudent expense management as we navigate the
path back to growth, our work on aligning our expense base relative
to the current revenue trends, our expectation to accelerate our
efficiency efforts as we progress through the year with the goal of
stronger margins in the second half, our prediction of 30% or
greater Adjusted EBITDA margin for 2025, our belief that the
progress we are making with the product experience and refueling
the flywheel, starting with automated solutions and engagement,
will take time to build our new account acquisitions and renewal
base before we see a positive impact on total subscribers and
revenue, our increased focus on efficiently managing expenses to
maintain strong profitability and cash flows, our belief that we
are well-positioned to meet the current and future needs of
learners, our belief that the opportunity ahead for Chegg is
tremendous, our financial guidance, as well as those included in
the investor presentation referenced above, those included in the
“Prepared Remarks” sections above, and all statements about Chegg’s
outlook under “Business Outlook.” The words “anticipate,”
“believe,” “estimate,” “expect,” “intend,” “project,” “endeavor,”
“will,” “should,” “future,” “transition,” “outlook” and similar
expressions, as they relate to Chegg, are intended to identify
forward-looking statements. These statements are not guarantees of
future performance, and are based on management’s expectations as
of the date of this press release and assumptions that are
inherently subject to uncertainties, risks and changes in
circumstances that are difficult to predict. Forward-looking
statements involve known and unknown risks, uncertainties and other
factors that may cause actual results, performance or achievements
to differ materially from any future results, performance or
achievements. Important factors that could cause actual results to
differ materially from those expressed or implied by these
forward-looking statements include the following: the effects of AI
technology on Chegg’s business and the economy generally; Chegg’s
ability to attract new learners to, and retain existing learners
on, our learning platform; Chegg's innovation and offering of new
products and services in response to technology and market
developments, including AI, Chegg’s brand and reputation; the
uncertainty surrounding the evolving educational landscape,
enrollment and student behavior, including the impact of AI;
Chegg’s ability to expand internationally; the efficacy of Chegg's
efforts to drive user traffic, including search engine
optimization, social media campaigns, and other marketing; the
success of Chegg’s new product offerings, including the new Chegg
generative AI experience and personal learning assistant;
competition in all aspects of Chegg’s business, including with
respect to AI, and Chegg's expectation that such competition will
increase; Chegg’s ability to maintain its services and systems
without interruption, including as a result of technical issues,
cybersecurity threats, or cyber-attacks; third-party payment
processing risks; adoption of government regulation of education
unfavorable to Chegg; the rate of adoption of Chegg’s offerings;
mobile app stores and mobile operating systems making Chegg’s apps
and mobile website available to students and to grow Chegg’s user
base and increase their engagement; colleges and governments
restricting online access or access to Chegg’s services; Chegg’s
ability to strategically take advantage of new opportunities;
competitive developments, including pricing pressures and other
services targeting students; Chegg’s ability to build and expand
its services offerings; Chegg’s ability to integrate acquired
businesses and assets; the impact of seasonality and student
behavior on the business; the outcome of any current litigation and
investigations; misuse of Chegg’s platform and content; Chegg’s
ability to effectively control operating costs; regulatory changes,
in particular concerning privacy, marketing, and education; changes
in the education market, including as a result of AI technology and
COVID-19; and general economic, political and industry conditions,
including inflation, recession and war. All information provided in
this release and in the conference call is as of the date hereof,
and Chegg undertakes no duty to update this information except as
required by law. These and other important risk factors are
described more fully in documents filed with the Securities and
Exchange Commission, including Chegg's Annual Report on Form 10-K
for the year ended December 31, 2023 filed with the Securities and
Exchange Commission on February 20, 2024, and could cause actual
results to differ materially from expectations.
CHEGG, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except for
number of shares and par value)
(unaudited)
March 31, 2024
December 31,
2023
Assets
Current assets
Cash and cash equivalents
$
143,747
$
135,757
Short-term investments
247,013
194,257
Accounts receivable, net of allowance of
$290 and $376 at March 31, 2024 and December 31, 2023,
respectively
24,741
31,404
Prepaid expenses
20,429
20,980
Other current assets
30,010
32,437
Total current assets
465,940
414,835
Long-term investments
221,665
249,547
Property and equipment, net
188,430
183,073
Goodwill
628,784
631,995
Intangible assets, net
48,143
52,430
Right of use assets
23,521
25,130
Deferred tax assets
140,200
141,843
Other assets
15,961
28,382
Total assets
$
1,732,644
$
1,727,235
Liabilities and stockholders'
equity
Current liabilities
Accounts payable
$
20,119
$
28,184
Deferred revenue
54,056
55,336
Accrued liabilities
73,555
77,863
Current portion of convertible senior
notes, net
357,458
357,079
Total current liabilities
505,188
518,462
Long-term liabilities
Convertible senior notes, net
242,919
242,758
Long-term operating lease liabilities
16,460
18,063
Other long-term liabilities
4,603
3,334
Total long-term liabilities
263,982
264,155
Total liabilities
769,170
782,617
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value per
share, 10,000,000 shares authorized, no shares issued and
outstanding
—
—
Common stock, $0.001 par value per share:
400,000,000 shares authorized; 101,569,933 and 102,823,700 shares
issued and outstanding at March 31, 2024 and December 31, 2023,
respectively
102
103
Additional paid-in capital
1,057,837
1,031,627
Accumulated other comprehensive loss
(40,672
)
(34,739
)
Accumulated deficit
(53,793
)
(52,373
)
Total stockholders' equity
963,474
944,618
Total liabilities and stockholders'
equity
$
1,732,644
$
1,727,235
CHEGG, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per
share amounts)
(unaudited)
Three Months Ended
March 31,
2024
2023
Net revenues
$
174,350
$
187,601
Cost of revenues(1)
46,497
49,150
Gross profit
127,853
138,451
Operating expenses:
Research and development(1)
44,435
46,907
Sales and marketing(1)
30,375
37,017
General and administrative(1)
55,534
58,973
Total operating expenses
130,344
142,897
Loss from operations
(2,491
)
(4,446
)
Interest expense, net and other income,
net:
Interest expense, net
(650
)
(1,268
)
Other income, net
10,780
12,076
Total interest expense, net and other
income, net
10,130
10,808
Income before provision for income
taxes
7,639
6,362
Provision for income taxes
(9,059
)
(4,176
)
Net (loss) income
$
(1,420
)
$
2,186
Net (loss) income per share
Basic
$
(0.01
)
$
0.02
Diluted
$
(0.01
)
$
0.02
Weighted average shares used to compute
net (loss) income per share
Basic
102,343
123,710
Diluted
102,343
124,304
(1) Includes share-based compensation
expense as follows:
Cost of revenues
$
513
$
527
Research and development
9,209
10,914
Sales and marketing
2,140
2,499
General and administrative
17,427
19,806
Total share-based compensation expense
$
29,289
$
33,746
CHEGG, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
2024
2023
Cash flows from operating
activities
Net (loss) income
$
(1,420
)
$
2,186
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Share-based compensation expense
29,289
33,746
Depreciation and amortization expense
19,687
25,543
Deferred income taxes
2,877
3,441
Operating lease expense, net
1,567
1,496
Amortization of debt issuance costs
541
1,057
Loss from write-off of property and
equipment
478
120
Other non-cash items
(31
)
(5
)
Change in assets and liabilities:
Accounts receivable
6,705
1,578
Prepaid expenses and other current
assets
3,583
8,485
Other assets
(1,270
)
2,803
Accounts payable
(6,589
)
(336
)
Deferred revenue
(1,159
)
2,012
Accrued liabilities
640
(2,569
)
Other liabilities
(1,580
)
(6,397
)
Net cash provided by operating
activities
53,318
73,160
Cash flows from investing
activities
Purchases of property and equipment
(28,017
)
(17,166
)
Purchases of investments
(79,028
)
(497,372
)
Maturities of investments
50,731
407,759
Proceeds from sale of strategic equity
investment
15,500
—
Net cash used in investing activities
(40,814
)
(106,779
)
Cash flows from financing
activities
Proceeds from common stock issued under
stock plans, net
—
145
Payment of taxes related to the net share
settlement of equity awards
(4,294
)
(7,736
)
Repurchase of common stock
—
(151,311
)
Net cash used in financing activities
(4,294
)
(158,902
)
Effect of exchange rate changes
(226
)
187
Net increase (decrease) in cash, cash
equivalents and restricted cash
7,984
(192,334
)
Cash, cash equivalents and restricted
cash, beginning of period
137,976
475,854
Cash, cash equivalents and restricted
cash, end of period
$
145,960
$
283,520
Three Months Ended
March 31,
2024
2023
Supplemental cash flow data:
Cash paid during the period for:
Interest
$
224
$
437
Income taxes, net of refunds
$
641
$
2,017
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows from operating
leases
$
2,216
$
2,866
Right of use assets obtained in exchange
for lease obligations:
Operating leases
$
—
$
12,407
Non-cash investing and financing
activities:
Accrued purchases of long-lived assets
$
6,302
$
3,941
March 31,
2024
2023
Reconciliation of cash, cash equivalents
and restricted cash:
Cash and cash equivalents
$
143,747
$
281,302
Restricted cash included in other current
assets
224
63
Restricted cash included in other
assets
1,989
2,155
Total cash, cash equivalents and
restricted cash
$
145,960
$
283,520
CHEGG, INC.
RECONCILIATION OF NET (LOSS)
INCOME TO EBITDA AND ADJUSTED EBITDA
(in thousands)
(unaudited)
Three Months Ended
March 31,
2024
2023
Net (loss) income
$
(1,420
)
$
2,186
Interest expense, net
650
1,268
Provision for income taxes
9,059
4,176
Depreciation and amortization expense
19,687
25,543
EBITDA
27,976
33,173
Share-based compensation expense
29,289
33,746
Other income, net
(10,780
)
(12,076
)
Acquisition-related compensation costs
255
2,460
Transitional logistics charges
—
253
Adjusted EBITDA
$
46,740
$
57,556
CHEGG, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands, except
percentages and per share amounts)
(unaudited)
Three Months Ended
March 31,
2024
2023
Cost of revenues
$
46,497
$
49,150
Amortization of intangible assets
(3,142
)
(3,339
)
Share-based compensation expense
(513
)
(527
)
Acquisition-related compensation costs
(6
)
(5
)
Transitional logistics charges
—
(253
)
Non-GAAP cost of revenues
$
42,836
$
45,026
Gross profit
$
127,853
$
138,451
Amortization of intangible assets
3,142
3,339
Share-based compensation expense
513
527
Acquisition-related compensation costs
6
5
Transitional logistics charges
—
253
Non-GAAP gross profit
$
131,514
$
142,575
Gross margin %
73
%
74
%
Non-GAAP gross margin %
75
%
76
%
Operating expenses
$
130,344
$
142,897
Share-based compensation expense
(28,776
)
(33,219
)
Amortization of intangible assets
(856
)
(2,911
)
Acquisition-related compensation costs
(249
)
(2,455
)
Non-GAAP operating expenses
$
100,463
$
104,312
Loss from operations
$
(2,491
)
$
(4,446
)
Share-based compensation expense
29,289
33,746
Amortization of intangible assets
3,998
6,250
Acquisition-related compensation costs
255
2,460
Transitional logistics charges
—
253
Non-GAAP income from operations
$
31,051
$
38,263
Three Months Ended
March 31,
2024
2023
Net (loss) income
$
(1,420
)
$
2,186
Share-based compensation expense
29,289
33,746
Amortization of intangible assets
3,998
6,250
Acquisition-related compensation costs
255
2,460
Amortization of debt issuance costs
541
1,057
Income tax effect of non-GAAP
adjustments
713
(7,855
)
Gain on sale of strategic equity
investment
(3,783
)
—
Transitional logistics charges
—
253
Non-GAAP net income
$
29,593
$
38,097
Weighted average shares used to compute
net (loss) income per share, diluted
102,343
124,304
Effect of shares for stock plan
activity
792
—
Effect of shares related to convertible
senior notes
9,234
18,226
Non-GAAP weighted average shares used to
compute non-GAAP net income per share, diluted
112,369
142,530
Net (loss) income per share, diluted
$
(0.01
)
$
0.02
Adjustments
0.27
0.25
Non-GAAP net income per share, diluted
$
0.26
$
0.27
CHEGG, INC.
RECONCILIATION OF NET CASH
PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(in thousands)
(unaudited)
Three Months Ended
March 31,
2024
2023
Net cash provided by operating
activities
$
53,318
$
73,160
Purchases of property and equipment
(28,017
)
(17,166
)
Free cash flow
$
25,301
$
55,994
CHEGG, INC.
RECONCILIATION OF
FORWARD-LOOKING NET INCOME TO EBITDA AND ADJUSTED EBITDA
(in thousands)
(unaudited)
Three Months Ending June 30,
2024
Net income
$
1,900
Interest expense, net
500
Provision for income taxes
900
Depreciation and amortization expense
20,500
EBITDA
23,800
Share-based compensation expense
22,000
Other income, net
(7,000
)
Acquisition-related compensation costs
200
Adjusted EBITDA*
$
39,000
* Adjusted EBITDA guidance for the three
months ending June 30, 2024 represent the midpoint of the range of
$38 million to $40 million, respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240429080890/en/
Media Contact: Heather Hatlo Porter, press@chegg.com Investor
Contact: Tracey Ford, IR@chegg.com
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