CHEGG INC

Previous wording

Our long-term strategy is centered upon our ability to utilize our Subscription Services to increase student engagement with our learning platform. We continue to invest in the expansion of our offerings and technology platform to provide a more compelling and personalized solution and deepen engagement with students. As AI technologies continue to advance, we are taking advantage of the increased opportunities by leveraging new tools to better serve our students. We realigned our investments and resources around AI in 2023, and have redesigned our user experience, developed our own large language models, launched automated solutions and built proprietary algorithms to optimize the quality and accuracy of our content to build our personalized learning assistant. We remain focused on rolling out enhancements and features that will deliver an even richer personalized learning assistant. We believe the investments we have made will allow us to maintain strong operating margins and cash flows and enable us to return to revenue growth over time. Our ability to achieve these long-term objectives is subject to numerous risks and uncertainties, which are described in greater detail in Part II, Item 1A, “Risk Factors.”

Current wording

Our long-term strategy is centered upon our ability to utilize our Subscription Services to increase student engagement with our learning platform. We continue to invest in the expansion of our offerings and technology platform to provide a more compelling and personalized solution and deepen engagement with students. We continue to integrate artificial intelligence into our platform, and it is now conversational, more instructional, and interactive. We remain focused on providing a holistic and differentiated product offering that supports the whole student with 360 degrees of individualized academic and functional support, including the delivery of high-quality and accurate content. Additionally, we are committed to expanding our product offering internationally with fully localized product experiences in key international markets. We believe the investments we are making will allow us to maintain strong margins and cash flows and enable us to return to revenue growth over time. Our ability to achieve these long-term objectives is subject to numerous risks and uncertainties, which are described in greater detail in Part II, Item 1A, “Risk Factors.”

Previous wording

Three Months Ended March 31, 2024 and 2023

Current wording

During the three months ended June 30, 2024, in consideration of the sustained decline in our stock price, industry developments, and our financial performance, we determined that impairment tests for our goodwill, intangible assets and property and equipment were necessary. As a result, we recorded $481.5 million of impairment expense during the three months ended June 30, 2024. If there continues to be a decline in our stock price or financial performance, we may be required to perform additional impairment tests, which could result in impairment expense of up to the entire remaining balances of goodwill, intangible assets and property and equipment. Any such impairment expense may be material and have an adverse effect on our financial condition and results of operations. See Note 5, “Property and Equipment, Net” and Note 6, “Goodwill and Intangible Assets” of our accompanying Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements (unaudited)” of this Quarterly Report on Form 10-Q for additional details.

Previous wording

Our Subscription Services can be accessed internationally through our websites and on mobile devices and include Chegg Study Pack, Chegg Study, Chegg Writing, Chegg Math, and Busuu and students typically pay to access our Subscription Services on a monthly basis. Revenues from our Subscription Services are primarily recognized ratably over the monthly subscription period whereas the number of subscribers are determined as those who have paid to access our services at any time during the period. Changes in revenues are primarily related to changes in subscribers however they may not necessarily coincide as a result of timing. Our Chegg Study subscription service provides access to personalized, step-by-step learning support powered by AI, computational engines, and subject matter experts. When students need writing help, including plagiarism detection scans and creating citations for their papers, they can use our Chegg Writing subscription service. Our Chegg Math subscription service, including Mathway, helps students understand math by providing a step-by-step math solver and calculator. We also offer our Chegg Study Pack as a premium subscription bundle of our Chegg Study, Chegg Writing, and Chegg Math services. Subscribers to Busuu have access to a premium language learning platform that offers comprehensive support through self-paced lessons, live classes with expert tutors and a huge community of members to practice alongside.

Current wording

Our Subscription Services can be accessed internationally through our websites and on mobile devices and include Chegg Study Pack, Chegg Study, Chegg Writing, Chegg Math, and Busuu and students typically pay to access our Subscription Services on a monthly basis. Revenues from our Subscription Services are primarily recognized ratably over the monthly subscription period whereas the number of subscribers are determined as those who have paid to access our services at any time during the period. Changes in revenues are primarily related to changes in subscribers. Our Chegg Study subscription service provides access to personalized, step-by-step learning support powered by AI, computational engines, and subject matter experts. When students need writing help, including plagiarism detection scans and creating citations for their papers, they can use our Chegg Writing subscription service. Our Chegg Math subscription service, including Mathway, helps students understand math by providing a step-by-step math solver and calculator. We also offer our Chegg Study Pack as a premium subscription bundle of our Chegg Study, Chegg Writing, and Chegg Math services. Subscribers to Busuu have access to a premium language learning platform that offers comprehensive support through self-paced lessons, live classes with expert tutors and a huge community of members to practice alongside.

Previous wording

In the aggregate, Subscription Services revenues were 88% and 90% of net revenues during the three months ended March 31, 2024 and 2023, respectively.

Current wording

In the aggregate, Subscription Services revenues were 90% and 89% of net revenues during the three and six months ended June 30, 2024, respectively. In the aggregate, Subscription Services revenues were 91% and 90% of net revenues during the three and six months ended June 30, 2023, respectively.

Previous wording

Our Skills and Other product line includes revenues from Skills, advertising services, print textbooks and eTextbooks. Our skills-based learning platform offers professional courses focused on the latest technology skills. We work with leading brands and programmatic partners to deliver advertising across our platforms. We also provide a platform for students to rent or buy print textbooks and eTextbooks, which helps students save money compared to the cost of buying new.

Current wording

Our Skills and Other product line includes revenues from Chegg Skills, advertising services, print textbooks and eTextbooks. Our skills-based learning platform offers professional courses focused on the latest technology skills. We work with leading brands and programmatic partners to deliver advertising across our platforms. We also provide a platform for students to rent or buy print textbooks and eTextbooks, which helps students save money compared to the cost of buying new.

Previous wording

In the aggregate, Skills and Other revenues were 12% and 10% during the three months ended March 31, 2024 and 2023, respectively.

Current wording

In the aggregate, Skills and Other revenues were 10% and 11% during the three and six months ended June 30, 2024, respectively. In the aggregate, Skills and Other revenues were 9% and 10% during the three and six months ended June 30, 2023, respectively.

Previous wording

The following table presents our total net revenues for the periods shown for our Subscription Services and Skills and Other product lines (in thousands, except percentages):

Current wording

The following tables present our total net revenues for the periods shown for our Subscription Services and Skills and Other product lines (in thousands, except percentages):

Previous wording

Subscription Services revenues decreased $14.4 million, or 9%, during the three months ended March 31, 2024 compared to the same period in 2023, which was primarily due to an 8% decrease in subscribers who have paid to access our services. Skills and Other revenues increased $1.1 million, or 6%, during the three months ended March 31, 2024 compared to the same period in 2023, primarily due to pricing increases in our programmatic advertising services as well as our Chegg Skills offering.

Current wording

Subscription Services revenues decreased $19.0 million, or 11%, and $33.4 million, or 10%, during the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023. The decrease was primarily due to a 9% and 8% decrease in subscribers who have paid to access our services during the three months ended June 30, 2024 and March 31, 2024, respectively, compared to the same periods in 2023. Skills and Other revenues decreased $0.7 million, or 4%, during the three months ended June 30, 2024, compared to the same period in 2023, primarily due to lower revenues in Chegg Skills related to direct to customer enrollments. Skills and Other revenues increased $0.5 million, or 1%, during the six months ended June 30, 2024, compared to the same period in 2023, remaining relatively flat.

Previous wording

The following table presents our cost of revenues for the periods shown (in thousands, except percentages):

Current wording

The following tables present our cost of revenues for the periods shown (in thousands, except percentages):

Previous wording

Cost of revenues decreased $2.7 million, or 5%, during the three months ended March 31, 2024, compared to the same period in 2023, which was primarily due to lower depreciation and amortization expense. Gross margins decreased to 73% during the three months ended March 31, 2024, from 74% during the same period in 2023.

Current wording

Cost of revenues decreased $2.0 million, or 4%, during the three months ended June 30, 2024, compared to the same period in 2023. The decrease was primarily due to lower depreciation and amortization expense of $3.2 million and lower contractor spend of $1.5 million, which was partially offset by the absence of the gain on disposition of textbooks of $1.2 million and higher web hosting fees of $1.0 million. Gross margins decreased to 72% during the three months ended June 30, 2024, from 74% during the same period in 2023.

Previous wording

The following table presents our total operating expenses for the periods shown (in thousands, except percentages):

Current wording

The following tables present our total operating expenses for the periods shown (in thousands, except percentages):

Previous wording

Research and development expenses decreased $2.5 million, or 5%, during the three months ended March 31, 2024 compared to the same period in 2023, which was primarily due to lower employee-related expenses, including share-based compensation expense. Research and development expenses as a percentage of net revenues were 26% during the three months ended March 31, 2024 compared to 25% during the same period in 2023.

Current wording

Research and development expenses decreased $9.2 million, or 17%, during the three months ended June 30, 2024 compared to the same period in 2023. The decrease was primarily due to lower employee-related expenses, including share-based compensation expense. Research and development expenses as a percentage of net revenues were 27% during the three months ended June 30, 2024 compared to 29% during the same period in 2023.

Previous wording

Sales and marketing expenses decreased by $6.6 million, or 18%, during the three months ended March 31, 2024, compared to the same period in 2023. The decrease was primarily attributable to lower depreciation and amortization expense of $2.9 million, lower paid marketing expenses of $2.3 million, and lower employee-related expenses, including share-based compensation expense, of $1.1 million. Sales and marketing expenses as a percentage of net revenues were 17% during the three months ended March 31, 2024 compared to 20% during the same period in 2023.

Current wording

Sales and marketing expenses decreased by $7.4 million, or 24%, during the three months ended June 30, 2024, compared to the same period in 2023. The decrease was primarily attributable to lower depreciation and amortization expense of $3.3 million, lower paid marketing expenses of $3.0 million and lower employee-related expenses, including share-based compensation expense, of $1.0 million. Sales and marketing expenses as a percentage of net revenues were 14% during the three months ended June 30, 2024 compared to 17% during the same period in 2023.

Previous wording

General and administrative expenses decreased $3.4 million, or 6%, during the three months ended March 31, 2024 compared to the same period in 2023. The decrease was primarily due to lower employee-related expenses, including share-based compensation expense, of $4.3 million, partially offset by higher professional fees of $1.2 million. General and administrative expenses as a percentage of net revenues were 32% during the three months ended March 31, 2024 compared to 31% during the same period in 2023.

Current wording

General and administrative expenses decreased $16.3 million, or 23%, during the three months ended June 30, 2024 compared to the same period in 2023. The decrease was primarily due to lower employee-related expenses, including share-based compensation expense. General and administrative expenses as a percentage of net revenues were 33% during the three months ended June 30, 2024 compared to 38% during the same period in 2023.

Previous wording

The following table presents our interest expense and other income, net, for the periods shown (in thousands, except percentages):

Current wording

The following tables present our interest expense and other income, net, for the periods shown (in thousands, except percentages):

Previous wording

Interest expense, net decreased $0.6 million, or 49%, during the three months ended March 31, 2024 compared to the same period in 2023, primarily due to the partial early extinguishments of our convertible senior notes in 2023.

Current wording

Interest expense, net decreased $0.5 million, or 42%, and $1.1 million, or 45%, during the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023, primarily due to the partial early extinguishments of our convertible senior notes in 2023.

Previous wording

The following table presents our provision for income taxes for the periods shown (in thousands, except percentages):

Current wording

The following tables present our provision for income taxes for the periods shown (in thousands, except percentages):

Previous wording

Cash, cash equivalents, and investments increased $32.9 million during the three months ended March 31, 2024 primarily due to the net cash provided by operating activities of $53.3 million, partially offset by the purchases of property and equipment of $28.0 million. Convertible senior notes, net increased $0.5 million during the three months ended March 31, 2024 primarily due to amortization of issuance costs.

Current wording

Cash, cash equivalents, and investments increased $25.8 million during the six months ended June 30, 2024 primarily due to the net cash provided by operating activities of $67.5 million, partially offset by the purchases of property and equipment of $45.8 million. Convertible senior notes, net increased $1.1 million during the six months ended June 30, 2024 primarily due to amortization of issuance costs.

Previous wording

As of March 31, 2024, our principal sources of liquidity were cash, cash equivalents, and investments totaling $612.4 million, which were held for working capital purposes. The substantial majority of our net revenues are from e-commerce transactions with students, which are settled immediately through payment processors, as opposed to our accounts payable, which are settled based on contractual payment terms with our suppliers. We believe that our existing sources of liquidity will be sufficient to fund our operations and debt service obligations for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, our investments in research and development activities, our acquisition of new products and services and our sales and marketing activities. To the extent that existing sources of liquidity are insufficient to fund our future operations, we may need to raise additional funds through public or private equity or debt financing. Additional funds may not be available on terms favorable to us or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, operating cash flows and financial condition. As of March 31, 2024, we have incurred cumulative losses of $53.8 million from our operations and we may incur additional losses in the future.

Current wording

As of June 30, 2024, our principal sources of liquidity were cash, cash equivalents, and investments totaling $605.4 million, which were held for working capital purposes. The substantial majority of our net revenues are from e-commerce transactions with students, which are settled immediately through payment processors, as opposed to our accounts payable, which are settled based on contractual payment terms with our suppliers. We believe that our existing sources of liquidity will be sufficient to fund our operations and debt service obligations for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, our investments in research and development activities, our acquisition of new products and services and our sales and marketing activities. To the extent that existing sources of liquidity are insufficient to fund our future operations, we may need to raise additional funds through public or private equity or debt financing. Additional funds may not be available on terms favorable to us or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, operating cash flows and financial condition. As of June 30, 2024, we have incurred cumulative losses of $670.7 million from our operations and we may incur additional losses in the future.

Previous wording

Most of our cash, cash equivalents, and investments are held in the United States. We plan to repatriate a portion of the earnings from our subsidiary in India and therefore accrued $4.0 million of tax expense related to such future distributions as of March 31, 2024. As a result of the Tax Cuts and Jobs Act, we anticipate the U.S. federal impact for the remaining foreign jurisdictions to be minimal if these funds are repatriated. In addition, based on our current and future needs, we believe our current funding and capital resources for our international operations are adequate.

Current wording

Most of our cash, cash equivalents, and investments are held in the United States. We plan to repatriate a portion of the earnings from our subsidiary in India and therefore accrued $4.3 million of tax expense related to such future distributions as of June 30, 2024. As a result of the Tax Cuts and Jobs Act, we anticipate the U.S. federal impact for the remaining foreign jurisdictions to be minimal if these funds are repatriated. In addition, based on our current and future needs, we believe our current funding and capital resources for our international operations are adequate.

Previous wording

Net cash used in investing activities decreased $66.0 million, or 62%, during the three months ended March 31, 2024 compared to the same period in 2023 and was primarily related to lower purchases of investments of $418.3 million and proceeds from the sale of our strategic investment of $15.5 million, partially offset by lower proceeds from the maturities of our investments of $357.0 million and higher purchases of property and equipment of $10.9 million.

Current wording

Net cash flows from investing activities decreased $193.5 million, or 150%, during the six months ended June 30, 2024 compared to the same period in 2023 and was primarily related to lower proceeds from the maturities of our investments of $387.0 million, lower proceeds from sale of investments of $238.7 million, and higher purchases of property and equipment of $12.0 million, partially offset by lower purchases of investments of $428.7 million and proceeds from the sale of our strategic investment of $15.5 million.

Previous wording

Net cash used in financing activities decreased $154.6 million, or 97%, during the three months ended March 31, 2024 compared to the same period in 2023 and was primarily related to the absence of repurchases of our common stock.

Current wording

Net cash flows from financing activities increased $558.2 million, or 99%, during the six months ended June 30, 2024 compared to the same period in 2023 and was primarily related to the absence of repurchases of our common stock.

Previous wording

There have been no material changes in our critical accounting policies and estimates during the three months ended March 31, 2024 as compared to the critical accounting policies and estimates disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

There have been no material changes in our critical accounting policies and estimates during the six months ended June 30, 2024 as compared to the critical accounting policies and estimates disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2023.