CHEGG, INC

Previous wording

Recent technological shifts, notably Google's AI Overviews search experience, or AIO, and continued increase in adoption of free and paid generative AI services by students, have created and are expected to continue to create headwinds for our industry and our business, most notably a reduction in traffic to our website and customers subscribing to our services. In August 2024, Google broadly rolled out AIO, which displays AI-generated content at the top of its search results. This experience, which includes questions and solutions for education, keeps users on Google search results versus leading them onto our site. AIO’s prevalence has grown and will only continue to increase. We expect Google to continue its shift from being a search origination point to the destination, which we believe has materially adversely affected our business, operating results and financial condition by reducing traffic to our platform, and we expect that we will continue to be adversely impacted by this continued shift in the future.

Current wording

Increased availability and adoption of AI tools and products, including the continued increase in availability and adoption of free and paid generative AI services by students, has reduced, and is expected to continue to reduce, traffic to our website and customers subscribing to our services. For example, the AI Overview feature of Google's search results, which includes questions and solutions for education, keeps users on Google search results instead of leading them to our site. As sites like Google seek to shift from being a search origination tool to a destination, we expect traffic to our platform to continue to be reduced, adversely affecting our business, operating results and financial condition.

Previous wording

In addition, across our industry, there has been a continued increase in the adoption of free and paid generative AI products for academic support, and students are increasingly turning to generative AI for academic support, such as homework and exams, as well as assistance in other areas of daily life. This issue impacts education technology companies broadly, where students see generative AI products like ChatGPT and others as strong alternatives to vertically specialized solutions for education such as Chegg. These developments have negatively impacted our industry and our business and are expected to continue to impact our overall traffic and accelerate the decline in the number of new subscribers that sign up for our services, resulting in continued negative impacts to our growth, business, operating results and financial condition.

Current wording

Students are increasingly turning to generative AI for academic support, such as homework and exams, as well as assistance in other areas of daily life, where they see generative AI products like ChatGPT and others as strong alternatives to vertically specialized solutions for education. This has negatively impacted our industry and is expected to continue to negatively impact traffic to our platform and accelerate the decline in the number of new subscribers that sign up for our services, adversely affecting our business, operating results and financial condition.

Previous wording

Three Months Ended March 31, 2026 and 2025

Current wording

Three and Six Months Ended June 30, 2026 and 2025

Previous wording

Chegg Skilling revenues increased $1.4 million, or 9%, during the three months ended March 31, 2026, compared to the same period in 2025. The increase was primarily due to a $0.9 million increase in our workforce skilling programs primarily related to our AI-focused programs and an increase of $0.5 million from our language learning platform. Chegg Skilling revenues as a percentage of net revenues were 28% during the three months ended March 31, 2026 compared to 13% during the same period in 2025.

Current wording

Chegg Skilling revenues increased $0.3 million, or 2%, and $1.8 million, or 5%, during the three and six months ended June 30, 2026, respectively, compared to the same periods in 2025, primarily due to an increase in our workforce skilling programs primarily related to our AI-focused programs. Chegg Skilling revenues as a percentage of net revenues were 34% and 31% during the three and six months ended June 30, 2026, respectively, compared to 16% and 15% during the same periods in 2025, respectively.

Previous wording

Academic Services revenues decreased $59.6 million, or 57%, during the three months ended March 31, 2026, compared to the same period in 2025. The decrease was primarily due to a decrease in subscription revenue of $57.6 million and advertising services revenues of $1.9 million primarily related to reduced traffic which led to fewer subscribers. Academic Services revenues as a percentage of net revenues were 72% during the three months ended March 31, 2026 compared to 87% during the same period in 2025.

Current wording

Academic Services revenues decreased $53.6 million, or 61%, during the three months ended June 30, 2026, compared to the same period in 2025. The decrease was primarily due to a decrease in subscription revenue of $46.7 million and advertising services revenue of $1.1 million, primarily related to reduced traffic which led to fewer subscribers, as well as a decrease in content licensing revenue of $5.6 million. Academic Services revenues as a percentage of net revenues were 66% during the three months ended June 30, 2026 compared to 84% during the same period in 2025.

Previous wording

Cost of revenues decreased $28.6 million, or 53%, during the three months ended March 31, 2026, compared to the same period in 2025. The decrease was primarily due to lower depreciation expense of $17.9 million, primarily due to the accelerated depreciation recorded in 2025, lower payment processing and other order fees of $6.0 million, primarily due to the decrease in subscribers who have paid to access our services, lower web hosting fees of $2.6 million, and lower employee-related expenses of $1.6 million. Gross margins increased to 60% during the three months ended March 31, 2026, from 56% during the same period in 2025.

Current wording

Cost of revenues decreased $40.5 million, or 45%, during the six months ended June 30, 2026, compared to the same period in 2025. The decrease was primarily due to lower depreciation expense of $20.7 million primarily due to the accelerated depreciation recorded in 2025, lower payment processing and other order fees of $10.0 million, which is primarily due to the decrease in subscribers who have paid to access our services, lower web hosting fees of $4.4 million, and lower employee-related expenses of $2.7 million. Gross margins decreased to 57% during the six months ended June 30, 2026, from 61% during the same period in 2025.

Previous wording

Operating expenses decreased $57.5 million, or 60%, during the three months ended March 31, 2026, compared to the same period in 2025, primarily due to lower employee-related expenses as a result of prior year restructuring actions. See Note 10, “Restructuring Charges” 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 information regarding the prior year restructuring actions.

Current wording

Operating expenses decreased $74.6 million, or 70%, and $132.1 million, or 65%, during the three and six months ended June 30, 2026, respectively, compared to the same periods in 2025, primarily due to lower employee-related expenses as a result of prior year restructuring actions. See Note 10, “Restructuring Charges” 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 information regarding the prior year restructuring actions.

Previous wording

Research and development expenses decreased $20.3 million, or 69%, during the three months ended March 31, 2026 compared to the same period in 2025. The decrease was primarily due to lower employee-related expenses of $13.9 million, including share-based compensation expense, lower technology expenses of $3.1 million, and lower web hosting fees of $2.3 million. Research and development expenses as a percentage of net revenues were 14% during the three months ended March 31, 2026 compared to 24% during the same period in 2025.

Current wording

Research and development expenses decreased $21.3 million, or 74%, during the three months ended June 30, 2026, compared to the same period in 2025. The decrease was primarily due to lower employee-related expenses of $9.3 million including share-based compensation expense, lower restructuring charges of $6.8 million, lower technology-related expenses of $2.7 million, and lower web hosting fees of $2.2 million. Research and development expenses as a percentage of net revenues were 14% during the three months ended June 30, 2026 compared to 27% during the same period in 2025.

Previous wording

Sales and marketing expenses decreased by $15.0 million, or 59%, during the three months ended March 31, 2026, compared to the same period in 2025. The decrease was primarily attributable to lower paid marketing expenses of $11.2 million and lower employee-related expenses of $4.0 million, including share-based compensation expense. Sales and marketing expenses as a percentage of net revenues were 17% during the three months ended March 31, 2026 compared to 21% during the same period in 2025.

Current wording

Sales and marketing expenses decreased by $7.9 million, or 46%, during the three months ended June 30, 2026, compared to the same period in 2025. The decrease was primarily attributable to lower employee-related expenses of $2.9 million including share-based compensation expense, lower paid marketing expenses of $2.7 million, and lower restructuring charges of $2.0 million. Sales and marketing expenses as a percentage of net revenues were 18% during the three months ended June 30, 2026 compared to 17% during the same period in 2025.

Previous wording

General and administrative expenses decreased $20.2 million, or 51%, during the three months ended March 31, 2026 compared to the same period in 2025. The decrease was due to lower employee-related expenses of $14.6 million, which is primarily due to share-based compensation expense, lower professional fees of $3.4 million, and lower restructuring charges of $2.7 million. General and administrative expenses as a percentage of net revenues were 31% during the three months ended March 31, 2026 compared to 33% during the same period in 2025.

Current wording

General and administrative expenses decreased $45.4 million, or 76%, during the three months ended June 30, 2026 compared to the same period in 2025. The decrease was due to lower employee-related expenses of $12.2 million including share-based compensation expense, a reduction in litigation settlements of $10.5 million, lower restructuring charges of $9.5 million, the absence of an impairment loss on an equity investment of $6.0 million, lower professional fees of $3.1 million, the absence of an impairment of lease-related assets of $3.0 million, and lower facility expenses of $2.1 million, partially offset by higher contractor spend of $1.1 million. General and administrative expenses as a percentage of net revenues were 29% during the three months ended June 30, 2026 compared to 57% during the same period in 2025.

Previous wording

Impairment expense decreased $2.0 million compared to the same period in 2025 as we impaired property and equipment in 2025.

Current wording

Impairment expense decreased $2.0 million during the six months ended June 30, 2026 compared to the same period in 2025 as we impaired property and equipment in 2025.

Previous wording

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

Current wording

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

Previous wording

Other income, net decreased $11.8 million, or 91%, during the three months ended March 31, 2026 compared to the same period in 2025, primarily due to a decrease in interest income of $4.2 million due to lower investment balances and a decrease in gain on partial early extinguishments of the 2026 notes of $6.8 million.

Current wording

Other income, net decreased $13.3 million, or 88%, during the six months ended June 30, 2026 compared to the same period in 2025, primarily due to a decrease in gain on early extinguishment of a portion of the 2026 notes of $6.8 million and a decrease in interest income of $5.1 million due to lower investment balances.

Previous wording

The following tables present our benefit from (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 decreased $17.3 million, or 20% primarily due to the net cash used for the early extinguishment of a portion of the 2026 notes of $19.5 million and purchases of property and equipment of $1.0 million, partially offset by the net cash provided by operating activities of $4.1 million.

Current wording

Cash, cash equivalents, and investments decreased $12.9 million, or 15%, during the six months ended June 30, 2026 primarily due to the net cash used for the early extinguishment of a portion of the 2026 notes of $19.5 million, purchases of property and equipment of $4.7 million, and repurchase of shares of our common stock of $1.7 million, partially offset by the net cash provided by operating activities of $14.2 million.

Previous wording

Convertible senior notes, net decreased $19.9 million, or 37%, during the three months ended March 31, 2026 primarily due to the partial early extinguishments of the 2026 notes. The 2026 notes mature on September 1, 2026 unless converted, redeemed, or repurchased in accordance with their terms prior to such date. Holders of the 2026 notes may convert their notes at any time on or after June 1, 2026 until the close of business on the second scheduled trading day immediately preceding the respective maturity dates. See Note 6, "Convertible Senior Notes” 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 information on our 2026 notes.

Current wording

Convertible senior notes, net decreased $19.9 million, or 37%, during the six months ended June 30, 2026 primarily due to the partial early extinguishments of the 2026 notes. The 2026 notes mature on September 1, 2026 unless converted, redeemed, or repurchased in accordance with their terms prior to such date. Holders of the 2026 notes may convert their notes at any time on or after June 1, 2026 until the close of business on the second scheduled trading day immediately preceding the respective maturity dates. See Note 6, "Convertible Senior Notes” of our accompanying Notes to Condensed Consolidated

Previous wording

As of March 31, 2026, our principal sources of liquidity were cash, cash equivalents, and investments totaling $67.9 million, which were held for working capital purposes. 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, 2026, we have incurred cumulative losses of $992.6 million from our operations and we may incur additional losses in the future.

Current wording

As of June 30, 2026, our principal sources of liquidity were cash, cash equivalents, and investments totaling $72.3 million, which were held for working capital purposes. 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, 2026, we have incurred cumulative losses of $995.6 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. As part of our ongoing cash planning, we continue to assess whether to repatriate a portion of earnings from our subsidiary in India. Accordingly, the net cumulative tax expense as of March 31, 2026 is $1.0 million, related to a potential future distribution of such earnings. This reflects our continued assessment of cash needs and the absence of an indefinite reinvestment assertion for our subsidiary in India. 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. As part of our ongoing cash planning, we continue to assess whether to repatriate a portion of earnings from our subsidiary in India. Accordingly, the net cumulative tax expense as of June 30, 2026 is $1.1 million, related to a potential future distribution of such earnings. This reflects our continued assessment of cash needs and the absence of an indefinite reinvestment assertion for our subsidiary in India. 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 flows provided by operating activities decreased $20.4 million, or 83%, during the three months ended March 31, 2026 compared to the same period in 2025 and was primarily related to the net effect of lower depreciation and amortization of $18.1 million, lower share-based compensation expense of $8.5 million, an increase in the change in accrued liabilities of $13.3 million due to payments from our restructuring actions, partially offset by an increase in net income of $17.7 million.

Current wording

Net cash flows provided by operating activities decreased $5.5 million, or 28%, during the six months ended June 30, 2026 compared to the same period in 2025 and was primarily related to the net effect of lower depreciation and amortization of $21.3 million, lower share-based compensation expense of $14.1 million, an increase in the change in accrued liabilities of $24.7 million primarily due to payments from our restructuring actions partially offset by a decrease in net loss of $50.4 million and a decrease in the gain on partial early extinguishments of convertible senior notes of $6.8 million.

Previous wording

Net cash flows provided by investing activities decreased $256.8 million, or 93%, during the three months ended March 31, 2026 compared to the same period in 2025 and was primarily related to lower proceeds from the sale of investments of $175.5 million and lower proceeds from the maturities of our investments of $89.7 million, partially offset by lower purchases of property and equipment of $7.6 million.

Current wording

Net cash flows provided by investing activities decreased $251.2 million, or 92%, during the six months ended June 30, 2026 compared to the same period in 2025 and was primarily related to lower proceeds from the sale of investments of $175.5 million and lower proceeds from the maturities of our investments of $87.7 million, partially offset by lower purchases of property and equipment of $11.2 million.

Previous wording

Net cash flows used in financing activities decreased $396.9 million, or 95%, during the three months ended March 31, 2026 compared to the same period in 2025 and was primarily related to lower repayments of our convertible senior notes of $397.0 million.

Current wording

Net cash flows used in financing activities decreased $395.3 million, or 95%, during the six months ended June 30, 2026 compared to the same period in 2025 and was primarily related to lower repayments of our convertible senior notes.

Previous wording

There have been no material changes in our critical accounting policies and estimates during the three months ended March 31, 2026 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, 2025.

Current wording

There have been no material changes in our critical accounting policies and estimates during the six months ended June 30, 2026 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, 2025.