SANTA CLARA, Calif.,
Nov. 7, 2016 /PRNewswire/
-- Chegg, Inc. (NYSE: CHGG), the Student Hub, today
reported financial results for the three months ended September 30, 2016.
"We are very pleased with our Q3 results, where for the first
time we exceeded more than 800,000 Chegg Services subscribers in a
quarter," said Dan Rosensweig, CEO
of Chegg. "This was driven by strong growth across the board in new
customers, retention, and engagement."
An updated investor presentation and an investor data sheet can
be found on Chegg's Investor Relations website
http://investor.chegg.com.
Q3 2016 Financial Highlights:
Total Net Revenues of $71.3 million, a decrease
of 12% compared to Q3 2015;
Non-GAAP Total Net Revenues of $55.5
million, an increase of 22% compared to Q3 2015;
Chegg Services Revenues grew 44% year-over-year to
$29.7 million, or 42% of total net
revenues compared to 25% in Q3 2015;
Required Materials Revenues of $41.7 million
compared to $60.7 million in Q3
2015;
Gross Profit was $32.6 million;
Non-GAAP Gross Profit was $32.7 million;
Net Loss was $16.1 million;
Non-GAAP Net Loss was $3.1 million; and
Adjusted EBITDA was $0.2 million.
Non-GAAP total net revenues and the related year-over-year
percentage increase presents total net revenues as if the
transition of textbook inventory investment and textbook logistics
and fulfillment functions for Chegg's print textbook business to
Ingram Content Group (Ingram) was complete and the revenues from
print textbook business was entirely commission-based. For more
information about Non-GAAP total net revenues and a reconciliation
of Non-GAAP total net revenues to total net revenues, see the
sections of the press release titled "Use of Non-GAAP Measures" and
"Reconciliation of GAAP to Non-GAAP Financial Measures".
Q3 2016 Business Highlights:
Over 800,000: number of Chegg Services subscribers in Q3
2016;
80%: renewal rate for Chegg Study subscribers in Q3
2016;
Over 3.8 million: questions viewed in Chegg Study in Q3
2016;
Over 65%: growth in tutoring minutes from Q3 2015; and
$4.0 million: remaining Chegg
print textbook library.
Business Outlook:
Our revenues are comprised of two revenue streams: Required
Materials revenues, which includes print textbooks, eTextbooks, and
Ingram commission revenues; and Chegg Services revenues, which
includes Chegg Study, Chegg Tutors, Enrollment Marketing,
Brand Partnerships, Writing Tools
and Careers.
Fourth Quarter 2016
Total Net Revenues in the range of $55 million
and $60 million;
Non-GAAP Total Net Revenues in the range of $48 million and $52
million;
Chegg Services Revenues in the range of $41 million and $44
million;
Gross Margin between 65% and 67%; and
Adjusted EBITDA in the range of $12 million and
$14 million.
Adjusted EBITDA guidance for the fourth quarter includes
approximately $0.4 million for
textbook depreciation and excludes approximately $10.1 million for stock-based compensation
expense, $4.1 million for other
depreciation and amortization expense; and $1.5 million for acquisition-related compensation
costs. It assumes, among other things, that no additional business
acquisitions, investments, restructuring actions, or legal
settlements are concluded and that there are no further revisions
to share-based compensation estimates.
Fiscal Year 2016
Total Net Revenues in the range of $246 million
and $251 million;
Non-GAAP Total Net Revenues in the range of $191 million and $195
million;
Chegg Services Revenues in the range of $126 million and $129
million;
Gross Margin between 51% and 53%; and
Adjusted EBITDA in the range of $18
million and $20 million.
Adjusted EBITDA guidance for fiscal year 2016 includes
approximately $9.3 million for
textbook depreciation and excludes approximately $43.0 million for stock-based compensation
expense; $14.1 million for other
depreciation and amortization expense; $(0.3) million for restructuring charges; and
$5.0 million for acquisition-related
compensation costs. It assumes, among other things, that no
additional business acquisitions, investments, restructuring
actions, or legal settlements are concluded and that there are no
further revisions to share-based compensation estimates.
Fiscal Year 2017
Total Net Revenues of $230
million;
Chegg Services Revenues of $172
million; and
Adjusted EBITDA of $35
million.
The quarterly contribution of fiscal year 2017 total net
revenues is approximately 25% in Q1 2017, 22% in Q2 2017, 25% in Q3
2017 and 28% in Q4 2017. The quarterly contribution of fiscal
year 2017 adjusted EBITDA is approximately 15% in Q1 2017, 22% in
Q2 2017, 15% in Q3 2017 and 48% in Q4 2017.
Adjusted EBITDA guidance for fiscal year 2017 excludes
approximately $35.0 million for
stock-based compensation expense; $18.5
million for other depreciation and amortization expense; and
$6.0 million for acquisition-related
compensation costs. It assumes, among other things, that no
additional business acquisitions, investments, restructuring
actions, or legal settlements are concluded and that there are no
further revisions to share-based compensation estimates.
Prepared Remarks - Dan
Rosensweig, CEO Chegg Inc.
Good afternoon everyone, and thanks for joining the call. Before
we get started, I'd like to welcome Tracey
Ford, our new Vice President of Investor Relations. Tracey
joins Chegg following more than 13 years at eBay and PayPal and we
couldn't be happier to add her to our team.
Welcome Tracey.
On today's call we will:
- Cover the continued strong performance in Chegg Services and
our key growth drivers;
- Update you on our textbook transition which we are excited to
say is finally coming to an end;
- Preview our first ever analyst day; and
- Finally, Andy will walk you through our financials and
outlook.
Chegg is a platform for student success focused on providing
products and services that improve outcomes. This means we offer
direct-to-student services that are on-demand, adaptive,
personalized, affordable and entirely online. Importantly, all of
our services are interconnected and benefit from one another. We
believe students already consider us an indispensable learning
tool, in and out of the classroom, with proprietary tools that are
backed by live human help. We believe we are building the brand and
platform that students from middle school into their early careers
will turn to first because we help enable a much broader set of
improved outcomes that include accelerated learning, less debt, and
of course better jobs.
Our goal is to reach more students and know more about them than
any other brand. As more students use Chegg more often, we are able
to rapidly improve the quality and relevance of each of our
services and on a per student basis. This creates a powerful
virtuous circle, which we believe improves each service and helps
us introduce new offerings to students at the right time, at a very
low cost.
The ongoing momentum in our business is evidence that our vision
has already begun taking shape and we are on track for our most
successful year yet.
In fact, in Q3 our Chegg Services subscriber base totaled more
than 800,000 in the quarter - a new record for Chegg - representing
more than 40% growth over last year. For all of 2016, we expect to
end the year with about 1.5 million Chegg Services subscribers.
The largest of these services, Chegg Study, continues to show
significant growth and most importantly is positively impacting
academic performance. The efficacy of this service is evident in
its increasing reach and engagement, which we continue to see
year-over-year growth in both frequency of subscriber visits as
well as total questions asked and solutions viewed per subscriber.
Furthermore, Chegg Study continues to have a monthly renewal rate
of about 80%, and students consistently report in our user surveys
that Chegg Study helps them master their subjects, do better on
exams, and pass their classes.
Even in a world of technology and personalization, not all
students can learn with technology alone, some students need human
help as well. That is why we are building what we believe to be the
largest online marketplace for highly qualified, low-cost tutors
who can help students learn on-demand, in real-time, via video,
audio or text in any subject, and any language. And we continue to
see very strong momentum in this business with significant growth
in students, tutors, and in overall tutoring minutes the last of
which grew over 65% in Q3, year-over-year.
Writing is one of the most challenging areas for students in
high school and college as demonstrated by the fact that in the
last 12 months about 30 million visitors used our writing services,
including Easy Bib. We are very pleased with the progress
we've made integrating these services into the Chegg platform and
we are very excited by the potential they have to enhance and
extend the power of the Chegg brand to students beginning as early
as junior high school.
As a platform business, an important measure of performance is
our ability to attach customers to multiple services. We believe we
are continuing to demonstrate success here as the attach rate to
Chegg Study from our textbook customers grew another 25% year over
year in Q3. In addition, about 50% of Chegg Tutors' customers are
continuing to come directly from Chegg Study, which we believe
reinforces the fact that each of our services are even more
powerful as a platform.
Textbooks remain a significant pain point for students and a
low-cost customer acquisition channel for Chegg that helps us build
our brand, add to our data, and ultimately attach students to
Chegg's multiple services. We are able to do this efficiently
through our partnership with Ingram, and I'm happy to tell you that
this semester is the last in which Chegg will own any of the books
we are marketing directly to students. It's been a long 2-year
journey but the transition is finally reaching conclusion.
Our textbook service also provides a channel for our advertising
partners. Chegg's iconic orange brand, which have been arriving in
dorm rooms across America, are delivering textbooks along with more
than 6 million product samples and inserts - a record for Chegg in
the quarter - from brands such as Coke, DirecTV, RedBull,
Shutterfly, Starbucks, Tide, and others all of who are discovering
Chegg as a way to provide unique opportunities to reach their most
coveted audience which is young people.
We have had an outstanding 2016 and we continue to invest in and
build towards our long term vision to help students improve their
outcomes and gain more productive careers. This brings us to a very
exciting moment, Chegg's first ever analyst day and let me walk you
through our agenda for next week. With the US and global education
markets undergoing widespread disruption at every level, we will
discuss the impact on the education industry, and in student
behavior and how Chegg is leveraging these dynamics to serve
students - on their own terms - with a modern education platform
that uses technology and the Internet to connect students to the
resources they need.
I'm very much looking forward to introducing you to the key
members of our management team who will be presenting our strategic
overview, product roadmap, advances in the student graph,
addressable market sizes, along with an early view of some of the
future services that we have been developing. And of course, Andy
will walk you through greater detail of our business model and our
key drivers.
If you have not yet received a formal invitation and you'd like
to come, I encourage you to email Tracey.
And with that let me turn it over to Andy who will provide you
more details on Q4 and a look into next year.
Prepared Remarks - Andy Brown,
CFO Chegg Inc.
Thanks Dan and good afternoon everyone.
Today I will discuss our financial performance for the third
quarter and our outlook for the remainder of 2016, as well as our
initial outlook for 2017.
The momentum we saw in the first half of the year continued into
Q3. The investments we are making in our platform, brand,
student-first services and the student graph are paying off as our
topline and EBITDA came in at the higher end of our
expectations. For Q3, non-GAAP revenue of $55.5 million was driven primarily by 44%
year-over-year growth of Chegg Services revenue to $29.7 million. As Dan mentioned earlier, we
continue to see strong subscriber growth and engagement,
particularly in Chegg Study, resulting in growth rates similar to
fiscal 2015, but on top of a much larger user base.
For those investors new to the Chegg story, when we entered
2016, we modeled our revenue on a non-GAAP basis. We did this to
make it easier for investors to monitor the underlying growth of
the business, despite declining GAAP revenue. This is due to our
transition from owning print textbooks, where we recorded 100% of
the transaction value, to a new, more profitable revenue model
where our partner Ingram will own the print textbook inventory, and
we will record an approximate 20% commission from each
transaction. Importantly, this partnership has allowed us to
transform from using cash to generating cash. And as planned, we
expect that this textbook ownership transition, which started in
2014, will be completed by the end of this year, at which time,
both revenue and non-GAAP revenue will be the same. The financial
benefits of this transition have been meaningful for Chegg, freeing
up capital once used to purchase print textbooks and allowing us to
invest in future growth opportunities, which we believe can drive
greater shareholder value. At the same time, we continue to reap
all of the advantages of delivering millions of textbooks to
students, including low cost customer acquisition, expanding the
Chegg brand and awareness, adding to our Student Graph, all while
attaching students to our high growth, high margin services.
In fact, our Q3 gross margins were higher than expected at
45.8%, as a result of increased benefits and synergies from our
learning services. Notably, much of the incremental
revenue goes straight to the gross margin line, as
digital services like Chegg Study and our writing tools have a
relatively fixed cost structure. In other words, as the services
grow and achieve scale, our margins should continue to
increase.
As a result of the strong revenue and gross margin performance,
we generated a positive adjusted EBITDA of approximately
200 thousand dollars. This is
notable as it marks the first time in our history that we have been
profitable in Q3 on an adjusted EBITDA basis. As you can see,
we are realizing the benefits of our improved business model.
Looking at the balance sheet, we ended the quarter with
cash of $90 million; In addition, the
balance owed to us by our partner Ingram was $29 million, much of which will convert into cash
in early 2017 per the contract terms. We also put in place a new
credit facility of $30 million, which
is expandable to $50 million, and
replaces the asset backed facility that expired during the quarter.
This puts us in a strong position to expand our current business
and take advantage of strategic growth opportunities that may
arise.
As expected, Chegg's legacy print textbook inventory declined to
$4 million from $30 million when we entered 2016, and we expect
the balance to be very close to zero by the end of the year, as we
successfully complete the textbook transition on time.
Based on the strength of our performance year-to-date and the
strong start that we have seen in the fall semester, we remain
confident in meeting our financial objectives that we guided to
earlier this year. As Dan mentioned, we are hosting our
first-ever Analyst Day next week. Typically, we would not
provide next year's guidance until our 4th quarter
earnings call, however, due to the Analyst Day and to the textbook
transition, we are providing you a preview of our 2017 expectations
and the expected seasonality, which is included in the press
release. For 2017 we currently expect revenue to be approximately
$230 million, with Chegg Services
revenue growing 35% to approximately $172
million and adjusted EBITDA growing to approximately
$35 million, a 75% increase over
2015. Given our 2016 performance to date, combined with this
outlook, we believe we're on track to meet our operating model
targets for 2018.
Specifically, for all of 2016, we expect:
- Total revenue between $246 and
$251 million,
- non-GAAP revenue between $191 and
$195 million with
- Chegg Services revenue between $126 and
$129 million
- Gross margin between 51 and 53%
- And adjusted EBITDA between $18 and $20
million, more than tripling from 2015.
Therefore our Q4 ranges are:
- Total revenue between $55
and $60 million,
- non-GAAP revenue between $48 and $52 million, with
- Chegg Services revenue between $41 and
$44 million
- Gross margin between 65 and 67%
- And adjusted EBITDA between $12 and
$14 million
In closing, it's been another great quarter, but more
importantly we have seen our company complete a monumental
transition in the past three years, from being primarily a textbook
renter to a platform of interconnected services that benefit each
other, resulting in a stronger business model - a model that is
high growth, high margin, generates strong cash flows and is
capital light.
I look forward to seeing many of you at our analyst day on
November 16, where we will discuss in
more detail our current and future growth opportunities. 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
Standard Time (or 4:30 p.m. Eastern Standard Time).
A live webcast of the call will also be available
at http://investor.chegg.com under the Events &
Presentations menu. An audio replay will be available
beginning at 7:30 p.m. Eastern Standard Time on
November 7, 2016, until 11:59 p.m. Eastern Standard
Time on November 14, 2016, by calling 1-877-870-5176, or
outside the U.S. +1-858-384-5517, with Conference ID 13645954. An
audio archive of the call will also be available
at http://investor.chegg.com.
Use of Investor Relations Website for Regulation FD
Purposes
Chegg also uses its media center website,
http://www.chegg.com/mediacenter, as a means of disclosing material
non-public information and for complying with its disclosure
obligations under Regulation FD. Accordingly, investors should
monitor http://www.chegg.com/mediacenter, in addition to
following press releases, Securities and Exchange
Commission filings and public conference calls and
webcasts.
About Chegg
Chegg puts students first. As the leading student-first
connected learning platform, Chegg makes higher education more
affordable, more accessible, and more successful for
students. 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 U.S. generally accepted accounting principles (GAAP), this
press release and the accompanying tables and the related earnings
conference call contain non-GAAP financial measures, including
non-GAAP total net revenues, adjusted EBITDA, non-GAAP gross profit
and margin, non-GAAP operating expenses, non-GAAP net loss and
non-GAAP net loss per share. 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 GAAP to Non-GAAP Financial Measures" and
"Reconciliation of Net Loss 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) non-GAAP total
net revenues as total net revenues as if it had already
transitioned to a fully commission-based revenue model with Ingram
for its print textbook business, (2) adjusted EBITDA as earnings
before interest, taxes, depreciation and amortization, or EBITDA,
adjusted to include textbook depreciation and to exclude
stock-based compensation expense, acquisition-related compensation
costs, restructuring (credits) charges, transitional logistic
charges and other (expense) income, net, (3) non-GAAP gross profit
as gross profit excluding share-based compensation and transitional
logistic charges, (4) non-GAAP gross margin as non-GAAP gross
profit divided by total net revenues, (5) non-GAAP net loss as net
loss excluding share-based compensation expense, amortization of
intangible assets, acquisition related compensation costs,
restructuring (credits) charges and transitional logistic charges
and (6) non-GAAP net loss per share is defined as non-GAAP net loss
divided by weighted-average shares outstanding. 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 to EBITDA and
Adjusted EBITDA" and "Reconciliation of GAAP to Non-GAAP Financial
Measures" tables below, each of the non-GAAP financial measures
excludes one or more of the following items:
Non-GAAP total net revenues adjustments.
Chegg is in the process of transitioning ownership of the print
textbook library, print textbook logistics and fulfillment
functions for its required materials business to Ingram. Upon
completion of that transition, all revenues from its print textbook
business will be digital revenues representing an approximately 20%
commission from each such transaction. During the transition, Chegg
reports print textbook revenues for orders that are fulfilled with
textbooks owned by Chegg and commission-based revenues for orders
that are fulfilled with textbooks owned by Ingram. Chegg expects
the transition to a fully commission-based model with Ingram to be
complete in 2017. The non-GAAP revenue adjustments present total
net revenues "as if" Ingram already owned all textbooks and managed
all logistics and order fulfillment. Management believes that
presenting revenues as if Chegg had already fully transitioned to
the commission-based model with Ingram provides investors with a
better understanding of Chegg's results of operations in light of
the ongoing changes to its business model by facilitating period
over period revenue comparisons during the transition period.
The adjustments to total net revenues provided below reflect a
number of estimates, assumptions and other uncertainties, and are
approximate in nature.
Share-based compensation expense.
Share-based compensation 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 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.
Restructuring (credits) charges.
Restructuring (credits) charges primarily relate to expenses
incurred in making infrastructure-related changes as a result of
transitioning Chegg's fulfillment obligations for the print
textbook business to Ingram, as well as expenses related to the
exit of Chegg's print coupon business. These restructuring
(credits) charges are excluded from non-GAAP financial measures
because they are the result of discrete events that are not
considered core-operating activities. Chegg believes that it is
appropriate to exclude restructuring (credits) charges from
non-GAAP financial measures because it enables the comparison of
period-over-period operating results from continuing
operations.
Transitional logistic charges.
Transitional logistic charges related primarily to the closure
of our warehouse and as we transitioned to Ingram's distribution
centers, which resulted in duplicative logistic charges. The
duplicative logistic charges were incurred throughout 2015 until
the completion of our transition of our logistics and fulfillment
obligations for our print textbook business to Ingram. Chegg
believes that it is appropriate to exclude transitional logistic
charges from non-GAAP financial measures because it enables the
comparison of period-over-period operating results from continuing
operations.
Acquisition-related compensation costs.
Acquisition-related compensation costs include: (1) compensation
expense resulting from the employment retention of certain key
employees established in accordance with the terms of the Imagine
Easy and InstaEDU acquisitions, (2) the remaining pay-out related
to the Bookstep acquisition and (3) adjustments to previously
recognized earn-out liability on contingent compensation expense
related to 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 intangible assets.
Chegg amortizes intangible assets that it acquires in
conjunction with business combinations, which results in non‑cash
operating expenses that would not otherwise have been incurred had
Chegg internally developed such intangible assets. Chegg believes
excluding the accounting expense associated with acquired
intangible asset from non-GAAP measures allows for a more accurate
assessment of its ongoing operations.
In addition, this press release includes forward-looking fourth
quarter and fiscal year 2016 non-GAAP total net revenues and
adjusted EBITDA. Reconciliations of forward-looking non-GAAP total
net revenues to total net revenues and adjusted EBITDA to net loss,
respectively, are not available without unreasonable effort due to
the unavailability of certain information needed to calculate
certain reconciling items, including the split of print textbook
rentals between Chegg and Ingram and the gain (loss) on liquidation
of textbooks as we exit owning a textbook library due to the
variability, complexity and limited visibility of the adjusting
items that would be excluded from the non-GAAP measures in future
periods.
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
those included in the investor presentation referenced 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:
Chegg's anticipated complete transition to a fully commission-based
model with Ingram by 2017; the impact of Chegg's acquisition of
Imagine Easy Solutions and Chegg's expectation that such
acquisition will be accretive to Chegg's fiscal year 2016 revenues
and earnings and benefit students; Chegg's ability to attract new
students, increase engagement and increase monetization;
competitive developments, including pricing pressures; Chegg's
anticipated growth of Chegg Services; Chegg's ability to build and
expand its services offerings; Chegg's ability to develop new
products and services on a cost-effective basis and to integrate
acquired businesses and assets; the impact of seasonality on the
business; Chegg's partnership with Ingram and the parties' ability
to achieve the anticipated benefits of the partnership, including
the potential impact of the economic risk-sharing arrangements
between Chegg and Ingram on Chegg's results of operations; Chegg's
ability to effectively control operating costs; changes in Chegg's
addressable market; changes in the education market; and general
economic and industry conditions. 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 Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on
August 3, 2016, and could cause actual results to vary from
expectations.
CHEGG,
INC.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(in thousands, except
for number of shares and par value)
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
|
(unaudited)
|
|
*
|
Assets
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$
90,213
|
|
$
67,029
|
Short-term
investments
|
—
|
|
17,800
|
Accounts receivable,
net of allowance for doubtful accounts of $390 and $378 at
September 30, 2016 and December 31, 2015,
respectively
|
9,481
|
|
13,157
|
Prepaid
expenses
|
4,018
|
|
3,117
|
Other current
assets
|
35,570
|
|
31,732
|
Total current
assets
|
139,282
|
|
132,835
|
Long-term
investments
|
—
|
|
4,229
|
Textbook library,
net
|
3,956
|
|
29,728
|
Property and
equipment, net
|
30,766
|
|
19,971
|
Goodwill
|
114,980
|
|
91,301
|
Intangible assets,
net
|
21,659
|
|
8,865
|
Other
assets
|
5,565
|
|
4,427
|
Total
assets
|
$
316,208
|
|
$
291,356
|
Liabilities and
stockholders' equity
|
|
|
|
Current
liabilities
|
|
|
|
Accounts
payable
|
$
7,992
|
|
$
5,860
|
Deferred
revenue
|
30,004
|
|
14,971
|
Accrued
liabilities
|
59,034
|
|
35,280
|
Total current
liabilities
|
97,030
|
|
56,111
|
Long-term
liabilities
|
|
|
|
Total other long-term
liabilities
|
4,075
|
|
4,170
|
Total
liabilities
|
101,105
|
|
60,281
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
Preferred stock,
$0.001 par value – 10,000,000 shares authorized, no shares
issued and outstanding
|
—
|
|
—
|
Common stock, $0.001
par value 400,000,000 shares authorized; 91,113,230 and 88,099,983
shares issued and outstanding at September 30, 2016 and
December 31, 2015, respectively
|
91
|
|
88
|
Additional paid-in
capital
|
584,999
|
|
560,242
|
Accumulated other
comprehensive loss
|
(148)
|
|
(172)
|
Accumulated
deficit
|
(369,839)
|
|
(329,083)
|
Total stockholders'
equity
|
215,103
|
|
231,075
|
Total
liabilities and stockholders' equity
|
$
316,208
|
|
$
291,356
|
|
|
|
|
|
|
|
* Derived from
audited consolidated financial statements as of and for the year
ended December 31, 2015.
|
CHEGG,
INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(in thousands, except
per share amounts)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net
revenues:
|
|
|
|
|
|
|
|
Rental
|
$
5,511
|
|
$
22,703
|
|
$
32,081
|
|
$
93,199
|
Services
|
49,765
|
|
33,358
|
|
126,795
|
|
94,001
|
Sales
|
16,067
|
|
25,225
|
|
32,157
|
|
46,019
|
Total net
revenues
|
71,343
|
|
81,286
|
|
191,033
|
|
233,219
|
Cost of
revenues(1):
|
|
|
|
|
|
|
|
Rental
|
7,646
|
|
27,080
|
|
26,505
|
|
86,873
|
Services
|
12,884
|
|
10,377
|
|
38,691
|
|
32,189
|
Sales
|
18,169
|
|
24,263
|
|
33,833
|
|
44,407
|
Total cost of
revenues
|
38,699
|
|
61,720
|
|
99,029
|
|
163,469
|
Gross
profit
|
32,644
|
|
19,566
|
|
92,004
|
|
69,750
|
Operating
expenses:
|
|
|
|
|
|
|
|
Technology and
development (1)
|
16,241
|
|
15,664
|
|
49,232
|
|
45,076
|
Sales and marketing
(1)
|
15,256
|
|
16,211
|
|
41,449
|
|
49,985
|
General and
administrative (1)
|
13,905
|
|
12,060
|
|
41,140
|
|
35,780
|
Restructuring
(credits) charges
|
(100)
|
|
342
|
|
(298)
|
|
3,320
|
Loss (gain) on
liquidation of textbooks
|
2,673
|
|
(909)
|
|
(523)
|
|
(2,649)
|
Total
operating expenses
|
47,975
|
|
43,368
|
|
131,000
|
|
131,512
|
Loss from
operations
|
(15,331)
|
|
(23,802)
|
|
(38,996)
|
|
(61,762)
|
Interest expense and
other (expense) income, net:
|
|
|
|
|
|
|
|
Interest
expense, net
|
(30)
|
|
(61)
|
|
(151)
|
|
(182)
|
Other
(expense) income, net
|
(148)
|
|
85
|
|
(146)
|
|
217
|
Total interest
expense and other (expense) income, net
|
(178)
|
|
24
|
|
(297)
|
|
35
|
Loss before provision
for income taxes
|
(15,509)
|
|
(23,778)
|
|
(39,293)
|
|
(61,727)
|
Provision for income
taxes
|
554
|
|
389
|
|
1,463
|
|
1,113
|
Net loss
|
$
(16,063)
|
|
$
(24,167)
|
|
$
(40,756)
|
|
$
(62,840)
|
Net loss per share,
basic and diluted
|
$
(0.17)
|
|
$
(0.28)
|
|
$
(0.45)
|
|
$
(0.73)
|
Weighted average
shares used to compute net loss per share, basic and
diluted
|
91,059
|
|
87,706
|
|
90,201
|
|
86,419
|
|
|
|
|
|
|
|
|
(1) Includes
share-based compensation expense as follows:
|
|
|
|
|
|
|
|
Cost of
revenues
|
$
46
|
|
$
103
|
|
$
115
|
|
$
318
|
Technology and
development
|
3,449
|
|
3,464
|
|
11,207
|
|
9,444
|
Sales and
marketing
|
1,605
|
|
126
|
|
5,456
|
|
6,214
|
General and
administrative
|
5,110
|
|
5,240
|
|
15,923
|
|
15,808
|
Total share-based
compensation expense
|
$
10,210
|
|
$
8,933
|
|
$
32,701
|
|
$
31,784
|
CHEGG,
INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(in
thousands)
|
(unaudited)
|
|
|
|
|
|
Nine Months
Ended September 30,
|
|
2016
|
|
2015
|
Cash flows from
operating activities
|
|
|
|
Net loss
|
$
(40,756)
|
|
$
(62,840)
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
Textbook library
depreciation expense
|
8,903
|
|
36,838
|
Other depreciation
and amortization expense
|
10,001
|
|
9,180
|
Share-based
compensation expense
|
32,701
|
|
31,784
|
Gain on liquidation
of textbooks
|
(523)
|
|
(2,649)
|
Loss from write-offs
of textbooks
|
896
|
|
4,534
|
Other non-cash
items
|
106
|
|
790
|
Change in assets and
liabilities, net of acquisition of business:
|
|
|
|
Accounts
receivable
|
312
|
|
(399)
|
Prepaid expenses and
other current assets
|
(4,712)
|
|
(32,503)
|
Other
assets
|
284
|
|
(204)
|
Accounts
payable
|
2,713
|
|
1,977
|
Deferred
revenue
|
14,896
|
|
21,490
|
Accrued
liabilities
|
5,997
|
|
10,310
|
Other
liabilities
|
(92)
|
|
(194)
|
Net cash provided by
operating activities
|
30,726
|
|
18,114
|
Cash flows from
investing activities
|
|
|
|
Purchases of
textbooks
|
(795)
|
|
(32,226)
|
Proceeds from
liquidations of textbooks
|
23,873
|
|
34,230
|
Purchases of
marketable securities
|
(7,633)
|
|
(19,975)
|
Proceeds from sale of
marketable securities
|
22,830
|
|
350
|
Maturities of
marketable securities
|
6,844
|
|
29,989
|
Purchases of property
and equipment
|
(17,834)
|
|
(5,884)
|
Acquisition of
business, net of cash acquired
|
(25,864)
|
|
—
|
Purchase of strategic
equity investment
|
(1,020)
|
|
(2,019)
|
Net cash provided by
investing activities
|
401
|
|
4,465
|
Cash flows from
financing activities
|
|
|
|
Common stock issued
under stock plans, net
|
1,114
|
|
12,588
|
Payment of taxes
related to the net share settlement of RSUs
|
(9,057)
|
|
(8,080)
|
Repurchase of common
stock
|
—
|
|
(2,263)
|
Net cash (used in)
provided by financing activities
|
(7,943)
|
|
2,245
|
Net increase in cash
and cash equivalents
|
23,184
|
|
24,824
|
Cash and cash
equivalents, beginning of period
|
67,029
|
|
56,117
|
Cash and cash
equivalents, end of period
|
$
90,213
|
|
$
80,941
|
|
|
|
|
Supplemental cash
flow data
|
|
|
|
Cash paid during the
period for:
|
|
|
|
Interest
|
$
47
|
|
$
76
|
Income
taxes
|
$
831
|
|
$
686
|
Non-cash investing
and financing activities:
|
|
|
|
Accrued purchases of
long-lived assets
|
$
1,517
|
|
$
999
|
Issuance of common
stock related to prior acquisition
|
$
-
|
|
$
825
|
Accrued deferred cash
consideration related to acquisition
|
$
16,650
|
|
$
-
|
CHEGG,
INC.
|
RECONCILIATION OF
NET LOSS TO EBITDA AND ADJUSTED EBITDA
|
(in
thousands)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net loss
|
$
(16,063)
|
|
$
(24,167)
|
|
$
(40,756)
|
|
$
(62,840)
|
Interest expense,
net
|
30
|
|
61
|
|
151
|
|
182
|
Provision for income
taxes
|
554
|
|
389
|
|
1,463
|
|
1,113
|
Textbook library
depreciation expense
|
1,683
|
|
9,362
|
|
8,903
|
|
36,838
|
Other depreciation
and amortization expense
|
3,933
|
|
2,767
|
|
10,001
|
|
9,180
|
EBITDA
|
(9,863)
|
|
(11,588)
|
|
(20,238)
|
|
(15,527)
|
Textbook library
depreciation expense
|
(1,683)
|
|
(9,362)
|
|
(8,903)
|
|
(36,838)
|
Share-based
compensation expense
|
10,210
|
|
8,933
|
|
32,701
|
|
31,784
|
Other expense
(income), net
|
148
|
|
(85)
|
|
146
|
|
(217)
|
Restructuring
(credits) charges
|
(100)
|
|
342
|
|
(298)
|
|
3,320
|
Transitional logistic
charges
|
—
|
|
2,669
|
|
—
|
|
5,859
|
Acquisition related
compensation costs
|
1,500
|
|
208
|
|
3,488
|
|
1,663
|
Adjusted
EBITDA
|
$
212
|
|
$
(8,883)
|
|
$
6,896
|
|
$
(9,956)
|
CHEGG,
INC.
|
RECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES
|
(in thousands, except
percentages)
|
(unaudited)
|
|
|
|
|
|
|
|
|
`
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Total net
revenues
|
$
71,343
|
|
$
81,286
|
|
$
191,033
|
|
$
233,219
|
Adjustment as if
transition to Ingram is complete
|
(15,822)
|
|
(35,790)
|
|
(48,010)
|
|
(108,127)
|
Non-GAAP total net
revenues
|
$
55,521
|
|
$
45,496
|
|
$
143,023
|
|
$
125,092
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
32,644
|
|
$
19,566
|
|
$
92,004
|
|
$
69,750
|
Share-based
compensation expense
|
46
|
|
103
|
|
115
|
|
318
|
Transitional logistic
charges
|
—
|
|
2,669
|
|
—
|
|
5,859
|
Non-GAAP gross
profit
|
$
32,690
|
|
$
22,338
|
|
$
92,119
|
|
$
75,927
|
|
|
|
|
|
|
|
|
Gross margin
%
|
45.8%
|
|
24.1%
|
|
48.2%
|
|
29.9%
|
Non-GAAP gross
margin %
|
45.8%
|
|
27.5%
|
|
48.2%
|
|
32.6%
|
|
|
|
|
|
|
|
|
Operating
expenses
|
$
47,975
|
|
$
43,368
|
|
$
131,000
|
|
$
131,512
|
Share-based
compensation expense
|
(10,164)
|
|
(8,830)
|
|
(32,586)
|
|
(31,466)
|
Amortization of
intangible assets
|
(1,402)
|
|
(1,118)
|
|
(3,216)
|
|
(4,115)
|
Restructuring credits
(charges)
|
100
|
|
(342)
|
|
298
|
|
(3,320)
|
Acquisition related
compensation costs
|
(1,500)
|
|
(208)
|
|
(3,488)
|
|
(1,663)
|
Non-GAAP operating
expenses
|
$
35,009
|
|
$
32,870
|
|
$
92,008
|
|
$
90,948
|
|
|
|
|
|
|
|
|
Operating expenses
as a percent of total net revenues
|
67.2%
|
|
53.4%
|
|
68.6%
|
|
56.4%
|
Non-GAAP operating
expenses as a percent of total net revenues
|
49.1%
|
|
40.4%
|
|
48.2%
|
|
39.0%
|
|
|
|
|
|
|
|
|
Total operating
expenses
|
$
(15,331)
|
|
$
(23,802)
|
|
$
(38,996)
|
|
$
(61,762)
|
Share-based
compensation expense
|
10,210
|
|
8,933
|
|
32,701
|
|
31,784
|
Amortization of
intangible assets
|
1,402
|
|
1,118
|
|
3,216
|
|
4,115
|
Restructuring
(credits) charges
|
(100)
|
|
342
|
|
(298)
|
|
3,320
|
Transitional logistic
charges
|
—
|
|
2,669
|
|
—
|
|
5,859
|
Acquisition related
compensation costs
|
1,500
|
|
208
|
|
3,488
|
|
1,663
|
Non-GAAP total
operating (loss) income
|
$
(2,319)
|
|
$
(10,532)
|
|
$
111
|
|
$
(15,021)
|
|
|
|
|
|
|
|
|
Net loss
|
$
(16,063)
|
|
$
(24,167)
|
|
$
(40,756)
|
|
$
(62,840)
|
Share-based
compensation expense
|
10,210
|
|
8,933
|
|
32,701
|
|
31,784
|
Amortization of
intangible assets
|
1,402
|
|
1,118
|
|
3,216
|
|
4,115
|
Restructuring
(credits) charges
|
(100)
|
|
342
|
|
(298)
|
|
3,320
|
Transitional logistic
charges
|
—
|
|
2,669
|
|
—
|
|
5,859
|
Acquisition related
compensation costs
|
1,500
|
|
208
|
|
3,488
|
|
1,663
|
Non-GAAP net
loss
|
$
(3,051)
|
|
$
(10,897)
|
|
$
(1,649)
|
|
$
(16,099)
|
|
|
|
|
|
|
|
|
Weighted average
shares used to compute net loss per share
|
91,059
|
|
87,706
|
|
90,201
|
|
86,419
|
Effect of dilutive
options, restricted stock units and warrants
|
—
|
|
—
|
|
—
|
|
—
|
Non-GAAP weighted
average shares used to compute non-GAAP net loss per
share
|
91,059
|
|
87,706
|
|
90,201
|
|
86,419
|
|
|
|
|
|
|
|
|
Net loss per
share
|
$
(0.17)
|
|
$
(0.28)
|
|
$
(0.45)
|
|
$
(0.73)
|
Adjustments
|
0.14
|
|
0.16
|
|
$
0.43
|
|
$
0.54
|
Non-GAAP net loss per
share
|
$
(0.03)
|
|
$
(0.12)
|
|
$
(0.02)
|
|
$
(0.19)
|
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SOURCE Chegg, Inc.