2020 total net revenue increased 57%
year-over-year and subscribers hit a record of 6.6 million, up 67%
year-over-year
Chegg, Inc. (NYSE:CHGG), a Smarter Way to Student®, today
reported financial results for the three and twelve months ended
December 31, 2020.
“We are incredibly grateful that, even in the midst of the many
challenges of the past year, we outperformed all expectations and
were able to continue to support students, in record numbers,
around the world,” said Dan Rosensweig, CEO & President of
Chegg, Inc. “The transition to online and hybrid learning is
inevitable and, with the accelerated trends that we are seeing, we
have the confidence to raise our guidance for 2021.”
Q4 2020 Highlights:
- Total Net Revenues of $205.7 million, an increase of 64%
year-over-year
- Chegg Services Revenues grew 64% year-over-year to
$176.0 million, or 86% of total net revenues, in-line with Q4
2019
- Net Income was $26.0 million
- Non-GAAP Net Income was $77.8 million
- Adjusted EBITDA was $87.9 million
- 4.4 million: number of Chegg Services subscribers, an
increase of 74% year-over-year
- 476 million: total Chegg Study content views
Full Year 2020
Highlights:
- Total Net Revenues of $644.3 million, an increase of 57%
year-over-year
- Chegg Services Revenues grew 57% year-over-year to
$521.2 million, or 81% of total net revenues, in-line with
2019
- Net Loss was $6.2 million
- Non-GAAP Net Income was $180.2 million
- Adjusted EBITDA was $207.1 million
- 6.6 million: number of Chegg Services subscribers, an
increase of 67% year-over-year
- 1,338 million: total Chegg Study content views
Total net revenues include revenues from Chegg Services and
Required Materials. Chegg Services primarily includes Chegg Study,
Chegg Writing, Chegg Math Solver, Chegg Study Pack, Thinkful, and
Mathway. Required Materials includes print textbooks and
eTextbooks.
For more information about non-GAAP net income and adjusted
EBITDA, and a reconciliation of non-GAAP net income to net income
(loss), and adjusted EBITDA to net income (loss), see the sections
of this press release titled “Use of Non-GAAP Measures,”
“Reconciliation of Net Income (Loss) to EBITDA and Adjusted
EBITDA,” and “Reconciliation of GAAP to Non-GAAP Financial
Measures.”
Business Outlook:
First Quarter 2021
- Total Net Revenues in the range of $182 million to $185
million
- Chegg Services Revenues in the range of $152 million to
$155 million
- Gross Margin between 65% and 66%
- Adjusted EBITDA in the range of $48 million to $50
million
Full Year 2021
- Total Net Revenues in the range of $780 million to $790
million with a quarterly contribution of approximately 23.5% in Q1
2021, 24.5% in Q2 2021, 21.5% in Q3 2021 and 30.5% in Q4 2021
- Chegg Services Revenues in the range of $665 million to
$675 million
- Gross Margin between 68% and 69%
- Adjusted EBITDA in the range of $265 million to $270
million with a quarterly contribution of approximately 18.0% in Q1
2021, 27.0% in Q2 2021, 13.0% in Q3 2021 and 42.0% in Q4 2021
- Capital Expenditures in the range of $90 million to $100
million
- Free Cash Flow in the range of 50% to 60% of Adjusted
EBITDA
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 first quarter 2021 and full year 2021,
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.” We have not reconciled our 2021
quarterly adjusted EBITDA contribution guidance to net income or
2021 free cash flow contribution guidance to net cash provided by
operating activities because we do not provide guidance on net
income, net cash provided by operating activities, or the
reconciling items as a result of the uncertainty, timing, and the
potential variability of these items. The actual amount of net
income, net cash provided by operating activities, and such
reconciling items will have a significant impact on our 2021
quarterly adjusted EBITDA and 2021 free cash flow. Accordingly,
reconciliations of the 2021 quarterly adjusted EBITDA contribution
guidance to net income or 2021 free cash flow to net cash provided
by operating activities are not available without unreasonable
effort.
An updated investor presentation and an investor data sheet can
be found on Chegg’s Investor Relations website http://investor.chegg.com.
Prepared Remarks - Dan Rosensweig, CEO
Chegg, Inc.
Thank you, Tracey and welcome everyone to our 2020 Q4 earnings
call. Last year was a complicated time for the world, for our
country, and particularly for students who were navigating the
pandemic, rising social issues, and school closings. It was also an
unprecedented time for Chegg, as we transitioned 1,900 employees
out of our offices and into a remote working environment overnight.
It was a year in which we increased our community support,
committing over one million dollars to local organizations,
including food banks, who were rising to meet the increased need
from students across the country. Like many, we had to meet these
challenges head on, but we never lost sight of putting students
first and we are proud of our results and that we outperformed even
our most enthusiastic expectations. It has always been our
operating assumption that the transition to online learning was
inevitable, but we certainly didn’t know the catalyst would be
COVID-19. We believe this massive shift to learning online,
accelerated by the pandemic, is an irreversible trend and is
actually more student centric. With increased access to digital
learning and support, more learners can learn more subjects, on any
device, anywhere and anytime, with incredibly high-quality content
and tools. Whenever there is a major platform disruption, there are
new leaders that redefine the category and, as the largest
direct-to-student online learning platform, Chegg’s products and
services are increasingly critical to students’ success. Our
results reflect the growing importance of Chegg’s learning support
services to millions of students around the world. In 2020 we saw
year-over-year annual subscriber growth of 67%, representing over
6.6 million subscribers, and total revenue growth of 57%. The
trends towards online learning are continuing and, as a result, it
gives us the confidence to raise our guidance in 2021, which Andy
will walk you through in more detail shortly.
At the start of last year, we laid out our key objectives with
no idea that a global pandemic was about to hit and the dramatic
impact that it would have on our employees, students, our business,
and the entire world. We entered 2020 with three core
priorities:
- To deliver on our financial goals and continue to provide
services that create overwhelming value for academic and
professional learners;
- To continue investing in opportunities that leverage the
strength of our brand, reach, customer base and provide
opportunities for meaningful growth in future years;
- And to continue to invest in content and our technical
infrastructure to allow us to take advantage of those
opportunities, not only faster but also at greater global
scale.
But within the first quarter, the world changed. Thankfully, as
a software company that was built to scale online, we were able to
meet the increased demand without missing a beat. However, the
massive shift to online learning around the world did prompt us to
reprioritize and accelerate efforts that weren’t on our roadmap at
the start of the year; including our global eCommerce
infrastructure, new and expanded international content, and our
account sharing initiatives. We believe that our decision to expand
our areas of focus in 2020 has set us up for continued strong
growth in 2021 and beyond.
As we think about the future of higher education, it is clear
that the trends have accelerated what we have been talking about
for years and will have a permanent impact on the future of
education. This last year has reaffirmed that platform companies
that serve the needs of their primary constituents, that own their
customer, the data, the channel of distribution, and the content,
will outperform their peer groups and disproportionally benefit
their customers and shareholders.
The pandemic has also revealed that there are two economies; the
service economy, which was dramatically impacted by COVID-19 as 25
million people lost their jobs, and the technology economy, which
saw a dramatic gain. It is clear that the need to reskill for the
modern workforce is here and this represents a tremendous
opportunity for Chegg. Skills-based training and support is
emerging as a very large category especially when you consider the
number of people globally that need to be up-skilled and re-skilled
for the current job market. The reality is, that the majority of
college age students don’t get a college degree, and there is a
real demand right now for students to find programs that are far
less expensive, are more skills-based, and deliver a greater return
on their investment. While we are still early in building out this
part of our business, we expect to be a prominent player in
skills-based learning and expect to expand our footprint in the
space going forward.
This is a highly disruptive moment in higher education’s
history, and it has been anything but smooth. As institutions had
to make the transition to virtual learning overnight, it became
clear that schools were underinvested in technology, online
assessment, and digital support for students and we believe it’s
only going to get more challenging in the years ahead, as the shift
to hybrid and online learning will be permanent. We also believe
that higher education must acknowledge that the internet is here
and is a permanent part of learning. As a result, educators must
reimagine how they teach, what the curriculum needs to be, how
students are assessed, and how to best support them and, if that
doesn’t happen, ultimately it is the students that will suffer. As
a leader in education, we take our role in this transition very
seriously. That is why we invest millions of dollars every year
building content, personalized learning experiences, and technology
systems to support learning at scale. As part of our
responsibility, we are also working with institutions as they make
this transition, including introducing new technology and tools
that limit students’ ability to use Chegg during designated exam
periods. We accelerated our efforts in this area due to the
pandemic and recently launched Honor Shield, a free tool available
to institutions and professors. And we will continue to find ways
to support the millions of hardworking students and educators who
use online resources to enhance their learning experience. In fact,
in a blind study of students who used Chegg for more than two
months, they found that 90% reported that Chegg Study “helps them
better understand their schoolwork.”
As we enter 2021, we have expanded our priorities to include an
increased investment in international growth as, for the first
time, we anticipate over more than a million subscribers outside
the U.S.; because of its popularity, we will continue to invest in
the Chegg Study Pack, by expanding our offerings to create even
more overwhelming value for students; and we are significantly
increasing investments in our skills offering, as we believe there
will be a lot of activity in this industry, and see a huge
opportunity to be a significant player, and a leader, in this
space.
We have important and ambitious priorities this year, and,
despite the ongoing pandemic, I have never been more confident
about the opportunities ahead of us. And, with that, I will turn it
over to Andy.
Prepared Remarks - Andy Brown, CFO
Chegg, Inc.
Thanks Dan and good afternoon everyone.
Today I will discuss our financial performance for the fourth
quarter and full year 2020, as well as our increased outlook for
2021.
By any measure, 2020 was our best year as a company. We far
exceeded our initial expectations for revenue, adjusted EBITDA and
all key operating metrics. In addition, we significantly increased
investments in our future growth opportunities such as
international expansion and skills, we pulled forward technological
investments such as device management and MFA to combat account
sharing and we purchased Mathway to expand our presence in the math
category. And finally, we took advantage of favorable market
conditions to raise capital, which creates additional opportunities
for future growth. As such, we enter 2021 in an even stronger
position than we entered 2020, and as a result we expect to extend
our position as the leader in the direct-to-student market.
Moving on to 2020 performance, total revenue grew 57% to $644
million. This was driven by an almost $200 million year-over-year
increase in Chegg Services revenue, which grew to $521 million and
subscriber growth of 67% to 6.6 million for the year. This resulted
in adjusted EBITDA margin of 32% or $207 million, up 66%
year-over-year, demonstrating the continued leverage and power of
our subscription model, which allowed us to increase our
investments for future growth, while improving our adjusted EBITDA
margin.
We ended the year on a high note, with Q4 total revenue growing
64% to $206 million, with Chegg Services growing to $176 million,
which was above the high end of our expectations and more Chegg
Services revenue than we achieved for all of 2016. Subscribers grew
74% in Q4, driven across all our subscription services as students
continued to rely on Chegg for help to better understand their
subject matter. This strong subscription services growth resulted
in adjusted EBITDA of $88 million, an 87% increase over what we
achieved in Q4 2019 and exceeded our adjusted EBITDA for all of
2018.
Looking at the balance sheet, we ended the year with cash and
investments of $1.7 billion. This was bolstered during the year by
free cash flow of $104 million, or 50% of adjusted EBITDA and the
capital raise I mentioned earlier. We expect free cash flow to
increase to 50% to 60% of adjusted EBITDA in 2021, as a result of
increased profitability and a planned decrease in textbook
purchases.
Moving to guidance for 2021. Based on the momentum we
experienced exiting Q4 and the strength we are seeing in subscriber
growth in early Q1, we are raising our guidance. We expect
continued strong growth in the US, and increased contribution
internationally where we expect to surpass one million subscribers
in 2021. This will be slightly offset by reduced Required Materials
revenue due to lower enrollments.
We are increasing our 2021 adjusted EBITDA margin by 200 basis
points, despite the fact that we are experiencing increased
shipping and logistics surcharges for Required Materials from our
third-party logistics provider. While we hope these costs will
improve, we are currently forecasting this to continue into the
fall semester, costing us approximately 200 basis points of gross
and adjusted EBITDA margin for 2021. We have provided a guide for
seasonality in the investor deck that incorporates this change.
As such, for 2021, we now expect:
- Total revenue to be between $780 and $790 million, with Chegg
Services revenue between $665 and $675 million.
- Gross margin to be between 68% and 69%,
- Adjusted EBITDA to be between $265 and $270 million.
- And finally, we expect CAPEX excluding textbook purchases to be
between $90 and $100 million, growing approximately 17% from $81
million in 2020, with the vast majority for content that fuels our
global growth.
Moving to Q1 we expect:
- Total revenue between $182 and $185 million, with Chegg
Services between $152 and $155 million
- Gross margin between 65% and 66%
- And adjusted EBITDA between $48 and $50 million.
In closing, 2020 has been our best year as a company. The trends
we anticipated many years ago and built the foundation of our
company on have accelerated; that is online, on demand and
affordable services that have resulted in tens of millions of
students globally using Chegg as a trusted partner for their
academic and skills-based needs. We couldn’t be more thankful to
those students for trusting Chegg on their educational journey and
to our employees who executed on our vision of being a company that
puts students’ first.
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
4:30 p.m. Pacific Standard Time on February 8, 2021, until 8:59
p.m. Pacific Standard Time on February 15, 2021, by calling
1-844-512-2921, or outside the U.S. +1-412-317-6671, with
Conference ID 13714677. 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/press, 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/press, in addition to
following press releases, Securities and Exchange Commission
filings and public conference calls and webcasts.
About Chegg
Chegg: A Smarter Way to Student®. We strive to improve
educational outcomes by putting the student first. We support
students on their journey from high school to college and into
their careers with tools designed to help them learn their course
materials, succeed in their classes, save money on required
materials, and learn the most in-demand skills. Our services are
available online, anytime and anywhere. 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 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 Income (Loss) 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 print textbook depreciation expense and to
exclude share-based compensation expense, other income, net,
acquisition-related compensation costs, the loss from impairment on
strategic equity investment, the donation from Chegg Foundation,
and restructuring charges; (2) non-GAAP operating expenses as
operating expenses excluding share-based compensation expense,
amortization of intangible assets, acquisition-related compensation
costs, the loss from impairment on strategic equity investment, the
donation from Chegg Foundation, and restructuring charges; (3)
non-GAAP income from operations as income from operations excluding
share-based compensation expense, amortization of intangible
assets, acquisition-related compensation costs, the loss from
impairment on strategic equity investment, the donation from Chegg
Foundation, and restructuring charges; (4) non-GAAP net income as
net income (loss) excluding share-based compensation expense,
amortization of intangible assets, acquisition-related compensation
costs, amortization of debt discount and issuance costs, the loss
on early extinguishment of debt, the loss from impairment on
strategic equity investment, the donation from Chegg Foundation,
and restructuring charges; (5) non-GAAP weighted average shares
outstanding as weighted average shares outstanding adjusted for the
effect of dilutive options, restricted stock units, and shares
related to our convertible senior notes; (6) non-GAAP net income
per share is defined as non-GAAP net income divided by non-GAAP
weighted average shares outstanding; and (7) free cash flow as net
cash provided by operating activities excluding purchases of
property and equipment, purchases of textbooks and proceeds from
disposition of textbooks. 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 Income (Loss) 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 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 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 assets from non-GAAP measures allows for a more accurate
assessment of its ongoing operations.
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 discount and issuance costs.
Under GAAP, we are required to separately account for the
liability (debt) and equity (conversion option) components of our
convertible senior notes that were issued in private placements.
Accordingly, for GAAP purposes we are required to recognize the
effective interest expense on our convertible senior notes and
amortize the debt discount and issuance costs over the term of the
notes. 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 an enhanced view of
our performance and enables the comparison of period-over-period
results.
Loss on early extinguishment of debt.
We have extinguished, exchanged, or settled conversion requests
for our 0.25% convertible senior notes due in 2023 (2023 notes).
Under GAAP, we are required to compare the fair value of such 2023
notes to the respective carrying amount and record a gain or loss.
The loss on early extinguishment of debt is a non-cash expense, and
we believe its exclusion provides investors with a better
comparison of period-over-period results.
Loss from impairment of strategic equity investment.
The loss from impairment of strategic equity investment
represents a one-time event to record an impairment charge on our
strategic equity investment in WayUp, Inc. The loss from impairment
of strategic equity investment is a non-cash expense and we believe
the exclusion of the impairment charge from non-GAAP financial
measures provides investors with a better comparison of
period-over-period results.
Donation from Chegg Foundation.
The donation from Chegg Foundation represents a one-time event
to transfer funds to a third party, for the benefit of Chegg.org,
our not for profit arm of Chegg. Chegg believes that it is
appropriate to exclude the donation from Chegg Foundation from
non-GAAP financial measures because it is the result of a discrete
event that is not considered a core-operating activity and enables
the comparison of period-over-period operating results.
Free cash flow.
Free cash flow represents net cash provided by operating
activities excluding purchases of property and equipment and
purchases of textbooks and including proceeds from the disposition
of textbooks. 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 and textbooks, 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 the impact of the ongoing coronavirus
(COVID-19) pandemic on Chegg’s financial condition and results of
operations, Chegg's continued momentum and 2021 guidance; and 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:
Chegg’s ability to attract new students, increase engagement and
increase monetization; the ongoing uncertainty regarding the return
of students to in-person classes and remote learning, and the
effects of COVID-19 on college enrollment, Chegg’s ability to
attract new students from high schools and colleges, which are
populations with inherently high turnover; the ease of accessing
Chegg’s offerings through search engines; the rate of adoption of
Chegg’s offerings; the effect and integration of Chegg’s
acquisition of Imagine Easy Solutions, Cogeon, WriteLab, StudyBlue,
Thinkful and Mathway; Chegg’s ability to strategically take
advantage of new opportunities; competitive developments, including
pricing pressures and other services targeting students; 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 reputation with students and tutors; the outcome
of any current litigation and investigations; the ability of our
logistics partner to manage the fulfillment processes; Chegg’s
ability to effectively control operating costs; changes in Chegg’s
addressable market; regulatory changes, in particular concerning
education, privacy and marketing; changes in the education market;
and general economic, political and industry conditions, including
the ongoing COVID-19 pandemic. 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 for the quarterly period ended September 30, 2020 filed with
the Securities and Exchange Commission on October 26, 2020 and
Chegg's Annual Report on Form 10-K for the year ended December 31,
2020 to be filed with the Securities and Exchange Commission, and
could cause actual results to vary from expectations.
CHEGG, INC.
CONSOLIDATED BALANCE
SHEETS
(in thousands, except for
number of shares and par value)
(unaudited)
December 31, 2020
December 31, 2019
Assets
Current assets
Cash and cash equivalents
$
479,853
$
387,520
Short-term investments
665,567
381,074
Accounts receivable, net of allowance of
$153 and $56 at December 31, 2020 and December 31, 2019,
respectively
12,913
11,529
Prepaid expenses
12,776
10,538
Other current assets
11,846
16,606
Total current assets
1,182,955
807,267
Long-term investments
523,628
310,483
Textbook library, net
34,149
—
Property and equipment, net
125,807
87,359
Goodwill
285,214
214,513
Intangible assets, net
51,249
34,667
Right of use assets
24,226
15,931
Other assets
24,030
18,778
Total assets
$
2,251,258
$
1,488,998
Liabilities and stockholders’
equity
Current liabilities
Accounts payable
$
8,547
$
7,362
Deferred revenue
32,620
18,780
Current operating lease liabilities
6,603
5,283
Accrued liabilities
61,962
39,964
Total current liabilities
109,732
71,389
Long-term liabilities
Convertible senior notes, net
1,506,922
900,303
Long-term operating lease liabilities
19,264
14,513
Other long-term liabilities
5,705
3,964
Total long-term liabilities
1,531,891
918,780
Total liabilities
1,641,623
990,169
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value –
10,000,000 shares authorized, no shares issued and outstanding at
December 31, 2020 and December 31, 2019
—
—
Common stock, $0.001 par value –
400,000,000 shares authorized; 129,343,524 and 121,583,501 shares
issued and outstanding at December 31, 2020 and December 31, 2019,
respectively
129
122
Additional paid-in capital
1,030,577
916,095
Accumulated other comprehensive income
(loss)
1,530
(1,096
)
Accumulated deficit
(422,601
)
(416,292
)
Total stockholders’ equity
609,635
498,829
Total liabilities and stockholders’
equity
$
2,251,258
$
1,488,998
CHEGG, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per
share amounts)
(unaudited)
Three Months Ended December
31,
Year Ended December
31,
2020
2019
2020
2019
Net revenues
$
205,721
$
125,504
$
644,338
$
410,926
Cost of revenues(1)
57,133
26,165
205,417
92,182
Gross profit
148,588
99,339
438,921
318,744
Operating expenses:
Research and development(1)
46,949
38,573
170,905
139,772
Sales and marketing(1)
21,293
16,235
81,914
63,569
General and administrative(1)
31,128
27,445
129,349
97,489
Restructuring charges
—
—
—
97
Total operating expenses
99,370
82,253
382,168
300,927
Income from operations
49,218
17,086
56,753
17,817
Interest expense, net and other income,
net:
Interest expense, net
(21,977
)
(13,557
)
(66,297
)
(44,851
)
Other income, net
1,287
5,492
8,683
20,063
Total interest expense, net and other
income, net
(20,690
)
(8,065
)
(57,614
)
(24,788
)
Income (loss) before provision for income
taxes
28,528
9,021
(861
)
(6,971
)
Provision for income taxes
2,485
802
5,360
2,634
Net income (loss)
$
26,043
$
8,219
$
(6,221
)
$
(9,605
)
Net income (loss) per share:
Basic
0.20
0.07
(0.05
)
(0.08
)
Diluted
0.18
0.06
(0.05
)
(0.08
)
Weighted average shares used to compute
net income (loss) per share:
Basic
128,955
121,151
125,367
119,204
Diluted
141,297
129,150
125,367
119,204
(1) Includes share-based compensation
expense as follows:
Cost of revenues
$
306
$
131
$
950
$
426
Research and development
8,544
6,353
31,588
22,229
Sales and marketing
2,553
1,975
9,606
7,380
General and administrative
13,243
9,095
41,911
34,874
Total share-based compensation expense
$
24,646
$
17,554
$
84,055
$
64,909
CHEGG, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in thousands)
(unaudited)
Years Ended December
31,
2020
2019
Cash flows from operating activities
Net loss
$
(6,221
)
$
(9,605
)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Print textbook depreciation expense
15,397
—
Other depreciation and amortization
expense
47,018
30,247
Share-based compensation expense
84,055
64,909
Amortization of debt discount and issuance
costs
64,573
43,202
Repayment of convertible senior notes
attributable to debt discount
(20,433
)
—
Loss on early extinguishments of debt
4,286
—
Loss from write-offs of property and
equipment
1,211
1,009
Loss from impairment of strategic equity
investment
10,000
—
Gain on textbook library, net
(1,453
)
—
Deferred income taxes
(109
)
(39
)
Operating lease expense, net of
accretion
4,901
4,385
Other non-cash items
(118
)
(416
)
Change in assets and liabilities, net of
effect of acquisition of businesses:
Accounts receivable
(400
)
1,829
Prepaid expenses and other current
assets
5,419
(12,930
)
Other assets
(4,214
)
(1,494
)
Accounts payable
1,119
(2,395
)
Deferred revenue
12,918
(1,682
)
Accrued liabilities
22,444
(206
)
Other liabilities
(3,951
)
(3,411
)
Net cash provided by operating
activities
236,442
113,403
Cash flows from investing activities
Purchases of property and equipment
(81,317
)
(42,326
)
Purchases of textbooks
(58,567
)
—
Proceeds from disposition of textbooks
7,569
—
Purchases of investments
(1,045,564
)
(959,911
)
Proceeds from sale of investments
—
53,261
Maturities of investments
539,889
324,700
Acquisition of businesses, net of cash
acquired
(92,796
)
(79,149
)
Purchases of strategic equity
investment
(2,000
)
—
Net cash used in investing activities
(732,786
)
(703,425
)
Cash flows from financing activities
Proceeds from common stock issued under
stock plans, net
15,483
35,100
Payment of taxes related to the net share
settlement of equity awards
(80,680
)
(94,571
)
Proceeds from issuance of convertible
senior notes, net of issuance costs
984,096
780,180
Purchase of convertible senior notes
capped call
(103,400
)
(97,200
)
Repayment of convertible senior notes
(303,967
)
—
Proceeds from exercise of convertible
senior notes capped call
77,095
—
Repurchase of common stock
—
(20,000
)
Net cash provided by financing
activities
588,627
603,509
Net increase in cash, cash equivalents and
restricted cash
92,283
13,487
Cash, cash equivalents and restricted
cash, beginning of period
389,432
375,945
Cash, cash equivalents and restricted
cash, end of period
$
481,715
$
389,432
Years Ended December
31,
2020
2019
Supplemental cash flow data:
Cash paid during the period for:
Interest
$
1,766
$
1,332
Income taxes
$
3,436
$
2,070
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows from operating
leases
$
6,790
$
5,297
Right of use assets obtained in exchange
for lease obligations:
Operating leases
$
13,688
$
3,364
Non-cash investing and financing
activities:
Accrued purchases of long-lived assets
$
1,588
$
10,036
Accrued escrow related to acquisition
$
7,451
$
—
Issuance of common stock related to
repayment of convertible senior notes
$
327,141
$
—
Issuance of common stock related to prior
acquisition
$
—
$
3,003
December 31,
2020
2019
Reconciliation of cash, cash equivalents
and restricted cash:
Cash and cash equivalents
$
479,853
$
387,520
Restricted cash included in other current
assets
122
149
Restricted cash included in other
assets
1,740
1,763
Total cash, cash equivalents and
restricted cash
$
481,715
$
389,432
CHEGG, INC.
RECONCILIATION OF NET INCOME
(LOSS) TO EBITDA AND ADJUSTED EBITDA
(in thousands)
(unaudited)
Three Months Ended December
31,
Year Ended December
31,
2020
2019
2020
2019
Net income (loss)
$
26,043
$
8,219
$
(6,221
)
$
(9,605
)
Interest expense, net
21,977
13,557
66,297
44,851
Provision for income taxes
2,485
802
5,360
2,634
Print textbook depreciation expense
4,698
—
15,397
—
Other depreciation and amortization
expense
13,930
8,878
47,018
30,247
EBITDA
69,133
31,456
127,851
68,127
Print textbook depreciation expense
(4,698
)
—
(15,397
)
—
Share-based compensation expense
24,646
17,554
84,055
64,909
Other income, net
(1,287
)
(5,492
)
(8,683
)
(20,063
)
Acquisition-related compensation costs
71
3,478
9,232
10,466
Loss from impairment of strategic equity
investment
—
—
10,000
—
Donation from Chegg Foundation
—
—
—
1,478
Restructuring charges
—
—
—
97
Adjusted EBITDA
$
87,865
$
46,996
$
207,058
$
125,014
CHEGG, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands, except
percentages and per share amounts)
(unaudited)
Three Months Ended December
31,
Year Ended December
31,
2020
2019
2020
2019
Operating expenses
$
99,370
$
82,253
$
382,168
$
300,927
Share-based compensation expense
(24,340
)
(17,423
)
(83,105
)
(64,483
)
Amortization of intangible assets
(4,403
)
(2,489
)
(14,278
)
(7,482
)
Acquisition-related compensation costs
(71
)
(3,478
)
(9,232
)
(10,466
)
Loss from impairment of strategic equity
investment
—
—
(10,000
)
—
Donation from Chegg Foundation
—
—
—
(1,478
)
Restructuring charges
—
—
—
(97
)
Non-GAAP operating expenses
$
70,556
$
58,863
$
265,553
$
216,921
Income from operations
$
49,218
$
17,086
$
56,753
$
17,817
Share-based compensation expense
24,646
17,554
84,055
64,909
Amortization of intangible assets
4,403
2,489
14,278
7,482
Acquisition-related compensation costs
71
3,478
9,232
10,466
Loss from impairment of strategic equity
investment
—
—
10,000
—
Donation from Chegg Foundation
—
—
—
1,478
Restructuring charges
—
—
—
97
Non-GAAP income from operations
$
78,338
$
40,607
$
174,318
$
102,249
Net income (loss)
$
26,043
$
8,219
$
(6,221
)
$
(9,605
)
Share-based compensation expense
24,646
17,554
84,055
64,909
Amortization of intangible assets
4,403
2,489
14,278
7,482
Acquisition-related compensation costs
71
3,478
9,232
10,466
Amortization of debt discount and issuance
costs
21,663
13,088
64,573
43,202
Loss on early extinguishment of debt
971
—
4,286
—
Loss from impairment of strategic equity
investment
—
—
10,000
—
Donation from Chegg Foundation
—
—
—
1,478
Restructuring charges
—
—
—
97
Non-GAAP net income
$
77,797
$
44,828
$
180,203
$
118,029
Weighted average shares used to compute
net income (loss) per share
141,297
129,150
125,367
119,204
Effect of shares for stock plan
activity
—
—
4,470
7,094
Effect of shares related to convertible
senior notes
—
—
4,942
3,526
Non-GAAP weighted average shares used to
compute non-GAAP net income per share
141,297
129,150
134,779
129,824
Net income (loss) per share
0.18
0.06
(0.05
)
(0.08
)
Adjustments
0.37
0.29
1.39
0.99
Non-GAAP net income per share
$
0.55
$
0.35
$
1.34
$
0.91
CHEGG, INC.
RECONCILIATION OF NET CASH
PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(in thousands)
(unaudited)
Year Ended December
31,
2020
2019
Net cash provided by operating
activities
$
236,442
$
113,403
Purchases of property and equipment
(81,317
)
(42,326
)
Purchases of textbooks
(58,567
)
—
Proceeds from disposition of textbooks
7,569
—
Free cash flow
$
104,127
$
71,077
CHEGG, INC.
RECONCILIATION OF
FORWARD-LOOKING NET INCOME TO EBITDA AND ADJUSTED EBITDA
(in thousands)
(unaudited)
Three Months Ending March 31,
2021
Year Ending December 31,
2021
Net income
$
5,100
$
75,100
Interest expense, net
2,000
7,900
Provision for income taxes
1,500
6,200
Textbook library depreciation expense
4,300
15,500
Other depreciation and amortization
expense
14,900
61,400
EBITDA
27,800
166,100
Textbook library depreciation expense
(4,300
)
(15,500
)
Share-based compensation expense
25,000
115,000
Other income, net
(1,900
)
(4,500
)
Acquisition-related compensation costs
2,400
6,400
Adjusted EBITDA*
$
49,000
$
267,500
* Adjusted EBITDA guidance for the three months ending March 31,
2021 and year ending December 31, 2021 represent the midpoint of
the ranges of $48 million to $50 million and $265 million to $270
million, respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210208005794/en/
Media Contact: press@chegg.com Investor Contact: Tracey Ford,
IR@chegg.com
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