Chegg Services hits a record 3.9 million
subscribers for 2019, up 29% 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, 2019.
“2019 was a fantastic year for Chegg. Total revenue grew 28%
year over year and we exceeded our profitability expectations,
driven by leverage from our subscription services,” said Dan
Rosensweig, CEO of Chegg, Inc., “Our strategy to provide
direct-to-student services supporting millions of learners
continues to deliver fantastic results and we couldn’t be more
excited about 2020.” Rosensweig added.
Q4 2019 Highlights:
- Total Net Revenues of $125.5 million, an increase of 31%
year-over-year
- Chegg Services Revenues grew 31% year-over-year to
$107.3 million, or 86% of total net revenues, compared to 85% in Q4
2018
- Net Income was $8.2 million
- Non-GAAP Net Income was $44.8 million
- Adjusted EBITDA was $47.0 million
- 2.5 million: number of Chegg Services subscribers, an
increase of 32% year-over-year
- 271 million: total Chegg Study content views
Full Year 2019
Highlights:
- Total Net Revenues of $410.9 million, an increase of 28%
year-over-year
- Chegg Services Revenues grew 31% year-over-year to
$332.2 million, or 81% of total net revenues, compared to 79% in
2018.
- Net Loss was $9.6 million
- Non-GAAP Net Income was $118.0 million
- Adjusted EBITDA was $125.0 million
- 3.9 million: number of Chegg Services subscribers, an
increase of 29% year-over-year
- 810 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 Tutors, Chegg Math Solver and Thinkful, our
skills-based learning platform that we acquired in October 2019.
Required Materials includes rental and sale of 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 2020
- Total Net Revenues in the range of $122 million to $125
million
- Chegg Services Revenues in the range of $99 million to
$100 million
- Gross Margin between 67% and 68%
- Adjusted EBITDA in the range of $27.5 million to $28.5
million
Full Year 2020
- Total Net Revenues in the range of $522 million to $527
million
- Chegg Services Revenues in the range of $435 million to
$437 million
- Gross Margin between 71% and 72%
- Adjusted EBITDA in the range of $162 million to $164
million
- Capital Expenditures in the range of $105 million to
$115 million which includes approximately $50 million of net
textbook purchases
For more information about the use of forward-looking non-GAAP
measures, a reconciliation of forward-looking net loss to EBITDA
and adjusted EBITDA for the first quarter 2020 and full year 2020,
see the below sections of the press release titled “Use of Non-GAAP
Measures,” and “Reconciliation of Forward-Looking Net Loss to
EBITDA and Adjusted EBITDA.”
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 2019 Q4 earnings
call. I am delighted to report that we had another great quarter,
ending the decade on a high note. We supported a record number of
students, generated record revenue, record margins, and record
adjusted EBITDA. I am incredibly proud of all the work our team has
done to serve the needs of students and it’s clearly paying off, as
you will see when Andy walks you through the numbers.
Our 2019 priorities were:
- To deliver our financial goals and continue to provide services
that create overwhelming value for learners;
- To expand the subjects we cover and the modalities and formats
of content we offer, including coverage of other countries;
and
- To continue to invest in opportunities that leverage the
strength of our brand, reach, and customer base and provide
opportunities for meaningful growth in future years.
Our team executed brilliantly across our priorities and exceeded
all of our objectives. For the full year we achieved 5.7 million
paying customers, Chegg subscribers grew 29% year-over-year,
reaching a record 3.9 million, resulting in 28% net revenue growth.
Throughout the year we continued to invest in academic content and
services so students could learn their course material. At the same
time, we expanded into one of the biggest growth categories in the
industry; skills-based training for workforce development. By
offering more services to students at every stage of their learning
journey, we believe we are well positioned to help students get the
education and the skills needed to compete in the global economy
over the length of their careers.
As our platform expands, serving the increased needs of
students, we have also been able to improve our competitive moat.
And, through personalization, we are entering new growth vectors
for our existing assets. 2019 was a big year, particularly for
engagement. We averaged over 15 million unique visitors each month,
serving 2.2 million pages of content through just Chegg Study alone
each day, totaling an incredible 810 million content views for the
year. We believe this reflects just how essential Chegg has become
in the minds of students. As learners are increasingly more
diverse, older, and come from various socio-economic backgrounds,
the number of people that need learning support, both academically
and professionally, continues to increase. And the types of support
they need also evolved, as many are working full time, raising
families, and juggling multiple priorities, all while pursuing
their education. So, we continue to invest in services that will
meet them where they are and when they need it, whether that’s
through 24/7 live human help, or with offerings like Chegg Study
Pack. As a reminder, the Chegg Study Pack is being rolled out in
stages over the course of 2020. Initially it is being offered to
new subscribers only and we expect to start rolling it out to the
broader customer base in the second half of the year. The bundle
offers overwhelming value to our students and gives them even
greater support across a diverse range of academic needs. We also
learned that those needs aren’t isolated to students in the United
States. As the Chegg brand continues to expand, domestically and
globally, it is clear the needs of students are similar around the
world. This gives us a tremendous foundation to expand
internationally, because our content significantly overlaps in most
countries because of our focus on business and STEM, which we call
STEM-B which have become universal in a technology driven
world.
The top concern of global employers is the future of workforce
education. Across the board there is consensus that more people
will need to learn more things, more often, throughout their career
and what they need to learn is evolving as we see continuous
advancements in technology. As the student population and workforce
ages, we are seeing that more people are taking matters into their
own hands and making decisions about where to invest their time,
and their money, to get the greatest return on their investment in
themselves, both academically and professionally. We believe it’s
important for Chegg to lead in this space, to support students
throughout their entire learning journey. And, like all Chegg
Services, we continue to focus on going directly to the student:
the person who is making the decisions on their future, who will
invest the most in themselves, and can get a positive return on
their investment. Going directly to the student also allows us to
make the quality of our content higher, more relevant, while
keeping prices low, because we continue to own the relationship
with our customer, own the content, and own the channels of
distribution.
All of the success we have seen over the last decade is thanks
to the fantastic work of our amazing employees in 2019 our team
was, once again, recognized with several awards as one of Fortune’s
Great Places to Work, including our second year on the Best Small
& Medium Workplaces and our first nod for being a great place
to work for parents. That is an honor that is particularly
meaningful to us, as we have worked hard to develop an inclusive,
family friendly culture. It’s also a reflection of how we have
built our team to mirror our customer base, as 40% of students are
working 30 hours a week or more and 26% of them are already
parents. We are proud of the recognition our team has received this
year and I want to thank them for continuing to make Chegg such a
great place to work.
As we enter the second decade at Chegg, our priorities haven’t
changed:
- 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, and customer base providing
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 a greater global
scale.
I would like to take a moment to thank all of you who have been
on this journey with us, whether for a few months or for many
years. And I want to thank the incredible Chegg family who have
worked relentlessly over the last decade to put students first.
It’s their passion and commitment to our mission that will fuel us
over the next decade and beyond. And, with that, I will turn it
over to Andy. 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 2019, as well as our increased outlook for
2020.
2019 was another great year for Chegg. We exceeded all of our
financial targets and key operating metrics, made significant
investments in our existing services, expanded our offerings
organically and through acquisition, and strengthened our balance
sheet with a very well received convertible debt offering early in
the year. As such, we believe we enter 2020 in an even stronger
position than we entered 2019 and expect to have another great
year.
For full year 2019, total revenue grew 28% to $411 million. This
was driven by subscriber growth of 29%, resulting in Chegg Services
revenue of $332 million, an increase of $78 million year over year.
This strong topline growth drove gross margin to 78%, up 300 basis
points from 2018. This resulted in adjusted EBITDA margin of 30% or
$125 million, up 50% year-over-year, demonstrating the continued
leverage of our subscription services model at scale.
We ended the year on a high note, with Q4 revenue growing 31% to
$126 million, with Chegg Services growing to $107 million, marking
the first quarter Chegg Services revenue has exceeded $100 million.
This was driven by continued strong growth in our subscription
services, demonstrated by 32% subscriber growth, which was
partially offset by headwinds in the industry wide programmatic
advertising rates which impacted ad revenue for our Chegg Writing
service, which has already been incorporated into our 2020
guidance. The strong subscription services growth drove gross
margin to 79% and resulted in adjusted EBITDA of $47 million, both
exceeding our expectations.
Looking at the balance sheet, we ended the year with cash and
investments of $1.1 billion, more than double the balance we had at
the end of 2018. This is the result of proceeds from the
convertible debt offering we completed in Q2 and improved operating
cash flows. Free cash flow for 2019 came in at the higher end of
our expectations at $71 million, or 57% of adjusted EBITDA. We
believe the strength of our balance sheet and our operating model
are the strongest in the education industry.
2020 is off to a good start and we are increasing our total
revenue and adjusted EBITDA guidance. We continue to see leverage
in the model all while increasing investments, such as the
technology platform to support future growth initiatives that Dan
talked about earlier.
As such we expect:
- Total revenue to be between $522 and $527 million, or
approximately 27% growth at the mid-point of the range, with Chegg
Services revenue between $435 and $437 million.
- Gross margin to be between 71% and 72%.
- Adjusted EBITDA to be between $162 and $164 million, or over a
30% increase year over year.
- CapEx to be between $105 and $115 million, which includes
approximately $50 million of net textbook purchases, as we move to
our new partner FedEx. As a reminder, approximately 80% of our
non-textbook library CapEx is for content development which
includes among other things investments in future growth areas such
as localize content for our international subscribers, expanding
into assessments and practice tests and accelerating course
development for our skills-based offering.
- And finally, as a result of the initial investment in
textbooks, we expect adjusted EBITDA to free cash flow conversion
to be between 40% - 50%. We expect it will return to the 50% - 60%
range in 2021 post this transitional year.
Moving to Q1 2020 we expect:
- Total revenue to be between $122 and $125 million, with Chegg
Services between $99 and $100 million.
- Gross margin between 67% and 68%.
- And adjusted EBITDA between $27.5 and $28.5 million.
In closing, 2019 was another great year for Chegg. Our team
executed at a high level and we’ve positioned ourselves for
continued success in 2020. As the education industry is undergoing
significant disruption, it has becoming increasingly clear that
Chegg’s model of putting the student first and going direct to the
student is the envy of the education landscape. It is an exciting
time at Chegg, and we are glad you are with us for the journey.
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 10, 2020, until 8:59
p.m. Pacific Standard Time on February 17, 2020, by calling
1-844-512-2921, or outside the U.S. +1-412-317-6671, with
Conference ID 13697995. 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 is a Smarter Way to Student. As the leading
direct-to-student learning platform, we strive to improve
educational outcomes by putting the student first in all our
decisions. We support students on their journey from high school to
college and into their career with tools designed to help them pass
their test, pass their class, and save money on required materials.
Our services are available online, anytime and anywhere, so we can
reach students when they need us most. 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
and margin, 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 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) adjusted EBITDA
as earnings before interest, taxes, depreciation and amortization,
or EBITDA, adjusted for textbook library depreciation expense and
to exclude share-based compensation expense, other income, net,
restructuring charges, acquisition-related compensation costs, and
the donation from Chegg Foundation; (2) non-GAAP income from
operations as income (loss) from operations excluding share-based
compensation expense, amortization of intangible assets,
restructuring charges, acquisition-related compensation costs, and
the donation from Chegg Foundation; (3) non-GAAP income from
operations margin as non-GAAP income from operations divided by
total net revenues; (4) non-GAAP net income as net income (loss)
excluding share-based compensation expense, amortization of
intangible assets, restructuring charges, acquisition-related
compensation costs, amortization of debt discount and issuance
costs, and the donation from Chegg Foundation; (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. 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 Loss 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.
Restructuring charges.
Restructuring charges primarily relate the exit of Chegg’s print
coupon business, and Chegg's strategic partnership with the
National Research Center for College & University Admissions.
These restructuring 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 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 compensation
expense resulting from the employment retention of certain key
employees established in accordance with the terms of the Imagine
Easy, Cogeon GmbH, WriteLab, StudyBlue, and Thinkful 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 in
2019 and 2018. 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.
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. Chegg
considers free cash flow to be a liquidity measure that provides
useful information to management and investors about the amount of
cash generated by the business after the purchases of property and
equipment, which can then be used to, among other things, invest in
Chegg's business and make strategic acquisitions. A limitation of
the utility of free cash flow as a measure of financial performance
is that it does not represent the total increase or decrease in
Chegg's cash balance for the period.
Forward-Looking
Statements
This press release contains forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, which include, without limitation
statements regarding Chegg's continued momentum and 2020 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; 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, and Thinkful; Chegg’s
ability to strategically take advantage of new opportunities to
leverage the Student Graph; 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; the ability of our logistics partners to
manage the fulfillment processes; the effect of Chegg's transition
to using FedEx as its logistics partner; 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. 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 November
4, 2019 and Chegg's Annual Report on Form 10-K for the year ended
December 31, 2019 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, 2019
December 31, 2018
Assets
Current assets
Cash and cash equivalents
$
387,520
$
374,664
Short-term investments
381,074
93,345
Accounts receivable, net of allowance for
doubtful accounts of $56 and $229 at December 31, 2019 and December
31, 2018, respectively
11,529
12,733
Prepaid expenses
10,538
4,673
Other current assets
16,606
9,510
Total current assets
807,267
494,925
Long-term investments
310,483
16,052
Property and equipment, net
87,359
59,904
Goodwill
214,513
149,524
Intangible assets, net
34,667
25,915
Right of use assets
15,931
—
Other assets
18,778
14,618
Total assets
$
1,488,998
$
760,938
Liabilities and stockholders'
equity
Current liabilities
Accounts payable
$
7,362
$
8,177
Deferred revenue
18,780
17,418
Current operating lease liabilities
5,283
—
Accrued liabilities
39,964
34,077
Total current liabilities
71,389
59,672
Long-term liabilities
Convertible senior notes, net
900,303
283,668
Long-term operating lease liabilities
14,513
—
Other long-term liabilities
3,964
6,964
Total long-term liabilities
918,780
290,632
Total liabilities
990,169
350,304
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value –
10,000,000 shares authorized, no shares issued and outstanding at
December 31, 2019 and December 31, 2018
—
—
Common stock, $0.001 par value –
400,000,000 shares authorized; 121,583,501 and 115,500,418 shares
issued and outstanding at December 31, 2019 and December 31, 2018,
respectively
122
116
Additional paid-in capital
916,095
818,113
Accumulated other comprehensive loss
(1,096
)
(1,019
)
Accumulated deficit
(416,292
)
(406,576
)
Total stockholders' equity
498,829
410,634
Total liabilities and stockholders'
equity
$
1,488,998
$
760,938
CHEGG, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per
share amounts)
(unaudited)
Three Months Ended December
31,
Year Ended December
31,
2019
2018
2019
2018
Net revenues
$
125,504
$
95,676
$
410,926
$
321,084
Cost of revenues(1)
26,165
22,070
92,182
79,996
Gross profit
99,339
73,606
318,744
241,088
Operating expenses:
Research and development(1)
38,573
33,495
139,772
114,291
Sales and marketing(1)
16,235
12,251
63,569
54,714
General and administrative(1)
27,445
19,979
97,489
77,714
Restructuring charges
—
337
97
589
Total operating expenses
82,253
66,062
300,927
247,308
Income (loss) from operations
17,086
7,544
17,817
(6,220
)
Interest expense, net and other income,
net:
Interest expense, net
(13,557
)
(3,769
)
(44,851
)
(11,225
)
Other income, net
5,492
1,320
20,063
3,987
Total interest expense, net and other
income, net
(8,065
)
(2,449
)
(24,788
)
(7,238
)
Income (loss) before provision for
(benefit from) income taxes
9,021
5,095
(6,971
)
(13,458
)
Provision for (benefit from) income
taxes
802
(252
)
2,634
1,430
Net income (loss)
$
8,219
$
5,347
$
(9,605
)
$
(14,888
)
Net income (loss) per share:
Basic
0.07
0.05
(0.08
)
(0.13
)
Diluted
0.06
0.04
(0.08
)
(0.13
)
Weighted average shares used to compute
net income (loss) per share:
Basic
121,151
115,123
119,204
113,251
Diluted
129,150
125,610
119,204
113,251
(1) Includes share-based compensation
expense as follows:
Cost of revenues
$
131
$
117
$
426
$
420
Research and development
6,353
4,865
22,229
17,055
Sales and marketing
1,975
1,709
7,380
6,703
General and administrative
9,095
7,836
34,874
27,852
Total share-based compensation expense
$
17,554
$
14,527
$
64,909
$
52,030
CHEGG, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in thousands)
(unaudited)
Years Ended December
31,
2019
2018
Cash flows from operating activities
Net loss
$
(9,605
)
$
(14,888
)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization expense
30,247
22,805
Share-based compensation expense
64,909
52,030
Loss from write-offs of property and
equipment
1,009
93
Amortization of debt discount and issuance
costs
43,202
10,494
Deferred income taxes
(39
)
(323
)
Operating lease expense, net of
accretion
4,385
—
Other, net
(416
)
65
Change in assets and liabilities net of
effect of acquisition of businesses:
Accounts receivable
1,829
(1,538
)
Prepaid expenses and other current
assets
(12,930
)
(4,921
)
Other assets
(1,494
)
48
Accounts payable
(2,395
)
893
Deferred revenue
(1,682
)
3,978
Accrued liabilities
(206
)
3,838
Other liabilities
(3,411
)
2,539
Net cash provided by operating
activities
113,403
75,113
Cash flows from investing activities
Purchases of investments
(959,911
)
(146,856
)
Proceeds from sale of investments
53,261
1,800
Maturities of investments
324,700
138,380
Purchases of property and equipment
(42,326
)
(31,223
)
Acquisition of businesses, net of cash
acquired
(79,149
)
(34,650
)
Purchases of strategic equity
investment
—
(10,000
)
Net cash used in investing activities
(703,425
)
(82,549
)
Cash flows from financing activities
Common stock issued under stock plans,
net
35,100
29,116
Payment of taxes related to the net share
settlement of equity awards
(94,571
)
(49,089
)
Proceeds from issuance of convertible
senior notes, net of issuance costs
780,180
335,618
Purchase of convertible senior notes
capped call
(97,200
)
(39,227
)
Repurchase of common stock
(20,000
)
(20,000
)
Net cash provided by financing
activities
603,509
256,418
Net increase in cash, cash equivalents and
restricted cash
13,487
248,982
Cash, cash equivalents and restricted
cash, beginning of period
375,945
126,963
Cash, cash equivalents and restricted
cash, end of period
$
389,432
$
375,945
Years Ended December
31,
2019
2018
Supplemental cash flow data:
Cash paid during the period for:
Interest
$
1,332
$
605
Income taxes
$
2,070
$
2,097
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows from operating
leases
$
(5,297
)
$
—
Right of use assets obtained in exchange
for lease obligations:
Operating leases
$
3,364
$
—
Non-cash investing and financing
activities:
Accrued purchases of long-lived assets
$
10,036
$
1,210
Issuance of common stock related to prior
acquisition
$
3,003
$
—
December 31,
2019
2018
Reconciliation of cash, cash equivalents
and restricted cash:
Cash and cash equivalents
$
387,520
$
374,664
Restricted cash included in other current
assets
149
84
Restricted cash included in other
assets
1,763
1,197
Total cash, cash equivalents and
restricted cash
$
389,432
$
375,945
CHEGG, INC.
RECONCILIATION OF NET INCOME
(LOSS) TO EBITDA AND ADJUSTED EBITDA
(in thousands)
(unaudited)
Three Months Ended December
31,
Year Ended December
31,
2019
2018
2019
2018
Net income (loss)
$
8,219
$
5,347
$
(9,605
)
$
(14,888
)
Interest expense, net
13,557
3,769
44,851
11,225
Provision for (benefit from) income
taxes
802
(252
)
2,634
1,430
Depreciation and amortization expense
8,878
6,174
30,247
22,805
EBITDA
31,456
15,038
68,127
20,572
Share-based compensation expense
17,554
14,527
64,909
52,030
Other income, net
(5,492
)
(1,320
)
(20,063
)
(3,987
)
Restructuring charges
—
337
97
589
Acquisition-related compensation costs
3,478
6,239
10,466
14,096
Donation from Chegg Foundation
—
—
1,478
—
Adjusted EBITDA
$
46,996
$
34,821
$
125,014
$
83,300
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,
2019
2018
2019
2018
Net revenues
$
125,504
$
95,676
$
410,926
$
321,084
Operating expenses
$
82,253
$
66,062
$
300,927
$
247,308
Share-based compensation expense
(17,423
)
(14,410
)
(64,483
)
(51,610
)
Amortization of intangible assets
(2,489
)
(1,812
)
(7,482
)
(6,511
)
Restructuring charges
—
(337
)
(97
)
(589
)
Acquisition-related compensation costs
(3,478
)
(6,239
)
(10,466
)
(14,096
)
Donation from Chegg Foundation
—
—
(1,478
)
—
Non-GAAP operating expenses
$
58,863
$
43,264
$
216,921
$
174,502
Operating expenses as a percent of net
revenues
65.5
%
69.0
%
73.2
%
77.0
%
Non-GAAP operating expenses as a percent
of net revenues
46.9
%
45.2
%
52.8
%
54.3
%
Income (loss) from operations
$
17,086
$
7,544
$
17,817
$
(6,220
)
Share-based compensation expense
17,554
14,527
64,909
52,030
Amortization of intangible assets
2,489
1,812
7,482
6,511
Restructuring charges
—
337
97
589
Acquisition-related compensation costs
3,478
6,239
10,466
14,096
Donation from Chegg Foundation
—
—
1,478
—
Non-GAAP income from operations
$
40,607
$
30,459
$
102,249
$
67,006
Net income (loss)
$
8,219
$
5,347
$
(9,605
)
$
(14,888
)
Share-based compensation expense
17,554
14,527
64,909
52,030
Amortization of intangible assets
2,489
1,812
7,482
6,511
Restructuring charges
—
337
97
589
Acquisition-related compensation costs
3,478
6,239
10,466
14,096
Amortization of debt discount and issuance
costs
13,088
3,536
43,202
10,494
Donation from Chegg Foundation
—
—
1,478
—
Non-GAAP net income
$
44,828
$
31,798
$
118,029
$
68,832
Weighted average shares used to compute
net income (loss) per share
129,150
125,610
119,204
113,251
Effect of shares for stock plan
activity
—
—
7,094
11,992
Effect of shares related to convertible
senior notes
—
—
3,526
—
Non-GAAP weighted average shares used to
compute non-GAAP net income per share
129,150
125,610
129,824
125,243
Net income (loss) per share
0.06
0.04
(0.08
)
(0.13
)
Adjustments
0.29
0.21
0.99
0.68
Non-GAAP net income per share
$
0.35
$
0.25
$
0.91
$
0.55
CHEGG, INC.
RECONCILIATION OF NET CASH
PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(in thousands)
(unaudited)
Year Ended December
31,
2019
2018
Net cash provided by operating
activities
$
113,403
$
75,113
Purchases of property and equipment
(42,326
)
(31,223
)
Free cash flow
$
71,077
$
43,890
CHEGG, INC.
RECONCILIATION OF
FORWARD-LOOKING NET LOSS TO EBITDA AND ADJUSTED EBITDA
(in thousands)
(unaudited)
Three Months Ending March 31,
2020
Year Ending December 31,
2020
Net loss
$
(13,600
)
$
(9,400
)
Interest expense, net
13,400
53,900
Provision for income taxes
900
3,500
Textbook library depreciation expense
3,600
16,100
Other depreciation and amortization
expense
9,900
43,200
EBITDA
14,200
107,300
Textbook library depreciation expense
(3,600
)
(16,100
)
Share-based compensation expense
19,000
78,000
Other income, net
(5,500
)
(22,000
)
Acquisition-related compensation costs
3,900
15,800
Adjusted EBITDA*
$
28,000
$
163,000
* Adjusted EBITDA guidance for the three months ending March 31,
2020 and year ending December 31, 2020 represent the midpoint of
the ranges of $27.5 million to $28.5 million and $162 million to
$164 million, respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200210005659/en/
Media Contact: press@chegg.com
Investor Contact: Tracey Ford, IR@chegg.com
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