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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2020
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from _________ to _________
Commission file number 001-36180
CHEGG, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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20-3237489 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
3990 Freedom Circle
Santa Clara, CA, 95054
(Address of principal executive offices)
(408) 855-5700
(Registrant’s telephone number, including area code)
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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Common stock, $0.001 par value per share |
CHGG |
The New York Stock Exchange |
•Indicate
by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Exchange Act) during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject
to such filing requirements for the past
90 days. Yes x
No ¨
•Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes x
No ¨
•Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer |
x |
Accelerated filer |
☐ |
Non-accelerated filer
(Do not check if a smaller reporting company) |
☐ |
Smaller reporting company |
☐ |
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Emerging growth company |
☐ |
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•If
an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
¨
•Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange
Act). Yes ☐ No x
•As
of October 23, 2020, the Registrant had 128,810,888 outstanding
shares of Common Stock.
TABLE OF CONTENTS
Unless the context requires otherwise, the words “we,” “us,” “our,”
“Company,” and “Chegg” refer to Chegg, Inc. and its subsidiaries
taken as a whole.
Chegg, Chegg.com, Chegg Study, internships.com, Research Ready,
EasyBib, Thinkful, and the Chegg “C” logo, are some of our
trademarks used in this Quarterly Report on Form 10-Q. Solely for
convenience, our trademarks, trade names, and service marks
referred to in this Quarterly Report on Form 10-Q appear without
the
®,
™ and
SM
symbols, but those references are not intended to indicate, in any
way, that we will not assert, to the fullest extent under
applicable law, our rights to these trademarks and trade names.
Other trademarks appearing in this Quarterly Report on Form 10-Q
are the property of their respective holders.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements contained in this Quarterly
Report on Form 10-Q other than statements of historical fact,
including statements regarding our future results of operations and
financial position, our business strategy and plans, our objectives
for future operations, and the impact of the ongoing coronavirus
(COVID-19) pandemic on our financial condition and results of
operations are forward-looking statements. The words “believe,”
“may,” “will,” “would,” “could,” “estimate,” “continue,”
“anticipate,” “intend,” “project,” “endeavor,” “expect,” “plans
to,” “if,” “future,” “likely,” “potentially,” and similar
expressions are intended to identify forward-looking statements. We
have based these forward-looking statements largely on our current
expectations and projections about future events and trends that we
believe may affect our financial condition, results of operations,
business strategy, short-term and long-term business operations and
objectives, and financial needs. These forward-looking statements
are subject to a number of risks, uncertainties, and assumptions,
including those described in Part II, Item 1A, “Risk Factors”
in this Quarterly Report on Form 10-Q. Moreover, we operate in a
very competitive and rapidly changing environment. New risks emerge
from time to time, such as the COVID-19 global pandemic. Many of
the risks and uncertainties are currently elevated by, and may or
will continue to be elevated by, the current COVID-19 pandemic. It
is not possible for our management to predict all risks, nor can we
assess the impact of all factors on our business or the extent to
which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any
forward-looking statements we may make. In light of these risks,
uncertainties, and assumptions, the future events and trends
discussed in this Quarterly Report on Form 10-Q may not occur
and actual results could differ materially and adversely from those
anticipated or implied in the forward-looking statements. You
should read this Quarterly Report on Form 10-Q completely and with
the understanding that our actual future results may be materially
different from what we expect.
We undertake no obligation to revise or publicly release the
results of any revision to these forward-looking statements, except
as required by law. Given these risks and uncertainties, readers
are cautioned not to place undue reliance on such forward-looking
statements.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CHEGG, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for number of shares and par
value)
(unaudited)
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September 30, 2020 |
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December 31, 2019 |
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Assets |
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Current assets |
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Cash and cash equivalents |
$ |
527,541 |
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$ |
387,520 |
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Short-term investments |
723,327 |
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381,074 |
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Accounts receivable, net of allowance of $198 and $56 at
September 30, 2020 and December 31, 2019,
respectively
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12,487 |
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11,529 |
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Prepaid expenses |
15,082 |
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10,538 |
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Other current assets |
21,059 |
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16,606 |
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Total current assets |
1,299,496 |
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807,267 |
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Long-term investments |
521,261 |
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310,483 |
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Textbook library, net |
34,575 |
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— |
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Property and equipment, net |
113,058 |
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87,359 |
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Goodwill |
284,809 |
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214,513 |
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Intangible assets, net |
55,386 |
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34,667 |
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Right of use assets |
14,124 |
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15,931 |
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Other assets |
18,948 |
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18,778 |
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Total assets |
$ |
2,341,657 |
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$ |
1,488,998 |
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Liabilities and stockholders' equity |
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Current liabilities |
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Accounts payable |
$ |
5,838 |
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$ |
7,362 |
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Deferred revenue |
51,941 |
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18,780 |
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Current operating lease liabilities |
5,652 |
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5,283 |
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Accrued liabilities |
79,524 |
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39,964 |
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Total current liabilities |
142,955 |
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71,389 |
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Long-term liabilities |
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Convertible senior notes, net |
1,536,984 |
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900,303 |
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Long-term operating lease liabilities |
11,661 |
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14,513 |
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Other long-term liabilities |
4,665 |
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3,964 |
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Total long-term liabilities |
1,553,310 |
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918,780 |
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Total liabilities |
1,696,265 |
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990,169 |
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Commitments and contingencies |
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Stockholders' equity: |
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Preferred stock, 0.001 par value – 10,000,000 shares
authorized, no shares issued and outstanding
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Common stock, 0.001 par value 400,000,000 shares authorized;
128,654,401 and 121,583,501 shares issued and outstanding at
September 30, 2020 and December 31, 2019,
respectively
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129 |
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122 |
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Additional paid-in capital |
1,092,574 |
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916,095 |
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Accumulated other comprehensive income (loss) |
1,333 |
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(1,096) |
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Accumulated deficit |
(448,644) |
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(416,292) |
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Total stockholders' equity |
645,392 |
|
|
498,829 |
|
|
Total liabilities and stockholders' equity |
$ |
2,341,657 |
|
|
$ |
1,488,998 |
|
See Notes to Condensed Consolidated Financial
Statements.
CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
Nine Months Ended September 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Net revenues |
$ |
154,018 |
|
|
$ |
94,151 |
|
|
$ |
438,617 |
|
|
$ |
285,422 |
|
|
Cost of revenues |
62,370 |
|
|
22,164 |
|
|
148,284 |
|
|
66,017 |
|
|
Gross profit |
91,648 |
|
|
71,987 |
|
|
290,333 |
|
|
219,405 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development |
44,041 |
|
|
36,442 |
|
|
123,956 |
|
|
101,199 |
|
|
Sales and marketing |
24,625 |
|
|
16,822 |
|
|
60,621 |
|
|
47,334 |
|
|
General and administrative |
40,784 |
|
|
23,752 |
|
|
98,221 |
|
|
70,044 |
|
|
Restructuring charges |
— |
|
|
28 |
|
|
— |
|
|
97 |
|
|
Total operating expenses |
109,450 |
|
|
77,044 |
|
|
282,798 |
|
|
218,674 |
|
|
(Loss) income from operations |
(17,802) |
|
|
(5,057) |
|
|
7,535 |
|
|
731 |
|
|
Interest expense, net and other (expense) income, net: |
|
|
|
|
|
|
|
|
Interest expense, net |
(17,468) |
|
|
(13,548) |
|
|
(44,320) |
|
|
(31,294) |
|
|
|
|
|
|
|
|
|
|
Other (expense) income, net |
(804) |
|
|
7,751 |
|
|
7,396 |
|
|
14,571 |
|
|
Total interest expense, net and other (expense) income,
net |
(18,272) |
|
|
(5,797) |
|
|
(36,924) |
|
|
(16,723) |
|
|
Loss before provision for income taxes |
(36,074) |
|
|
(10,854) |
|
|
(29,389) |
|
|
(15,992) |
|
|
Provision for income taxes |
1,066 |
|
|
623 |
|
|
2,875 |
|
|
1,832 |
|
|
Net loss |
$ |
(37,140) |
|
|
$ |
(11,477) |
|
|
$ |
(32,264) |
|
|
$ |
(17,824) |
|
|
Net loss per share, basic and diluted |
$ |
(0.29) |
|
|
$ |
(0.10) |
|
|
$ |
(0.26) |
|
|
$ |
(0.15) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute net loss per share, basic
and diluted |
126,194 |
|
|
120,085 |
|
|
124,162 |
|
|
118,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial
Statements.
CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
Nine Months Ended September 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Net loss |
$ |
(37,140) |
|
|
$ |
(11,477) |
|
|
$ |
(32,264) |
|
|
$ |
(17,824) |
|
|
Other comprehensive (loss) income |
|
|
|
|
|
|
|
|
Change in net unrealized (loss) gain on available for sale
investments, net of tax |
(1,642) |
|
|
(73) |
|
|
1,922 |
|
|
379 |
|
|
Change in foreign currency translation adjustments, net of
tax |
1,125 |
|
|
(1,067) |
|
|
507 |
|
|
(1,118) |
|
|
Other comprehensive (loss) income |
(517) |
|
|
(1,140) |
|
|
2,429 |
|
|
(739) |
|
|
Total comprehensive loss |
$ |
(37,657) |
|
|
$ |
(12,617) |
|
|
$ |
(29,835) |
|
|
$ |
(18,563) |
|
See Notes to Condensed Consolidated Financial
Statements.
CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Par
Value |
|
Additional Paid-In
Capital |
|
Accumulated Other Comprehensive Income (Loss) |
|
Accumulated
Deficit |
|
Total Stockholders’ Equity |
|
Balances at June 30, 2020 |
124,123 |
|
|
$ |
124 |
|
|
$ |
907,908 |
|
|
$ |
1,850 |
|
|
$ |
(411,504) |
|
|
$ |
498,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity component of 2026 convertible senior notes, net of issuance
costs |
— |
|
|
— |
|
|
237,462 |
|
|
— |
|
|
— |
|
|
237,462 |
|
|
Purchase of 2026 convertible senior notes capped call |
— |
|
|
— |
|
|
(103,400) |
|
|
— |
|
|
— |
|
|
(103,400) |
|
|
Equity component related to conversions of 2023 convertible senior
notes |
— |
|
|
— |
|
|
(345,552) |
|
|
— |
|
|
— |
|
|
(345,552) |
|
|
Issuance of common stock upon conversion of 2023 convertible senior
notes |
4,182 |
|
|
4 |
|
|
327,137 |
|
|
— |
|
|
— |
|
|
327,141 |
|
|
Proceeds from capped call related to conversions of 2023
convertible senior notes |
— |
|
|
— |
|
|
57,414 |
|
|
— |
|
|
— |
|
|
57,414 |
|
|
Issuance of common stock upon exercise of stock options and
ESPP |
106 |
|
|
1 |
|
|
1,196 |
|
|
— |
|
|
— |
|
|
1,197 |
|
|
Net issuance of common stock for settlement of equity
awards |
243 |
|
|
— |
|
|
(11,120) |
|
|
— |
|
|
— |
|
|
(11,120) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
— |
|
|
— |
|
|
21,529 |
|
|
— |
|
|
— |
|
|
21,529 |
|
|
Other comprehensive loss |
— |
|
|
— |
|
|
— |
|
|
(517) |
|
|
— |
|
|
(517) |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(37,140) |
|
|
(37,140) |
|
|
Balances at September 30, 2020
|
128,654 |
|
|
$ |
129 |
|
|
$ |
1,092,574 |
|
|
$ |
1,333 |
|
|
$ |
(448,644) |
|
|
$ |
645,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Par
Value |
|
Additional Paid-In
Capital |
|
Accumulated Other Comprehensive Income (Loss) |
|
Accumulated
Deficit |
|
Total Stockholders’ Equity |
|
Balances at June 30, 2019 |
119,336 |
|
|
$ |
119 |
|
|
$ |
873,104 |
|
|
$ |
(618) |
|
|
$ |
(413,034) |
|
|
$ |
459,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options and
ESPP |
991 |
|
|
1 |
|
|
11,673 |
|
|
— |
|
|
— |
|
|
11,674 |
|
|
Net issuance of common stock for settlement of equity
awards |
319 |
|
|
1 |
|
|
(8,825) |
|
|
— |
|
|
— |
|
|
(8,824) |
|
|
Issuance of common stock in connection with prior
acquisition |
23 |
|
|
— |
|
|
1,843 |
|
|
— |
|
|
— |
|
|
1,843 |
|
|
Share-based compensation expense |
— |
|
|
— |
|
|
16,865 |
|
|
— |
|
|
— |
|
|
16,865 |
|
|
Other comprehensive loss |
— |
|
|
— |
|
|
— |
|
|
(1,140) |
|
|
— |
|
|
(1,140) |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(11,477) |
|
|
(11,477) |
|
|
Balances at September 30, 2019
|
120,669 |
|
|
$ |
121 |
|
|
$ |
894,660 |
|
|
$ |
(1,758) |
|
|
$ |
(424,511) |
|
|
$ |
468,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Par
Value |
|
Additional Paid-In
Capital |
|
Accumulated Other Comprehensive Income (Loss) |
|
Accumulated
Deficit |
|
Total Stockholders’ Equity |
|
Balances at December 31, 2019 |
121,584 |
|
|
$ |
122 |
|
|
$ |
916,095 |
|
|
$ |
(1,096) |
|
|
$ |
(416,292) |
|
|
$ |
498,829 |
|
|
Cumulative-effect adjustment to accumulated deficit related to
adoption of
ASU 2016-13
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(88) |
|
|
(88) |
|
|
Equity component of 2026 convertible senior notes, net of issuance
costs |
— |
|
|
— |
|
|
237,462 |
|
|
— |
|
|
— |
|
|
237,462 |
|
|
Purchase of 2026 convertible senior notes capped call |
— |
|
|
— |
|
|
(103,400) |
|
|
— |
|
|
— |
|
|
(103,400) |
|
|
Equity component related to conversions of 2023 convertible senior
notes |
— |
|
|
— |
|
|
(345,552) |
|
|
— |
|
|
— |
|
|
(345,552) |
|
|
Issuance of common stock upon conversion of 2023 convertible senior
notes |
4,182 |
|
|
4 |
|
|
327,137 |
|
|
— |
|
|
— |
|
|
327,141 |
|
|
Proceeds from capped call related to conversions of 2023
convertible senior notes |
— |
|
|
— |
|
|
57,414 |
|
|
— |
|
|
— |
|
|
57,414 |
|
|
Issuance of common stock upon exercise of stock options and
ESPP |
778 |
|
|
1 |
|
|
9,233 |
|
|
— |
|
|
— |
|
|
9,234 |
|
|
Net issuance of common stock for settlement of equity
awards |
2,110 |
|
|
2 |
|
|
(65,224) |
|
|
— |
|
|
— |
|
|
(65,222) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
— |
|
|
— |
|
|
59,409 |
|
|
— |
|
|
— |
|
|
59,409 |
|
|
Other comprehensive income |
— |
|
|
— |
|
|
— |
|
|
2,429 |
|
|
— |
|
|
2,429 |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(32,264) |
|
|
(32,264) |
|
|
Balances at September 30, 2020
|
128,654 |
|
|
$ |
129 |
|
|
$ |
1,092,574 |
|
|
$ |
1,333 |
|
|
$ |
(448,644) |
|
|
$ |
645,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Par
Value |
|
Additional Paid-In
Capital |
|
Accumulated Other Comprehensive Income (Loss) |
|
Accumulated
Deficit |
|
Total Stockholders’ Equity |
|
Balances at December 31, 2018 |
115,500 |
|
|
$ |
116 |
|
|
$ |
818,113 |
|
|
$ |
(1,019) |
|
|
$ |
(406,576) |
|
|
$ |
410,634 |
|
|
Cumulative-effect adjustment to accumulated deficit related to
adoption of
ASU 2016-02
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(111) |
|
|
(111) |
|
|
Equity component of 2026 convertible senior notes, net of issuance
costs |
— |
|
|
— |
|
|
206,747 |
|
|
— |
|
|
— |
|
|
206,747 |
|
|
Purchase of convertible senior notes capped call |
— |
|
|
— |
|
|
(97,200) |
|
|
— |
|
|
— |
|
|
(97,200) |
|
|
Repurchase of common stock |
(504) |
|
|
(1) |
|
|
(19,999) |
|
|
— |
|
|
— |
|
|
(20,000) |
|
|
Issuance of common stock upon exercise of stock options and
ESPP |
2,545 |
|
|
3 |
|
|
27,717 |
|
|
— |
|
|
— |
|
|
27,720 |
|
|
Net issuance of common stock for settlement of equity
awards |
3,064 |
|
|
3 |
|
|
(91,076) |
|
|
— |
|
|
— |
|
|
(91,073) |
|
|
Issuance of common stock in connection with prior
acquisition |
64 |
|
|
— |
|
|
3,003 |
|
|
— |
|
|
— |
|
|
3,003 |
|
|
Share-based compensation expense |
— |
|
|
— |
|
|
47,355 |
|
|
— |
|
|
— |
|
|
47,355 |
|
|
Other comprehensive loss |
— |
|
|
— |
|
|
— |
|
|
(739) |
|
|
— |
|
|
(739) |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(17,824) |
|
|
(17,824) |
|
|
Balances at September 30, 2019
|
120,669 |
|
|
$ |
121 |
|
|
$ |
894,660 |
|
|
$ |
(1,758) |
|
|
$ |
(424,511) |
|
|
$ |
468,512 |
|
See Notes to Condensed Consolidated Financial
Statements.
CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
2020 |
|
2019 |
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
Net loss |
$ |
(32,264) |
|
|
$ |
(17,824) |
|
|
|
|
Adjustments to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
Print textbook depreciation expense |
10,699 |
|
|
— |
|
|
|
|
Other depreciation and amortization expense |
33,088 |
|
|
21,369 |
|
|
|
|
Share-based compensation expense |
59,409 |
|
|
47,355 |
|
|
|
|
Amortization of debt discount and issuance costs |
42,910 |
|
|
30,114 |
|
|
|
|
Repayment of convertible senior notes attributable to debt
discount |
(14,912) |
|
|
— |
|
|
|
|
Loss on early extinguishment of debt |
3,315 |
|
|
— |
|
|
|
|
Loss from write-off of property and equipment |
1,057 |
|
|
832 |
|
|
|
|
Loss from impairment of strategic equity investment |
10,000 |
|
|
— |
|
|
|
|
Gain on textbook library, net |
(2,028) |
|
|
— |
|
|
|
|
Deferred income taxes |
(17) |
|
|
59 |
|
|
|
|
Operating lease expense, net of accretion |
3,400 |
|
|
3,284 |
|
|
|
|
Other non-cash items |
(85) |
|
|
(370) |
|
|
|
|
Change in assets and liabilities, net of effect of acquisition of
business: |
|
|
|
|
|
|
Accounts receivable |
106 |
|
|
(850) |
|
|
|
|
Prepaid expenses and other current assets |
(6,178) |
|
|
(20,741) |
|
|
|
|
Other assets |
(2,638) |
|
|
1,989 |
|
|
|
|
Accounts payable |
(1,634) |
|
|
(3,983) |
|
|
|
|
Deferred revenue |
32,239 |
|
|
10,039 |
|
|
|
|
Accrued liabilities |
34,276 |
|
|
18,095 |
|
|
|
|
Other liabilities |
(2,088) |
|
|
(2,793) |
|
|
|
|
Net cash provided by operating activities |
168,655 |
|
|
86,575 |
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
Purchases of property and equipment |
(57,457) |
|
|
(31,520) |
|
|
|
|
Purchases of textbooks |
(49,641) |
|
|
— |
|
|
|
|
Proceeds from disposition of textbooks |
7,012 |
|
|
— |
|
|
|
|
Purchases of investments |
(968,106) |
|
|
(822,869) |
|
|
|
|
Proceeds from sale of investments |
— |
|
|
53,261 |
|
|
|
|
Maturities of investments |
412,046 |
|
|
190,744 |
|
|
|
|
Purchase of strategic equity investment |
(2,000) |
|
|
— |
|
|
|
|
Acquisition of business, net of cash acquired |
(92,796) |
|
|
— |
|
|
|
|
Net cash used in investing activities |
(750,942) |
|
|
(610,384) |
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
Proceeds from common stock issued under stock plans,
net |
9,236 |
|
|
27,723 |
|
|
|
|
Payment of taxes related to the net share settlement of equity
awards |
(65,224) |
|
|
(91,076) |
|
|
|
|
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 |
(159,677) |
|
|
— |
|
|
|
|
Proceeds from exercise of convertible senior notes capped
call |
57,414 |
|
|
— |
|
|
|
|
Repurchase of common stock |
— |
|
|
(20,000) |
|
|
|
|
Net cash provided by financing activities |
722,445 |
|
|
599,627 |
|
|
|
|
Net increase in cash, cash equivalents and restricted
cash |
140,158 |
|
|
75,818 |
|
|
|
|
Cash, cash equivalents and restricted cash, beginning of
period |
389,432 |
|
|
375,945 |
|
|
|
|
Cash, cash equivalents and restricted cash, end of
period |
$ |
529,590 |
|
|
$ |
451,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
2020 |
|
2019 |
|
|
|
Supplemental cash flow data: |
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
Interest |
$ |
1,546 |
|
|
$ |
901 |
|
|
|
|
Income taxes |
$ |
2,450 |
|
|
$ |
1,492 |
|
|
|
|
Cash paid for amounts included in the measurement of lease
liabilities: |
|
|
|
|
|
|
Operating cash flows from operating leases |
$ |
5,174 |
|
|
$ |
3,847 |
|
|
|
|
Right of use assets obtained in exchange for lease
obligations: |
|
|
|
|
|
|
Operating leases |
$ |
1,713 |
|
|
$ |
2,638 |
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
Accrued purchases of long-lived assets |
$ |
6,102 |
|
|
$ |
4,452 |
|
|
|
|
Accrued escrow related to acquisition |
$ |
7,451 |
|
|
$ |
— |
|
|
|
|
Issuance of common stock related to prior acquisition |
$ |
— |
|
|
$ |
3,003 |
|
|
|
|
Issuance of common stock related to repayment of convertible senior
notes |
$ |
327,141 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
2020 |
|
2019 |
|
|
|
Reconciliation of cash, cash equivalents and restricted
cash: |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
527,541 |
|
|
$ |
450,457 |
|
|
|
|
Restricted cash included in other current assets |
313 |
|
|
125 |
|
|
|
|
Restricted cash included in other assets |
1,736 |
|
|
1,181 |
|
|
|
|
Total cash, cash equivalents and restricted cash |
$ |
529,590 |
|
|
$ |
451,763 |
|
|
|
See Notes to Condensed Consolidated Financial
Statements.
CHEGG, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Background and Basis of Presentation
Company and Background
Chegg, Inc. (Chegg, the Company, we, us, or our), headquartered in
Santa Clara, California, was incorporated as a Delaware corporation
in July 2005. 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.
Basis of Presentation
The accompanying condensed consolidated balance sheet as
of September 30, 2020, the condensed consolidated
statements of operations, the condensed consolidated statements of
comprehensive loss, and the condensed consolidated statements of
stockholder's equity for the three and nine months ended September
30, 2020 and 2019, and the condensed consolidated statements of
cash flows for the nine months ended September 30,
2020 and 2019, and the related footnote disclosures are
unaudited. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments, including normal recurring adjustments, necessary to
present fairly our financial position as of September 30,
2020, our results of operations, results of comprehensive loss, and
stockholder's equity for the three and nine months ended September
30, 2020 and 2019, and cash flows for the nine months
ended September 30, 2020 and 2019. Our results of
operations, results of comprehensive loss, stockholder's equity,
and cash flows for the nine months
ended September 30, 2020 are not necessarily
indicative of the results to be expected for the full
year.
We operate in a single segment. Our fiscal year ends on
December 31 and in this report we refer to the year
ended December 31, 2019 as 2019.
The condensed consolidated financial statements and related
financial information should be read in conjunction with the
audited consolidated financial statements and the related notes
thereto that are included in our Annual Report on Form 10-K for the
year ended December 31, 2019 (the Annual Report on
Form 10-K) filed with the U.S. Securities and Exchange Commission
(SEC).
Except for our policies on investments, textbook library,
convertible senior notes, net, revenue recognition and deferred
revenue, and cost of revenues, there have been no material changes
to our significant accounting policies as compared to the
significant accounting policies described in our Annual Report on
Form 10-K.
Investments
We hold investments in commercial paper, corporate debt securities,
U.S. treasury securities, and agency bonds. We classify our
investments as available-for-sale based on the nature of each
security that are either short or long-term based on the remaining
contractual maturity of the investment. Our available-for-sale
investments are carried at estimated fair value with any unrealized
gains and losses unrelated to credit loss factors, net of taxes,
included in other comprehensive (loss) income in our condensed
consolidated statements of stockholders’ equity. Beginning in 2020,
unrealized losses related to credit loss factors are now recorded
through an allowance for credit losses in other (expense) income,
net in our condensed consolidated statements of operations, rather
than as a reduction to the amortized cost basis in other
comprehensive (loss) income, when a decline in fair value has
resulted from a credit loss. We determine realized gains or losses
on the sale of investments on a specific identification method, and
record such gains or losses as other (expense) income, net in our
condensed consolidated statements of operations.
Textbook Library
Beginning in January 2020, we began our transition back to print
textbook ownership by purchasing print textbooks to establish our
textbook library. We consider our print textbook library to be a
long-term productive asset and, as such, classify it as a
non-current asset in our condensed consolidated balance sheets. All
print textbooks in our textbook library are stated at cost, which
includes the purchase price less accumulated depreciation. We write
down textbooks on a book-by-book basis for lost, damaged, or excess
print textbooks.
We depreciate our print textbooks, less an estimated salvage value,
over an estimated useful life of four years using an accelerated
method of depreciation, as we estimate this method most accurately
reflects the actual pattern of decline in their economic value. The
salvage value considers the historical trend and projected proceeds
for print textbooks. The useful life is determined based on the
estimated time period in which the print textbooks are held and
rented. We review the estimated salvage value and useful life of
our print textbook library on an ongoing basis.
Write-downs for print textbooks, print textbook depreciation
expense, the gain or loss on print textbooks liquidated, and the
net book value of print textbooks purchased by students at the end
of the term or on a just-in-time basis are recorded in cost of
revenues in our condensed consolidated statements of operations and
classified as adjustments to cash flows from operating activities.
Cash outflows for the acquisition of print textbooks net of changes
in related accounts payable and accrued liabilities, and cash
inflows received from the proceeds from the disposition of print
textbooks net of changes in related accounts receivable, are
classified as cash flows from investing activities in our condensed
consolidated statements of cash flows.
As of September 30, 2020, our net print textbook library of
$34.6 million consisted of gross print textbook library of
approximately $44.8 million net of accumulated depreciation and
write-downs of approximately $9.2 million and $1.0 million,
respectively.
During the three and nine months ended September 30, 2020,
print textbook depreciation expense was approximately
$3.6 million and $10.7 million, respectively, and our net gain
on textbook library was approximately $0.6 million and $2.0
million, respectively.
Convertible Senior Notes, net
In August 2020, we issued $1.0 billion in aggregate principal
amount of 0% convertible senior notes due in 2026 (2026 notes). In
March 2019, we issued $700 million in aggregate principal amount
of 0.125% convertible senior notes due in 2025 (2025
notes) and in April 2019, the initial purchasers fully exercised
their option to purchase $100 million of additional 2025 notes for
aggregate total gross proceeds of $800 million. In April 2018, we
issued $345 million in aggregate principal amount
of 0.25% convertible senior notes due in 2023 (2023
notes). Collectively, the 2026 notes, 2025 notes, and the 2023
notes are referred to as the “notes.” In accounting for their
issuance, we separated the notes into liability and equity
components, as the notes represent convertible instruments with a
cash conversion feature. The carrying amount of the liability
component was calculated by measuring the fair value of similar
liabilities that do not have an associated convertible feature. The
carrying amount of the equity component representing the conversion
option was determined by deducting the carrying amount of the
liability component from the par value of the notes. The difference
represents the debt discount, recorded as a reduction of the
convertible senior notes on our consolidated balance sheet, and is
amortized to interest expense over the term of the notes using the
effective interest rate method. The carrying amount of the
liability component is classified as a long-term liability as we
have the election to settle conversion requests in shares of our
common stock. The carrying amount of the equity component is not
remeasured as long as it continues to meet the conditions for
equity classification. In accounting for the issuance costs related
to the notes, we allocated the total amount of issuance costs
incurred to liability and equity components based on their relative
values. Issuance costs attributable to the liability component are
being amortized on a straight-line basis, which approximates the
effective interest rate method, to interest expense over the term
of the notes. The issuance costs attributable to the equity
component are recorded as a reduction of the equity component
within additional paid-in capital. In accounting for extinguishment
of the notes, we allocated the consideration transferred between
the liability and equity components in a similar manner as upon
issuance. The liability component for extinguished notes is then
compared to the carrying amount of the respective extinguished
notes and a gain or loss is recorded in other (expense) income, net
in our condensed consolidated statements of
operations.
Revenue Recognition and Deferred Revenue
We recognize revenues when the control of goods or services is
transferred to our customers, in an amount that reflects the
consideration we expect to be entitled to in exchange for those
goods or services. Revenues are presented net of sales tax
collected from customers to be remitted to governmental authorities
and net of allowances for estimated cancellations and customer
returns, which are based on historical data. Customer refunds from
cancellations and returns are recorded as a reduction to
revenues.
We determine revenue recognition through the following
steps:
•Identification
of the contract, or contracts, with a customer
•Identification
of the performance obligations in the contract
•Determination
of the transaction price
•Allocation
of the transaction price to the performance obligations in the
contract
•Recognition
of revenue when, or as, we satisfy a performance
obligation
We generate revenues from our Chegg Services product line which
primarily includes Chegg Study, Chegg Writing, Chegg Tutors, Chegg
Math Solver, Thinkful, and Mathway. Revenues from Chegg Study,
Chegg Writing, Chegg Tutors, Chegg Math Solver, and Mathway are
primarily recognized ratably over the respective weekly or monthly
subscription period. Revenues from Thinkful, our skills-based
learning platform, are recognized either ratably over the term of
the course, generally six months, or upon completion of the
lessons, depending on the instruction type of the
course.
Revenues from our
Required Materials product line includes revenues from print
textbooks that we own or that are owned by a partner as well as
revenues from eTextbooks. Beginning in 2020, our Required Materials
product line includes operating leases with students for the rental
of print textbooks that we own. Operating lease income is
recognized as the total transaction amount, paid upon commencement
of the lease, ratably over the lease term which is generally a
two- to five-month lease period. Students generally have the
option to extend the term of their rental or purchase the print
textbook at the end of the term otherwise the print textbook is
returned to our print textbook library for future rental. If a
student chooses to purchase or not return the print textbook at the
end of their rental term, we charge the student for the book and
recognize the revenues immediately. Additionally, we provide
students the ability to purchase print textbooks on a just-in-time
basis and recognize revenues immediately upon shipment. Revenues
from print textbooks owned by a partner are recognized as a revenue
share on the total transactional amount of a rental or sale
transaction immediately when a print textbook ships to a student.
Shipping and handling activities are expensed as incurred. Revenues
from eTextbooks are recognized ratably over the contractual period,
generally a
two- to five-month period.
Some of our customer arrangements include multiple performance
obligations. We have determined these performance obligations
qualify as distinct performance obligations, as the customer can
benefit from the service on its own or together with other
resources that are readily available to the customer, and our
promise to transfer the service is separately identifiable from
other promises in the contract. For these arrangements that contain
multiple performance obligations, we allocate the transaction price
based on the relative standalone selling price (SSP) method by
comparing the SSP of each distinct performance obligation to the
total value of the contract. We determine the SSP based on our
historical pricing and discounting practices for the distinct
performance obligation when sold separately. If the SSP is not
directly observable, we estimate the SSP by considering information
such as market conditions, and information about the customer.
Additionally, we limit the amount of revenues recognized for
delivered promises to the amount that is not contingent on future
delivery of services or other future performance
obligations.
Some of our customer arrangements may include an amount of variable
consideration in addition to a fixed revenue share that we earn.
This variable consideration can either increase or decrease the
total transaction price depending on the nature of the variable
consideration. We estimate the amount of variable consideration
that we will earn at the inception of the contract, adjusted during
each period, and include an estimated amount each
period.
For sales of third-party products, we evaluate whether we are
acting as a principal or an agent, and therefore would record the
gross sales amount as revenues and related costs or the net amount
earned as a revenue share from the sale of third-party products.
Our determination is based on our evaluation of whether we control
the specified goods or services prior to transferring them to the
customer. In relation to print textbooks owned by a partner, we
recognize revenues on a net basis based on our role in the
transaction as an agent as we have concluded that we do not control
the use of the print textbooks, and therefore record only the net
revenue share we earn. We have concluded that we control our Chegg
Services, print textbooks that we own for rental, purchase at the
end of the rental term, or sale on a just-in-time basis, and
eTextbook service and therefore we recognize revenues and cost of
revenues on a gross basis.
Contract assets are contained within other current assets and other
assets on our condensed consolidated balance sheets. Contract
assets represent the goods or services that we have transferred to
a customer before invoicing the customer. Contract receivables are
contained within accounts receivable, net on our condensed
consolidated balance sheets and represent unconditional
consideration that will be received solely due to the passage of
time. Contract liabilities are contained within deferred revenue on
our condensed consolidated balance sheets. Deferred revenue
primarily consists of advanced payments from students related to
rental and subscription performance obligations that have not been
satisfied and estimated variable consideration. Deferred revenue
related to rental and subscription performance obligations is
recognized as revenues ratably over the term for subscriptions or
when the services are provided and all other revenue recognition
criteria have been met. Deferred revenue related to variable
consideration is recognized as revenues during each reporting
period based on the estimated amount we believe we will earn over
the life of the contract.
We have elected a practical expedient to
record incremental costs to obtain or fulfill a contract when the
amortization period would have been one year or less as incurred.
These incremental costs primarily relate to sales commissions costs
and are recorded in sales and marketing expense in our condensed
consolidated statements of operations.
Cost of Revenues
Our cost of revenues consists primarily of expenses associated with
the delivery and distribution of our products and services. Cost of
revenues primarily consists of publisher content fees for
eTextbooks, content amortization expense related to content that we
develop, licenses from publishers for which we pay one-time license
fees, or acquire through acquisitions, write-downs for print
textbooks, the gain or loss on print textbooks liquidated, the net
book value of print textbooks purchased by students at the end of
the term or on a just-in-time basis, print textbook depreciation
expense, payment processing costs, the payments made to tutors
through our Chegg Tutors service, personnel costs and other direct
costs related to providing products or services. In addition, cost
of revenues includes allocated information technology and
facilities costs.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States
requires management to make estimates, judgments, and assumptions
that affect the reported amounts of assets and liabilities; the
disclosure of contingent liabilities at the date of the financial
statements; and the reported amounts of revenues and expenses
during the reporting periods. Significant estimates, assumptions,
and judgments are used for, but not limited to: revenue
recognition, recoverability of accounts receivable, share-based
compensation expense including estimated forfeitures, accounting
for income taxes, textbook library, useful lives assigned to
long-lived assets for depreciation and amortization, impairment of
goodwill and long-lived assets, the valuation of acquired
intangible assets, the valuation of our convertible senior notes,
internal-use software and website development costs, operating
lease right of use (ROU) assets, and operating lease liabilities.
We base our estimates on historical experience, knowledge of
current business conditions, and various other factors we believe
to be reasonable under the circumstances. These estimates are based
on management’s knowledge about current events and expectations
about actions we may undertake in the future. Actual results could
differ from these estimates, and such differences could be material
to our financial position and results of operations.
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet
Adopted
In August 2020, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) 2020-06,
Accounting for Convertible Instruments and Contracts in an Entity's
Own Equity.
ASU 2020-06 simplifies the guidance in Accounting Standards
Codification (ASC) 470-20,
Debt - Debt with Conversion and Other Options,
by reducing the number of accounting separation models for
convertible instruments, amends the guidance in ASC 815-40,
Derivatives and Hedging - Contracts in Entity's Own Equity,
for certain contracts in an entity's own equity that are currently
accounted for as derivatives, and requires entities to use the
if-converted method for all convertible instruments in the diluted
earnings per share (EPS) calculation. Early adoption is permitted,
but no earlier than annual periods beginning after December 15,
2020, and the guidance allows for a modified retrospective or fully
retrospective method of transition. We currently plan to adopt the
guidance on January 1, 2021. At this time, we are continuing to
refine the quantitative impact of early adopting this guidance and
we initially believe the most significant impacts will be an
increase in liabilities on our condensed consolidated balance
sheets as a result of removing the accounting separation model for
convertible instruments with a cash conversion feature, a
significant reduction of non-cash interest expense on our condensed
consolidated statements of operations, and an increase in the
number of shares included in our diluted EPS calculations. We will
continue to evaluate the impacts of this guidance, including method
of transition, as we near our adoption date.
In March 2020, the FASB issued ASU 2020-04,
Facilitation of the Effects of Reference Rate Reform on Financial
Reporting.
ASU 2020-04 provides temporary optional expedients and exceptions
for applying reference rate reform to contracts, hedging
relationships, and other transactions affected by reference rate
reform if certain criteria are met. The guidance can be applied
immediately and only applies to contract modifications made or
hedging relationships entered into or evaluated before December 31,
2022. While we do not have any hedging relationships and currently
do not believe we have material contracts impacted by reference
rate reform, we are in the process of evaluating the impact of this
guidance.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes.
ASU 2019-12 key changes include hybrid tax regimes, intraperiod tax
allocation exception, and interim-period accounting for enacted
changes in tax law. We early adopted ASU 2019-12 during the second
quarter of 2020 under the prospective method of adoption. As a
result of adoption, there was no modification required to the first
quarter of 2020 results of operations as previously
presented.
The FASB issued four ASUs related to ASC 326,
Financial Instruments - Credit Losses.
In November 2019, the FASB issued ASU 2019-11,
Codification Improvements to Topic 326, Financial Instruments -
Credit Losses.
In May 2019, the FASB issued ASU 2019-05,
Financial Instruments—Credit Losses (Topic 326): Targeted
Transition Relief.
In April 2019, the FASB issued ASU 2019-04,
Codification Improvements to Topic 326, Financial
Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and
Topic 825, Financial Instruments.
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments.
On January 1, 2020, we adopted ASC 326, which replaces the existing
incurred loss impairment model for financial assets, including
trade receivables, with an expected loss model which requires the
use of forward-looking information to calculate expected credit
loss estimates. Additionally, the concept of other-than-temporary
impairment for available-for-sale investments is eliminated and
instead requires us to focus on determining whether any unrealized
loss is a result of a credit loss or other factors. We adopted ASC
326 under the modified retrospective method for all financial
assets measured at amortized cost. Results for reporting periods
beginning after adoption are presented under ASC 326 while we have
not changed previously disclosed amounts or provided additional
disclosures for comparative periods. We recorded an immaterial
cumulative-effect adjustment to trade receivables to the opening
balance of accumulated deficit in our condensed consolidated
balance sheet. We adopted ASC 326 under the prospective transition
approach for available-for-sale investments which resulted in no
change to amortized cost basis before and after adoption. Credit
losses related to available-for-sale investments will now be
recorded through an allowance for credit losses with immediate
recognition to our condensed consolidated statement of operations
rather than as a reduction to the amortized cost basis and
recognition to our condensed consolidated statements of
comprehensive loss. See above within Note 1, “Background and Basis
of Presentation”, for updates to our significant accounting
policies impacted by our adoption of ASC 326 as well as Note 4,
“Cash and Cash Equivalents, and Investments” for more
information.
In August 2018, the FASB issued ASU
2018-15, Intangibles—Goodwill
and Other—Internal-Use Software (Subtopic 350-40): Customer's
Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That Is a Service Contract.
ASU 2018-15 aligns the requirements for capitalizing implementation
costs incurred in a hosting arrangement that is a service contract
with existing guidance contained within subtopic 350-40 to develop
or obtain internal-use software. We adopted ASU 2018-15 on January
1, 2020 under the prospective method of adoption.
Note 2. Revenues
Revenue Recognition
Revenues are recognized when control of the promised goods or
services is transferred to our customers, in an amount that
reflects the consideration we expect to be entitled to in exchange
for those goods or services. The majority of our revenues are
recognized over time as services are performed, with certain
revenues, most significantly the revenue share we earn from our
print textbook partners, being recognized at the point in time when
print textbooks are shipped to students.
The following tables set forth our total net revenues for the
periods shown disaggregated for our Chegg Services and Required
Materials product lines (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
Change |
|
|
|
|
2020 |
|
2019 |
|
|
|
$ |
|
% |
|
Chegg Services |
$ |
118,895 |
|
|
$ |
69,304 |
|
|
|
|
$ |
49,591 |
|
|
72 |
% |
|
Required Materials |
35,123 |
|
|
24,847 |
|
|
|
|
10,276 |
|
|
41 |
|
|
Total net revenues |
$ |
154,018 |
|
|
$ |
94,151 |
|
|
|
|
$ |
59,867 |
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
Change |
|
|
|
|
2020 |
|
2019 |
|
|
|
$ |
|
% |
|
Chegg Services |
$ |
345,258 |
|
|
$ |
224,903 |
|
|
|
|
$ |
120,355 |
|
|
54 |
% |
|
Required Materials |
93,359 |
|
|
60,519 |
|
|
|
|
32,840 |
|
|
54 |
|
|
Total net revenues |
$ |
438,617 |
|
|
$ |
285,422 |
|
|
|
|
$ |
153,195 |
|
|
54 |
|
During the three and nine months ended September 30, 2020, we
recognized $25.4 million and $18.0 million, respectively, of
revenues that were included in our deferred revenue balance at the
beginning of each reporting period. During the three and nine
months ended September 30, 2019, we recognized $15.7 million
and $16.0 million, respectively, of revenues that were
included in our deferred revenue balance at the beginning of each
reporting period. During the three and nine months ended September
30, 2020, we recognized an immaterial amount of previously deferred
revenues recognized from performance obligations satisfied in
previous periods. During the three and nine months ended September
30, 2019, we recognized $2.2 million and $2.7 million,
respectively, of previously deferred revenues recognized from
performance obligations satisfied in previous periods related to
variable consideration recognized from our agreement with our
Required Materials print textbook partner. During the three and
nine months ended September 30, 2020, we recognized $12.0 million
and $35.4 million, respectively, of operating lease income
from print textbook rentals that we own. The aggregate amount of
unsatisfied performance obligations is approximately $51.9 million
as of September 30, 2020, which are expected to be recognized
as revenues over the next year.
Contract Balances
The following table presents our accounts receivable, net, deferred
revenue, and contract assets balances (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
September 30, 2020 |
|
December 31, 2019 |
|
|
|
$ |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
$ |
12,487 |
|
|
$ |
11,529 |
|
|
|
|
$ |
958 |
|
|
8 |
% |
|
|
|
|
|
Deferred revenue |
51,941 |
|
|
18,780 |
|
|
|
|
33,161 |
|
|
177 |
|
|
|
|
|
|
Contract assets |
8,214 |
|
|
3,531 |
|
|
|
|
4,683 |
|
|
133 |
|
|
|
|
|
During the nine months ended September 30, 2020, our accounts
receivable, net balance increased by $1.0 million, or 8%, primarily
due to timing of billings and seasonality of our business. During
the nine months ended September 30, 2020, our deferred revenue
balance increased by $33.2 million, or 177%, primarily due to
increased bookings driven by the seasonality of our business as
well as from print textbooks that we own that are recognized
ratably rather than immediately. During the nine months ended
September 30, 2020, our contract assets balance increased by $4.7
million, or 133%, primarily due to deferred payment arrangements
for Thinkful.
Note 3. Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the
weighted-average number of shares of common stock outstanding
during the period. Diluted net loss per share is computed by giving
effect to all potential shares of common stock, including stock
options, restricted stock units (RSUs), performance-based
restricted stock units (PSUs), and shares related to convertible
senior notes, to the extent dilutive. Basic and diluted net loss
per share was the same for each period presented as the inclusion
of all potential common shares outstanding would have been
anti-dilutive.
The following table sets forth the computation of basic and diluted
net loss per share (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
Nine Months Ended September 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net loss |
$ |
(37,140) |
|
|
$ |
(11,477) |
|
|
$ |
(32,264) |
|
|
$ |
(17,824) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average shares used to compute net loss per share, basic
and diluted
|
126,194 |
|
|
120,085 |
|
|
124,162 |
|
|
118,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
$ |
(0.29) |
|
|
$ |
(0.10) |
|
|
$ |
(0.26) |
|
|
$ |
(0.15) |
|
|
|
|
|
|
|
|
|
The following potential weighted-average shares of common stock
outstanding were excluded from the computation of diluted net loss
per share because including them would have been anti-dilutive (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
Nine Months Ended September 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Options to purchase common stock |
865 |
|
|
2,122 |
|
|
977 |
|
|
2,715 |
|
|
RSUs and PSUs |
3,394 |
|
|
3,831 |
|
|
3,425 |
|
|
4,952 |
|
|
Shares related to convertible senior notes |
8,721 |
|
|
4,098 |
|
|
4,422 |
|
|
3,709 |
|
|
Employee stock purchase plan |
9 |
|
|
7 |
|
|
4 |
|
|
3 |
|
|
Total common stock equivalents |
12,989 |
|
|
10,058 |
|
|
8,828 |
|
|
11,379 |
|
Shares related to convertible senior notes during the three and
nine months ended September 30, 2020 represents the dilutive and
anti-dilutive impact of our 2023 notes and 2025 notes as the
average price of our common stock was higher than the conversion
price of $26.95 and $51.56, respectively, and the conditions for
conversion had been met. Shares related to convertible senior notes
during the three and nine months ended September 30, 2019
represents the dilutive and anti-dilutive impact of our 2023 notes
as the average price of our common stock was higher than the
conversion price and the conditions for conversion had been met.
While these shares are anti-dilutive during the three and nine
months ended September 30, 2020 and 2019, they may be dilutive in
periods we report net income. However, as a result of the capped
call transactions, there will be no economic dilution from the 2023
notes and 2025 notes up to $40.68 and $79.32, respectively, as
exercise of the capped call instruments will reduce dilution that
would have otherwise occurred when the average price of our common
stock exceeds the conversion price. None of the shares related to
our 2025 notes were dilutive or anti-dilutive during the three and
nine months ended September 30, 2019 as a result of the conditions
for conversion not being met. None of the shares related to our
2026 notes were dilutive or anti-dilutive during the three and nine
months ended September 30, 2020 as a result of the conditions for
conversion not being met. For further information on the notes see
Note 8, “Convertible Senior Notes.”
Note 4. Cash and Cash Equivalents, and Investments
The following tables show our cash and cash equivalents, and
investments’ adjusted cost, unrealized gain, unrealized loss, and
fair value as of September 30, 2020 and December 31, 2019
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
|
|
|
|
|
|
|
Adjusted Cost |
|
Unrealized Gain |
|
Unrealized Loss |
|
Fair Value |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Cash |
$ |
17,346 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
17,346 |
|
|
U.S. treasury securities |
307,673 |
|
|
— |
|
|
— |
|
|
307,673 |
|
|
Money market funds |
202,522 |
|
|
— |
|
|
— |
|
|
202,522 |
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
$ |
527,541 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
527,541 |
|
|
Short-term investments: |
|
|
|
|
|
|
|
|
Commercial paper |
$ |
204,044 |
|
|
$ |
38 |
|
|
$ |
(24) |
|
|
$ |
204,058 |
|
|
Corporate securities |
516,682 |
|
|
2,644 |
|
|
(57) |
|
|
519,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments |
$ |
720,726 |
|
|
$ |
2,682 |
|
|
$ |
(81) |
|
|
$ |
723,327 |
|
|
Long-term investments: |
|
|
|
|
|
|
|
|
Corporate securities |
$ |
456,774 |
|
|
$ |
602 |
|
|
$ |
(635) |
|
|
$ |
456,741 |
|
|
|
|
|
|
|
|
|
|
Agency bonds |
64,495 |
|
|
25 |
|
|
— |
|
|
64,520 |
|
|
Total long-term investments |
$ |
521,269 |
|
|
$ |
627 |
|
|
$ |
(635) |
|
|
$ |
521,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
Adjusted Cost |
|
Unrealized Gain |
|
Unrealized Loss |
|
Fair Value |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Cash |
$ |
241,355 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
241,355 |
|
|
Money market funds |
146,165 |
|
|
— |
|
|
— |
|
|
146,165 |
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
$ |
387,520 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
387,520 |
|
|
Short-term investments: |
|
|
|
|
|
|
|
|
Commercial paper |
$ |
7,489 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7,489 |
|
|
Corporate securities |
318,946 |
|
|
425 |
|
|
(78) |
|
|
319,293 |
|
|
U.S. treasury securities |
44,251 |
|
|
39 |
|
|
(4) |
|
|
44,286 |
|
|
Agency bonds |
10,000 |
|
|
6 |
|
|
— |
|
|
10,006 |
|
|
Total short-term investments |
$ |
380,686 |
|
|
$ |
470 |
|
|
$ |
(82) |
|
|
$ |
381,074 |
|
|
Long-term investments: |
|
|
|
|
|
|
|
|
Corporate securities |
$ |
295,103 |
|
|
$ |
533 |
|
|
$ |
(158) |
|
|
$ |
295,478 |
|
|
|
|
|
|
|
|
|
|
Agency bonds |
14,999 |
|
|
6 |
|
|
— |
|
|
15,005 |
|
|
Total long-term investments |
$ |
310,102 |
|
|
$ |
539 |
|
|
$ |
(158) |
|
|
$ |
310,483 |
|
The following table shows our cash equivalents and investments'
adjusted cost and fair value by contractual maturity as
of September 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Cost |
|
Fair Value |
|
Due in 1 year or less |
$ |
1,028,399 |
|
|
$ |
1,031,000 |
|
|
Due in 1-2 years |
521,269 |
|
|
521,261 |
|
|
Investments not due at a single maturity date |
202,522 |
|
|
202,522 |
|
|
Total |
$ |
1,752,190 |
|
|
$ |
1,754,783 |
|
Investments not due at a single maturity date in the preceding
table consisted of money market funds.
As of September 30, 2020, we did not consider the
declines in market value of our investment portfolio to be driven
by credit related factors. When evaluating whether an investment's
unrealized losses are related to credit factors, we review factors
such as the extent to which fair value is below its cost basis, any
changes to the credit rating of the security, adverse conditions
specifically related to the security, changes in market interest
rates and our intent to sell, or whether it is more likely than not
we will be required to sell, before recovery of cost basis. We
invest in highly-rated securities with a minimum credit rating of
A-, a weighted average maturity of less than 12 months, and
our investment policy limits the amount of credit exposure to any
one issuer or industry sector. The policy requires investments
generally to be investment grade, with the primary objective of
preserving capital and maintaining liquidity. Fair values were
determined for each individual security in the investment
portfolio. During the three and nine months ended September
30, 2020, we did not recognize any losses on our investments due to
credit related factors. During the three and nine months ended
September 30, 2019, we did not recognize any impairment
charges.
Restricted Cash
As of September 30, 2020 and December 31,
2019, we had approximately $2.0 million and
$1.9 million, respectively, of restricted cash that primarily
consists of security deposits for our corporate offices. These
amounts are classified in either other current assets or other
assets on our condensed consolidated balance sheets based upon the
term of the remaining restrictions.
Strategic Investments
In March 2020, we completed an investment of $2.0 million in TAPD,
Inc., also known as Frank, a U.S.-based service that helps students
access financial aid. In October 2018, we completed an investment
of $10.0 million in WayUp, Inc. (WayUp), a U.S.-based job site and
mobile application for college students and recent graduates.
Additionally, we previously invested $3.0 million in a
foreign entity to explore expanding our reach internationally.
During the three months ended September 30, 2020, we recorded a
$10.0 million impairment charge on our investment in WayUp included
within general and administrative expense on our condensed
consolidated statements of operations. Our impairment assessment
was the result of the uncertainty around WayUp's ability to raise
additional funding to support their future operations. We did not
record any impairment charges on our other strategic investments
during the three and nine months ended September 30, 2020 and 2019,
as there were no other significant identified events or changes in
circumstances that would be considered an indicator for impairment.
We considered general market conditions as a result of the COVID-19
pandemic in our impairment analysis. There were no observable price
changes in orderly transactions for the identical or similar
investments of the same issuers during the three and nine months
ended September 30, 2020 and 2019.
Note 5. Fair Value Measurement
We have established a fair value hierarchy used to determine the
fair value of our financial instruments as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for
identical assets or liabilities.
Level 2—Inputs are quoted prices for similar assets and liabilities
in active markets or inputs that are observable for the assets or
liabilities, either directly or indirectly through market
corroboration, for substantially the full term of the financial
instruments.
Level 3—Inputs are unobservable inputs based on our own assumptions
used to measure assets and liabilities at fair value; the inputs
require significant management judgment or estimation.
A financial instrument’s classification within the fair value
hierarchy is based on the lowest level of any input that is
significant to the fair value measurement.
Financial instruments measured and recorded at fair value on a
recurring basis as of September 30, 2020 and December 31,
2019 are classified based on the valuation technique level in the
tables below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
|
|
|
|
|
|
|
Total |
|
Level 1 |
|
Level 2 |
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
U.S. treasury securities |
$ |
307,673 |
|
|
$ |
307,673 |
|
|
$ |
— |
|
|
|
|
Money market funds |
202,522 |
|
|
202,522 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments: |
|
|
|
|
|
|
|
|
Commercial paper |
204,058 |
|
|
— |
|
|
204,058 |
|
|
|
|
Corporate securities |
519,269 |
|
|
— |
|
|
519,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments: |
|
|
|
|
|
|
|
|
Corporate securities |
456,741 |
|
|
— |
|
|
456,741 |
|
|
|
|
|
|
|
|
|
|
|
|
Agency bonds |
64,520 |
|
|
— |
|
|
64,520 |
|
|
|
|
Total assets measured and recorded at fair value |
$ |
1,754,783 |
|
|
$ |
510,195 |
|
|
$ |
1,244,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Assets: |
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
Money market funds |
$ |
146,165 |
|
|
$ |
146,165 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
Short-term investments: |
|
|
|
|
|
|
Commercial paper |
7,489 |
|
|
— |
|
|
7,489 |
|
|
Corporate securities |
319,293 |
|
|
— |
|
|
319,293 |
|
|
U.S. treasury securities |
44,286 |
|
|
44,286 |
|
|
— |
|
|
Agency bonds |
10,006 |
|
|
— |
|
|
10,006 |
|
|
Long-term investments: |
|
|
|
|
|
|
Corporate securities |
295,478 |
|
|
— |
|
|
295,478 |
|
|
Agency bonds |
15,005 |
|
|
— |
|
|
15,005 |
|
|
Total assets measured and recorded at fair value |
$ |
837,722 |
|
|
$ |
190,451 |
|
|
$ |
647,271 |
|
We value our investments based on quoted prices in active markets
for identical assets (Level 1 inputs) or inputs other than quoted
prices that are observable either directly or indirectly (Level 2
inputs) in determining fair value. Other than our money market
funds and U.S. treasury securities, we classify our fixed income
available-for-sale investments as having Level 2 inputs. The
valuation techniques used to measure the fair value of our
financial instruments having Level 2 inputs were derived from
non-binding market consensus prices that are corroborated by
observable market data, quoted market prices for similar
instruments, or pricing models such as discounted cash flow
techniques. We do not hold any investments valued with a Level 3
input.
The methods described above may produce a fair value calculation
that may not be indicative of net realizable value or reflective of
future fair values. Furthermore, while we believe our valuation
methods are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could
result in a different fair value measurement at the reporting
date.
Financial Instruments Not Recorded at Fair Value on a Recurring
Basis
We report our financial instruments at fair value with the
exception of the notes. The estimated fair value of the notes was
determined based on the trading price of the notes as of the last
day of trading for the period. We consider the fair value of the
notes to be a Level 2 measurement due to the limited trading
activity. For further information on the notes see Note 8,
“Convertible Senior Notes.”
The carrying amounts and estimated fair values of the notes as of
September 30, 2020 and December 31, 2019 are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
|
|
December 31, 2019 |
|
|
|
|
Carrying Amount |
|
Estimated Fair Value |
|
Carrying Amount |
|
Estimated Fair Value |
|
2026 notes |
$ |
751,349 |
|
|
$ |
1,000,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
2025 notes |
631,061 |
|
|
1,208,800 |
|
|
602,611 |
|
|
831,000 |
|
|
2023 notes |
154,574 |
|
|
462,358 |
|
|
297,692 |
|
|
523,538 |
|
|
Convertible senior notes, net |
$ |
1,536,984 |
|
|
$ |
2,671,158 |
|
|
$ |
900,303 |
|
|
$ |
1,354,538 |
|
The carrying amount of the 2026 notes, 2025 notes and 2023 notes as
of September 30, 2020 was net of unamortized debt discount
of $236.8 million, $158.1 million and $16.5 million,
respectively, and unamortized issuance costs of $11.8 million,
$10.9 million and $2.0 million, respectively. The carrying amount
of the 2025 notes and 2023 notes as of December 31, 2019 was
net of unamortized debt discount of $184.7 million and $42.3
million, respectively, and unamortized issuance costs of $12.7
million and $5.0 million, respectively.
Note 6. Acquisitions
On June 4, 2020, we completed our acquisition of Mathway, LLC
(Mathway), an online, on-demand math problem solving company that
provides a vast range of subject areas in mathematics, including
pre-algebra, algebra, trigonometry, pre-calculus, calculus, and
linear algebra, and related disciplines. This acquisition helps to
strengthen our existing Chegg Math Solver service with the addition
of new subjects, languages, and international reach. The total fair
value of the purchase consideration was $101.0 million, of
which $93.5 million was paid in cash on the acquisition date
and $7.5 million, included within other long-term liabilities,
was held in escrow as security for general representations and
warranties and potential post-closing adjustments. Any remaining
escrow amount will be released 15 months after the acquisition
date.
The Mathway purchase agreement provides for additional payments of
up to $15.0 million subject to the achievement of specified
milestones and continued employment of the sellers. These payments
are not included in the fair value of the purchase consideration
but rather are expensed ratably as acquisition-related compensation
costs classified as research and development and general and
administrative expenses, based on the seller's job function, on our
condensed consolidated statement of operations. We have recorded
approximately $1.7 million as of September 30, 2020,
included within accrued liabilities on our condensed consolidated
balance sheet for these payments.
The following table presents the preliminary total allocation of
purchase consideration recorded on our condensed consolidated
balance sheet as of the acquisition date (in
thousands):
|
|
|
|
|
|
|
|
Mathway |
|
Cash |
$ |
712 |
|
|
Accounts receivable |
1,132 |
|
|
Other acquired assets |
779 |
|
|
Acquired intangible assets |
30,320 |
|
|
Total identifiable assets acquired |
32,943 |
|
|
Deferred revenue |
(1,423) |
|
|
Liabilities assumed |
(727) |
|
|
Net identifiable assets acquired |
30,793 |
|
|
Goodwill |
70,167 |
|
|
Total fair value of purchase consideration |
$ |
100,960 |
|
Goodwill is primarily attributable to the potential for enhancing
our existing offerings and expanding our reach by providing
additional mathematics support for students and helping them
through their academic journey. The amounts recorded for intangible
assets and goodwill are deductible for tax purposes.
The following table presents the details of the allocation of
purchase consideration to the acquired intangible assets (in
thousands, except weighted-average amortization
period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mathway |
|
|
|
|
Amount |
|
Weighted-Average Amortization Period (in months) |
|
Domain names |
$ |
220 |
|
|
18 |
|
Trade name |
520 |
|
|
18 |
|
Customer lists |
6,220 |
|
|
48 |
|
Developed technology |
23,360 |
|
|
84 |
|
Total acquired intangible assets |
$ |
30,320 |
|
|
75 |
During the nine months ended September 30, 2020, we incurred
$3.1 million of acquisition-related expenses associated with
our acquisition of Mathway, which have been included in general and
administrative expense on our condensed consolidated statement of
operations. We have recorded immaterial amounts of revenue and
earnings from Mathway since the acquisition date.
The following unaudited supplemental pro forma net loss is for
informational purposes only and presents our combined results as if
the acquisition of Mathway had occurred on January 1, 2019. The
unaudited supplemental pro forma information includes the
historical combined operating results adjusted for
acquisition-related compensation costs, amortization of intangible
assets, share-based compensation expense and acquisition-related
expenses and does not necessarily reflect the actual results that
would have been achieved, nor is it necessarily indicative of our
future consolidated results. During the three and nine months ended
September 30, 2020, our supplemental pro forma net loss would have
been $37.3 million and $32.3 million, respectively.
During the three and nine months ended September 30, 2019, our
supplemental pro forma net loss would have been $14.1 million
and $33.3 million, respectively. Revenues from Mathway were
immaterial during the three and nine months ended September 30,
2020 and 2019 and therefore we have not presented pro forma
revenues.
Note 7. Goodwill and Intangible Assets
Goodwill consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020 |
|
Year Ended December 31, 2019 |
|
Beginning balance |
$ |
214,513 |
|
|
$ |
149,524 |
|
|
Additions due to acquisitions |
70,167 |
|
|
65,181 |
|
|
Foreign currency translation adjustment |
417 |
|
|
(192) |
|
|
Measurement period adjustments related to prior
acquisition |
(288) |
|
|
— |
|
|
Ending balance |
$ |
284,809 |
|
|
$ |
214,513 |
|
Intangible assets consist of the following (in thousands, except
weighted-average amortization period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
Weighted-Average Amortization Period (in months) |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
|
|
Net Carrying Amount |
|
Developed technologies and content library |
72 |
|
$ |
66,628 |
|
|
$ |
(25,392) |
|
|
|
|
$ |
41,236 |
|
|
Customer lists |
47 |
|
16,190 |
|
|
(9,718) |
|
|
|
|
6,472 |
|
|
Trade and domain names |
44 |
|
11,613 |
|
|
(7,467) |
|
|
|
|
4,146 |
|
|
Non-compete agreements |
31 |
|
2,018 |
|
|
(1,962) |
|
|
|
|
56 |
|
|
Indefinite-lived trade name |
— |
|
|
3,600 |
|
|
— |
|
|
|
|
3,600 |
|
|
Foreign currency translation adjustment |
— |
|
|
(124) |
|
|
— |
|
|
|
|
(124) |
|
|
Total intangible assets |
64 |
|
$ |
99,925 |
|
|
$ |
(44,539) |
|
|
|
|
$ |
55,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
Weighted-Average Amortization Period (in months) |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
|
|
Developed technologies and content library |
66 |
|
$ |
43,268 |
|
|
$ |
(18,395) |
|
|
$ |
24,873 |
|
|
|
|
Customer lists |
47 |
|
9,970 |
|
|
(8,210) |
|
|
1,760 |
|
|
|
|
Trade and domain names |
46 |
|
10,873 |
|
|
(6,169) |
|
|
4,704 |
|
|
|
|
Non-compete agreements |
31 |
|
2,018 |
|
|
(1,890) |
|
|
128 |
|
|
|
|
Indefinite-lived trade name |
— |
|
|
3,600 |
|
|
— |
|
|
3,600 |
|
|
|
|
Foreign currency translation adjustment |
— |
|
|
(398) |
|
|
— |
|
|
(398) |
|
|
|
|
Total intangible assets |
58 |
|
$ |
69,331 |
|
|
$ |
(34,664) |
|
|
$ |
34,667 |
|
|
|
During the three and nine months ended September 30, 2020,
amortization expense related to our finite-lived intangible assets
totaled approximately $4.4 million and $9.9 million, respectively.
During the three and nine months ended September 30, 2019,
amortization expense related to our finite-lived intangible assets
totaled approximately $1.5 million and $5.0 million,
respectively.
As of September 30, 2020, the estimated future amortization
expense related to our finite-lived intangible assets is as follows
(in thousands):
|
|
|
|
|
|
|
Remaining three months of 2020 |
$ |
4,404 |
|
|
2021 |
13,320 |
|
|
2022 |
10,889 |
|
|
2023 |
8,760 |
|
|
2024 |
5,707 |
|
|
Thereafter |
8,706 |
|
|
Total |
$ |
51,786 |
|
Note 8. Convertible Senior Notes
In August 2020, we issued $1.0 billion in aggregate principal
amount of 0% convertible senior notes due in 2026 (2026 notes). The
aggregate principal amount of the 2026 notes includes
$100 million from the initial purchasers fully exercising
their option to purchase additional notes. In March 2019, we issued
$700 million in aggregate principal amount of
0.125% convertible senior notes due in 2025 (2025 notes) and
in April 2019, the initial purchasers fully exercised their option
to purchase $100 million of additional 2025 notes for aggregate
total principal amount of $800 million. In April 2018, we
issued $345 million in aggregate principal amount
of 0.25% convertible senior notes due in 2023 (2023
notes). The aggregate principal amount of the 2023 notes includes
$45 million from the initial purchasers fully exercising their
option to purchase
additional notes. The notes were issued in private placements to
qualified institutional buyers pursuant to Rule 144A of the
Securities Act of 1933, as amended. Concurrently with the offering
of the 2026 notes, 2025 notes and 2023 notes, we used $103.4
million, $97.2 million and $39.2 million, respectively, of the net
proceeds to enter into privately negotiated capped call
transactions.
The total net proceeds from the notes are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2026 Notes |
|
2025 Notes |
|
2023 Notes |
|
Principal amount |
$ |
1,000,000 |
|
|
$ |
800,000 |
|
|
|