Chegg announces a 5-year textbook agreement
with FedEx
Chegg, Inc. (NYSE:CHGG), a Smarter Way to Student, today
reported financial results for the three months ended September 30,
2019.
“It’s been an incredible year so far for Chegg and we are
delighted to report another great quarter. We delivered 27% year
over year total revenue growth, driven by 2.2 million Chegg
Services subscribers in Q3 2019,” said Dan Rosensweig, CEO of
Chegg, Inc., “Our strategy to provide direct to student services in
their academic journey continues to deliver fantastic results and
we couldn’t be more excited to expand into skills-based learning
with the addition of Thinkful.”
Q3 2019 Highlights:
- Total Net Revenues of $94.2 million, an increase of 27%
year-over-year
- Chegg Services Revenues grew 28% year-over-year to $69.3
million, or 74% of total net revenues, compared to 73% in Q3
2018
- Net Loss was $11.5 million
- Non-GAAP Net Income was $23.8 million
- Adjusted EBITDA was $23.1 million
- 2.2 million: number of Chegg Services subscribers, an
increase of 29% year-over-year
- 138 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, and Chegg Math Solver. 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 loss,
and adjusted EBITDA to net loss, see the sections of this press
release titled “Use of Non-GAAP Measures,” “Reconciliation of Net
Loss to EBITDA and Adjusted EBITDA,” and “Reconciliation of GAAP to
Non-GAAP Financial Measures.”
Business Outlook:
Fourth Quarter 2019
- Total Net Revenues in the range of $122 million to $124
million
- Chegg Services Revenues in the range of $107 million to
$108 million
- Gross Margin between 77% and 78%
- Adjusted EBITDA in the range of $43 million to $45
million
Full Year 2019
- Total Net Revenues in the range of $407 million to $409
million
- Chegg Services Revenues in the range of $332 million to
$333 million
- Gross Margin between 76% and 77%
- Adjusted EBITDA in the range of $121 million to $123
million
- Capital Expenditures in the range of $40 million to $50
million
Full Year 2020
- Total Net Revenues of approximately $520 million with a
quarterly contribution of approximately 23% in Q1 2020, 25% in Q2
2020, 22% in Q3 2020 and 30% in Q4 2020
- Chegg Services Revenues of approximately $437 million
with a quarterly contribution of approximately 23% in Q1 2020, 25%
in Q2 2020, 21% in Q3 2020 and 31% in Q4 2020
- Gross Margin of approximately 72%
- Adjusted EBITDA of approximately $163 million with a
quarterly contribution of approximately 17% in Q1 2020, 28% in Q2
2020, 11% in Q3 2020 and 44% in Q4 2020
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 fourth quarter 2019, full year 2019,
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.” We have
not reconciled our 2020 quarterly adjusted EBITDA contribution
guidance to net loss because we do not provide guidance on
quarterly 2020 net loss or the reconciling items between adjusted
EBITDA and net loss as a result of the uncertainty, timing, and the
potential variability of these items. The actual amount of net loss
and such reconciling items will have a significant impact on our
2020 quarterly adjusted EBITDA. Accordingly, a reconciliation of
the 2020 quarterly adjusted EBITDA to net loss is not available
without unreasonable effort.
An updated investor presentation and an investor data sheet can
be found on Chegg’s Investor Relations website
http://investor.chegg.com.
Prepared Remarks - Dan Rosensweig, CEO
Chegg, Inc.
Thank you, Tracey and welcome everyone. We are delighted to
report another great quarter, exceeding both our business and
financial expectations, delivering 27% year-over-year revenue
growth and 84% adjusted EBITDA growth. Our teams continue to
execute against our key priorities, which are to meet our financial
goals, expand our TAM, and invest in opportunities that leverage
our reach, our student graph, and the strength of our brand. We are
pleased with our performance thus far which is why we are confident
to, once again, raise our 2019 guidance, which Andy will walk you
through in greater detail.
We continue to see incredible growth and strength in our
academic services, and we believe we can leverage all of that as we
enter the skills space through the acquisition of Thinkful. After
spending years analyzing the category, it was clear that
skills-based learning was a natural extension of Chegg’s offerings.
We chose Thinkful because it is a leader in direct to student
skills-based training for some of the most in-demand jobs for the
modern economy.
We have always helped students succeed on their academic journey
and now we can extend our reach by helping them throughout their
professional journey. Thinkful and Chegg are synergistic in that we
both provide high quality, affordable, online learning, which
improves students’ academic and professional outcomes. And, just
like Chegg, Thinkful has a direct-to-student model, which means we
will own the customer, the content, the channel, and the data. This
allows us to accelerate the addition of new curriculum, increase
the quality and relevance of the content, grow the business faster
and more efficiently, and ultimately make it more profitable. I
want to take a moment to welcome the Thinkful team in to the Chegg
family of services and I will walk you through that in greater
detail momentarily.
Our academic services, led by Chegg Study, continue to provide
students with high-integrity, expert content, in multiple formats,
to serve the growing diversity of student’s needs. As we continue
to expand our offerings, we can help more students up-level from
where they are to where they need to be and support them wherever
they are studying in the world. Within Chegg Study our library of
content now has a record 32 million proprietary expert answers,
textbook solutions, and videos, which allowed students to access
over 138 million content views in Q3 alone, and it just keeps
adding to our moat.
In addition to helping students master their subjects, millions
of students now turn to us to improve their ability to write. Chegg
Writing is another powerful service, helping students learn
grammar, sentence structure, check for plagiarism, and more. In Q3
alone students generated over 72 million citations and submitted
over 1.2 million original papers for review.
It’s increasingly clear, as more students are trying to make
their way to the middle class through higher education, that the
system needs to evolve to support the needs of the modern student.
Students today are more diverse than ever before. They are older,
come from different socio-economic backgrounds, and have entered
the system in varied states of preparedness and, for many, English
is their second language. So, the need for high-quality,
high-integrity, adaptive, academic services, that can support them
24 hours a day at an affordable price has never been more critical.
That’s why Chegg exists. To increase access and opportunity for
students.
We will continue to invest in adding more content and features
to our services, and add more services to our platform, as we have
with Chegg Math Solver, Chegg Prep, and Chegg Tutors. We see an
opportunity to integrate these services and bundle them together,
providing even more value to a significant subset of our
subscribers. Our goal will always be to keep prices low but also to
increase our ARPU by offering overwhelming value and a choice for
our students.
As we have shared on previous calls, we have been testing an
upgraded bundle, which we call Chegg Study Pack, and we are pleased
with the responses we have seen from our customers. The Study Pack
roll-out will focus on new customer acquisition. Given the
seasonality of our business, we of course want to be careful not to
interfere with our current customer base, in the middle of the
school year, so the bundle will be rolled out over the course of
2020. But the largest push will be in the second half of the year,
during the August/September back-to-school timeframe, and all of
this is reflected in our guidance Andy will detail shortly.
Our textbook business continues to address a critical pain point
for millions of students and helps us drive our brand, extend our
reach, and build strong relationships with our customers. Our
partnership with Ingram expires in May of next year and we are
thrilled to announce today that we have an exciting new agreement
with FedEx, one of the world’s premier shipping and logistics
companies.
Ingram has been a wonderful partner and we want to convey our
gratitude to their CEO John Ingram and his entire team. When we
signed that deal with Ingram in 2014, we needed a partner who could
finance the acquisition of textbooks, warehouse the product, and
handle logistics, and the relationship with Ingram was a game
changer for Chegg. For those of you who are new to the story, the
deal with Ingram allowed us to invest in the transition of our
company to become the high-growth, high-margin, digital business
you see today. When we look to the future, our needs have evolved,
and we wanted a provider who could serve our students better and
provide world-class shipping & logistics experience, and that
is why we are excited to announce our agreement with FedEx. FedEx
can meet the size, scale, and speed of our business. This new
agreement - in place for at least five years - will, overtime, be
more cost-effective for Chegg and better serve the needs of our
students, as we anticipate one-day faster delivery for over 70% of
our customers.
Supporting the academic journey is essential but the facts are
that 85% of students report they pursue higher education for the
primary purpose of increasing their job opportunities. We have
consistently said that skills-based learning, to prepare students
for the workforce, is increasingly more important for the economy,
for employers, for institutions, as well as the students. We feel
we are uniquely positioned to deliver this service to our current
customers, as well as bring in an entirely new customer base to the
Chegg family. We are excited to add another high-growth service to
the platform that we believe will scale in to a high-margin
business overtime.
Our plan is to utilize not only our audience to expand
Thinkful’s opportunities but to take advantage of our core learning
assets, like chat-based tutoring and expert Q&A, to provide
on-demand support, 24 hours a day, for any student in any academic
and now skills-based subject. This will not only provide a better
experience for students but will differentiate us similar to what
we did with Chegg Study, and create a strong competitive moat.
The need for low-cost, high quality, skills-training is at an
all-time high and while we are initially focused on some of the
current biggest growth areas, like software, data, and digital
jobs, we envision rapidly expanding our curriculum over the next
several years to address the ever-changing needs of the modern
workforce.
Chegg continues to move the industry to align by putting the
student first. Which means to meet the needs of the modern-day
learner. Our goal is to support students, whether it’s to get a
degree, accreditation, or simply to get a better job in their
communities.
I am proud of our team and what we have achieved over the last
decade, but I am even more excited for what is ahead of us. We have
stayed focused on our mission of putting students first and that
has not only grown our business but is reflected in our culture. In
addition to our strong business performance this quarter, we were
once again honored to be named one of Fortune Magazine’s 100 Best
Medium Sized Workplaces in America for 2019. I cannot thank our
team enough for making Chegg such a great place to work and I’m
thrilled to be a part of this incredible company.
And, with that, I will turn it over to Andy.
Prepared Remarks - Andy Brown, CFO
Chegg, Inc.
Thanks Dan and good afternoon everyone.
Chegg had another great quarter with our business metrics and
financials ahead of our expectations. These strong results give us
the confidence to raise our guidance again for 2019. We are also
providing our initial outlook for 2020, which represents continued
strong growth off a much larger base and continued leverage in the
model. It also includes the addition of our skills-based offering,
Thinkful, and our expected changes to Required Materials as a
result of the move to our new logistics partner FedEx. While we are
extremely proud of what the Chegg team has already accomplished, we
are even more excited about the future as we continue to increase
our offerings to accelerate the time from learning to earning.
Looking at the third quarter, total revenue was $94.2 million, a
27% increase over Q3 2018, with both Required Materials and Chegg
Services exceeding our expectations. This strong top line
performance drove gross margins to 76%.
This resulted in adjusted EBITDA of $23.1 million, an increase
of 84% over what we achieved in Q3 2018 and well above our
expectations, demonstrating the continued leverage of our model at
scale.
We ended the quarter with more than $1.1 billion of cash and
investments. We believe the combination of our scale, balance
sheet, operating model and cash flows are the strongest in the
education industry. Along with our direct to student model, we
believe this provides us a significant competitive advantage as the
education landscape evolves and continues to move in our
direction.
Before I get to the guidance, let me walk you through our
expectations as we transition to our new logistics partner FedEx,
which is in our outlook for 2020. As Dan mentioned, the rental
landscape has changed dramatically in 3 years. Consignment and
e-Textbooks, which require no capital, have become approximately
40% of Required Materials units and continue to grow, along with
lower textbook prices, these factors have significantly reduced
capital needs to keep a full portfolio of textbooks. During this
ongoing transition, we will need to deploy small amounts of capital
to own print textbooks for student rental. As a result, in 2020, we
plan to spend approximately $50 million on textbook inventory, net
of liquidations, and expect this number to decline dramatically in
2021 to $15 million and decrease each year thereafter, as the
transition to consignment and e-Textbook continues. We expect the
transition to FedEx to be complete by the end of 2020, at which
time they will handle all print textbook logistics.
While the fundamentals of the Required Materials service are not
expected to change, how revenue gets recognized will. Therefore,
Required Materials revenue will increase in 2020 and 2021 and then
likely stabilize in 2022, and we expect it to continue to operate
as a breakeven service. We do not anticipate a change to our total
company gross profit or adjusted EBITDA dollars as a result of this
change, but it will slightly reduce gross margin. These changes
have been provided in the earnings press release and the investor
deck available on our IR website.
Based on the strong results from Q3, we are increasing our full
year guidance for 2019.
For Q4 we now expect:
- Total revenue between $122 and $124 million. Chegg Services
revenue between $107 and $108 million, which includes approximately
$2 million from Thinkful which closed on October 1st, and takes
into consideration later fall semester start dates that we
mentioned on the last earnings call;
- Gross margin between 77 and 78 percent;
- And adjusted EBITDA between $43 and $45 million, which includes
a $4 million loss from Thinkful.
As a result, we are increasing our full year 2019 guidance. We
now expect:
- Total revenue between $407 and $409 million, with Chegg
Services revenue between $332 and $333 million;
- Gross margin between 76 and 77 percent;
- And adjusted EBITDA between $121 and $123 million.
Turning to 2020:
Our initial expectation for total revenue is approximately $520
million, with Chegg Services revenue growing to approximately $437
million. We expect Chegg Services revenue and subscriber growth
rates will continue to remain closely aligned over the course of
the year. We expect gross margin to be approximately 72%, slightly
lower than 2019, exclusively the result of the revenue recognition
and cost of revenue changes that will result from our ownership of
textbooks. At the same time, we expect continued leverage in the
model with adjusted EBITDA expanding to $163 million, increasing
adjusted EBITDA margin 100 basis points over 2019. For those of you
modeling 2020 by quarter, we have provided expected seasonality as
a result of these changes in the earnings press release and the
investor deck on the IR website.
In closing, we had another strong quarter in Q3. We delivered
above the high end of our expectations, giving us confidence to
increase full year guidance and provide a strong initial outlook
for 2020. It is becoming increasingly clear that our model is the
envy of the education landscape, by serving students directly with
high value, low cost services, while improving their outcomes, and
helping them move from learning to earning.
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 November
4, 2019, until 8:59 p.m. Pacific Standard Time on November 11,
2019, by calling 1-844-512-2921, or outside the U.S.
+1-412-317-6671, with Conference ID 13695530. An audio archive of
the call will also be available at http://investor.chegg.com.
Use of Investor Relations Website for
Regulation FD Purposes
Chegg also uses its media center website,
http://www.chegg.com/mediacenter, as a means of disclosing material
non-public information and for complying with its disclosure
obligations under Regulation FD. Accordingly, investors should
monitor http://www.chegg.com/mediacenter, in addition to following
press releases, Securities and Exchange Commission filings and
public conference calls and webcasts.
About Chegg
Chegg puts students first. As the leading student-first
connected learning platform, Chegg strives to improve the overall
return on investment in education by helping students learn more in
less time and at a lower cost. 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, and non-GAAP net income per
share. For reconciliations of these non-GAAP financial measures to
the most directly comparable GAAP financial measures, please see
the section of the accompanying tables titled, “Reconciliation of
Net Loss to EBITDA and Adjusted EBITDA,” “Reconciliation of GAAP to
Non-GAAP Financial Measures,” 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 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; and (6) non-GAAP
net income per share is defined as non-GAAP net income divided by
non-GAAP weighted average shares outstanding. To the extent
additional significant non-recurring items arise in the future,
Chegg may consider whether to exclude such items in calculating the
non-GAAP financial measures it uses.
Chegg believes that these non-GAAP financial measures, when
taken together with the corresponding GAAP financial measures,
provide meaningful supplemental information regarding Chegg’s
performance by excluding items that may not be indicative of
Chegg’s core business, operating results or future outlook. Chegg
management uses these non-GAAP financial measures in assessing
Chegg’s operating results, as well as when planning, forecasting
and analyzing future periods and believes that such measures
enhance investors’ overall understanding of our current financial
performance. These non-GAAP financial measures also facilitate
comparisons of Chegg’s performance to prior periods.
As presented in the “Reconciliation of Net Loss to EBITDA and
Adjusted EBITDA,” “Reconciliation of GAAP to Non-GAAP Financial
Measures,” and “Reconciliation of Forward-Looking Net Loss to
EBITDA and Adjusted EBITDA” 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 to expenses related to
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
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.
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 2019 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; Chegg’s partnership with Ingram and the
parties’ ability to achieve the anticipated benefits of the
partnership, including the potential impact of the economic
risk-sharing arrangements between Chegg and Ingram on Chegg’s
results of operations; 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 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 July 29, 2019 and
Chegg's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2019 to be filed with the Securities and
Exchange Commission, and could cause actual results to vary from
expectations.
CHEGG, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except for
number of shares and par value)
(unaudited)
September 30, 2019
December 31, 2018
Assets Current assets Cash and cash equivalents
$
450,457
$
374,664
Short-term investments
345,392
93,345
Accounts receivable, net of allowance for doubtful accounts of $31
and $229 at September 30, 2019 and December 31, 2018, respectively
13,678
12,733
Prepaid expenses
9,654
4,673
Other current assets
24,888
9,510
Total current assets
844,069
494,925
Long-term investments
340,118
16,052
Property and equipment, net
77,667
59,904
Goodwill
149,068
149,524
Intangible assets, net
20,622
25,915
Right of use assets
16,312
—
Other assets
15,836
14,618
Total assets
$
1,463,692
$
760,938
Liabilities and stockholders' equity Current liabilities
Accounts payable
$
4,197
$
8,177
Deferred revenue
27,457
17,418
Current operating lease liabilities
4,982
—
Accrued liabilities
52,199
34,077
Total current liabilities
88,835
59,672
Long-term liabilities Convertible senior notes, net
887,215
283,668
Long-term operating lease liabilities
15,315
—
Other long-term liabilities
3,815
6,964
Total long-term liabilities
906,345
290,632
Total liabilities
995,180
350,304
Commitments and contingencies Stockholders' equity: Preferred
stock, $0.001 par value – 10,000,000 shares authorized, no shares
issued and outstanding
—
—
Common stock, $0.001 par value 400,000,000 shares authorized;
120,668,843 and 115,500,418 shares issued and outstanding at
September 30, 2019 and December 31, 2018, respectively
121
116
Additional paid-in capital
894,660
818,113
Accumulated other comprehensive loss
(1,758
)
(1,019
)
Accumulated deficit
(424,511
)
(406,576
)
Total stockholders' equity
468,512
410,634
Total liabilities and stockholders' equity
$
1,463,692
$
760,938
CHEGG, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per
share amounts)
(unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Net revenues
$
94,151
$
74,237
$
285,422
$
225,408
Cost of revenues(1)
22,164
19,918
66,017
57,926
Gross profit
71,987
54,319
219,405
167,482
Operating expenses: Research and development(1)
36,442
29,045
101,199
80,796
Sales and marketing(1)
16,822
15,690
47,334
42,463
General and administrative(1)
23,752
20,000
70,044
57,735
Restructuring charges
28
17
97
252
Total operating expenses
77,044
64,752
218,674
181,246
(Loss) income from operations
(5,057
)
(10,433
)
731
(13,764
)
Interest expense, net and other income, net: Interest expense, net
(13,548
)
(3,772
)
(31,294
)
(7,456
)
Other income, net
7,751
1,209
14,571
2,667
Total interest expense, net and other income, net
(5,797
)
(2,563
)
(16,723
)
(4,789
)
Loss before provision for income taxes
(10,854
)
(12,996
)
(15,992
)
(18,553
)
Provision for income taxes
623
713
1,832
1,682
Net loss
$
(11,477
)
$
(13,709
)
$
(17,824
)
$
(20,235
)
Net loss per share, basic and diluted
$
(0.10
)
$
(0.12
)
$
(0.15
)
$
(0.18
)
Weighted average shares used to compute net loss per share, basic
and diluted
120,085
114,184
118,547
112,621
(1) Includes share-based compensation expense as follows:
Cost of revenues
$
96
$
106
$
295
$
303
Research and development
5,741
4,528
15,876
12,190
Sales and marketing
1,843
1,675
5,405
4,994
General and administrative
9,185
7,509
25,779
20,016
Total share-based compensation expense
$
16,865
$
13,818
$
47,355
$
37,503
CHEGG, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September
30,
2019
2018
Cash flows from operating activities Net loss
$
(17,824
)
$
(20,235
)
Adjustments to reconcile net loss to net cash provided by operating
activities: Depreciation and amortization expense
21,369
16,631
Share-based compensation expense
47,355
37,503
Loss from write-off of property and equipment
832
29
Amortization of debt discount and issuance costs
30,114
6,958
Deferred income taxes
59
(315
)
Operating lease expense, net of accretion
3,284
—
Other non-cash items
(370
)
51
Change in assets and liabilities: Accounts receivable
(850
)
2,409
Prepaid expenses and other current assets
(20,741
)
(24,250
)
Other assets
1,989
(587
)
Accounts payable
(3,983
)
(3,001
)
Deferred revenue
10,039
11,841
Accrued liabilities
18,095
16,044
Other liabilities
(2,793
)
1,589
Net cash provided by operating activities
86,575
44,667
Cash flows from investing activities Purchases of investments
(822,869
)
(113,276
)
Proceeds from sale of investments
53,261
1,800
Maturities of investments
190,744
118,080
Purchases of property and equipment
(31,520
)
(18,048
)
Acquisition of businesses, net of cash acquired
—
(34,650
)
Net cash used in investing activities
(610,384
)
(46,094
)
Cash flows from financing activities Common stock issued under
stock plans, net
27,723
23,463
Payment of taxes related to the net share settlement of equity
awards
(91,076
)
(45,669
)
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
599,627
254,185
Net increase in cash, cash equivalents and restricted cash
75,818
252,758
Cash, cash equivalents and restricted cash, beginning of period
375,945
126,963
Cash, cash equivalents and restricted cash, end of period
$
451,763
$
379,721
Supplemental cash flow data: Cash paid during the period
for: Interest
$
901
$
55
Income taxes
$
1,492
$
1,560
Cash paid for amounts included in the measurement of lease
liabilities: Operating cash flows from operating leases
$
3,847
$
-
Right of use assets obtained in exchange for lease obligations:
Operating leases
$
2,638
$
-
Non-cash investing and financing activities: Accrued purchases of
long-lived assets
$
4,452
$
2,993
Issuance of common stock related to prior acquisition
$
3,003
$
-
September 30,
2019
2018
Reconciliation of cash, cash equivalents and restricted cash: Cash
and cash equivalents
$
450,457
$
379,020
Restricted cash included in other current assets
125
-
Restricted cash included in other assets
1,181
701
Total cash, cash equivalents and restricted cash
$
451,763
$
379,721
CHEGG, INC.
RECONCILIATION OF NET LOSS TO
EBITDA AND ADJUSTED EBITDA
(in thousands)
(unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Net loss
$
(11,477
)
$
(13,709
)
$
(17,824
)
$
(20,235
)
Interest expense, net
13,548
3,772
31,294
7,456
Provision for income taxes
623
713
1,832
1,682
Depreciation and amortization expense
7,435
5,966
21,369
16,631
EBITDA
10,129
(3,258
)
36,671
5,534
Share-based compensation expense
16,865
13,818
47,355
37,503
Other income, net
(7,751
)
(1,209
)
(14,571
)
(2,667
)
Restructuring charges
28
17
97
252
Acquisition-related compensation costs
2,309
3,153
6,988
7,857
Donation from Chegg Foundation
1,478
—
1,478
—
Adjusted EBITDA
$
23,058
$
12,521
$
78,018
$
48,479
CHEGG, INC. RECONCILIATION OF GAAP TO NON-GAAP
FINANCIAL MEASURES (in thousands, except percentages and per
share amounts) (unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Net revenues
$
94,151
$
74,237
$
285,422
$
225,408
Operating expenses
$
77,044
$
64,752
$
218,674
$
181,246
Share-based compensation expense
(16,769
)
(13,712
)
(47,060
)
(37,200
)
Amortization of intangible assets
(1,490
)
(1,836
)
(4,993
)
(4,699
)
Restructuring charges
(28
)
(17
)
(97
)
(252
)
Acquisition-related compensation costs
(2,309
)
(3,153
)
(6,988
)
(7,857
)
Donation from Chegg Foundation
(1,478
)
—
(1,478
)
—
Non-GAAP operating expenses
$
54,970
$
46,034
$
158,058
$
131,238
Operating expenses as a percent of net revenues
81.8
%
87.2
%
76.6
%
80.4
%
Non-GAAP operating expenses as a percent of net revenues
58.4
%
62.0
%
55.4
%
58.2
%
(Loss) income from operations
$
(5,057
)
$
(10,433
)
$
731
$
(13,764
)
Share-based compensation expense
16,865
13,818
47,355
37,503
Amortization of intangible assets
1,490
1,836
4,993
4,699
Restructuring charges
28
17
97
252
Acquisition-related compensation costs
2,309
3,153
6,988
7,857
Donation from Chegg Foundation
1,478
—
1,478
—
Non-GAAP income from operations
$
17,113
$
8,391
$
61,642
$
36,547
Net loss
$
(11,477
)
$
(13,709
)
$
(17,824
)
$
(20,235
)
Share-based compensation expense
16,865
13,818
47,355
37,503
Amortization of intangible assets
1,490
1,836
4,993
4,699
Restructuring charges
28
17
97
252
Acquisition-related compensation costs
2,309
3,153
6,988
7,857
Amortization of debt discount and issuance costs
13,089
3,537
30,114
6,958
Donation from Chegg Foundation
1,478
—
1,478
—
Non-GAAP net income
$
23,782
$
8,652
$
73,201
$
37,034
Weighted average shares used to compute net loss per share
120,085
114,184
118,547
112,621
Effect of shares for stock plan activity
5,960
11,457
7,670
12,369
Effect of shares related to convertible senior notes
4,098
1,221
3,709
—
Non-GAAP weighted average shares used to compute non-GAAP net
income per share
130,143
126,862
129,926
124,990
Net loss per share
$
(0.10
)
$
(0.12
)
$
(0.15
)
$
(0.18
)
Adjustments
0.28
0.19
0.71
0.48
Non-GAAP net income per share
$
0.18
$
0.07
$
0.56
$
0.30
CHEGG, INC.
RECONCILIATION OF
FORWARD-LOOKING NET INCOME (LOSS) TO EBITDA AND ADJUSTED
EBITDA
(in thousands)
(unaudited)
Three Months Ending December
31, 2019
Year Ending December 31,
2019
Year Ending December 31,
2020
Net income (loss)
$
5,200
$
(12,700
)
$
(5,600
)
Interest expense, net
13,600
44,900
53,900
Provision for income taxes
800
2,600
3,500
Textbook library depreciation expense
-
-
14,300
Other depreciation and amortization expense
9,300
30,700
41,800
EBITDA
28,900
65,500
107,900
Textbook library depreciation expense
-
-
(14,300
)
Share-based compensation expense
17,600
65,000
78,000
Other income, net
(6,400
)
(21,000
)
(24,400
)
Restructuring charges
-
100
-
Acquisition-related compensation costs
3,900
10,900
15,800
Donation from Chegg Foundation
-
1,500
-
Adjusted EBITDA*
$
44,000
$
122,000
$
163,000
* Adjusted EBITDA guidance for the three
months year ending December 31, 2019 represents the midpoint of the
ranges of $43 million to $45 million and $121 million to $123
million, respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191104005824/en/
Media Contact: press@chegg.com
Investor Contact: Tracey Ford, IR@chegg.com
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