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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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
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
CHGG-20200930_G1.JPG
CHEGG, INC.
(Exact name of registrant as specified in its charter)

Delaware   20-3237489
(State or other jurisdiction of
incorporation or organization)
  (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)

Title of each class Trading symbol(s) Name of each exchange on which registered
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.
Large accelerated filer x Accelerated filer
Non-accelerated filer
 (Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
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
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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.

2


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.
3

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)
  September 30, 2020 December 31, 2019
Assets
Current assets    
Cash and cash equivalents $ 527,541  $ 387,520 
Short-term investments 723,327  381,074 
Accounts receivable, net of allowance of $198 and $56 at September 30, 2020 and December 31, 2019, respectively
12,487  11,529 
Prepaid expenses 15,082  10,538 
Other current assets 21,059  16,606 
Total current assets 1,299,496  807,267 
Long-term investments 521,261  310,483 
Textbook library, net 34,575  — 
Property and equipment, net 113,058  87,359 
Goodwill 284,809  214,513 
Intangible assets, net 55,386  34,667 
Right of use assets 14,124  15,931 
Other assets 18,948  18,778 
Total assets $ 2,341,657  $ 1,488,998 
Liabilities and stockholders' equity    
Current liabilities    
Accounts payable $ 5,838  $ 7,362 
Deferred revenue 51,941  18,780 
Current operating lease liabilities 5,652  5,283 
Accrued liabilities 79,524  39,964 
Total current liabilities 142,955  71,389 
Long-term liabilities    
Convertible senior notes, net 1,536,984  900,303 
Long-term operating lease liabilities 11,661  14,513 
Other long-term liabilities 4,665  3,964 
Total long-term liabilities 1,553,310  918,780 
Total liabilities 1,696,265  990,169 
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; 128,654,401 and 121,583,501 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
129  122 
Additional paid-in capital 1,092,574  916,095 
Accumulated other comprehensive income (loss) 1,333  (1,096)
Accumulated deficit (448,644) (416,292)
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.
4

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.

5

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.

6

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  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  1,196  —  —  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  11,673  —  —  11,674 
Net issuance of common stock for settlement of equity awards 319  (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 

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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  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  9,233  —  —  9,234 
Net issuance of common stock for settlement of equity awards 2,110  (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  27,717  —  —  27,720 
Net issuance of common stock for settlement of equity awards 3,064  (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.
8

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.
9

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.
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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
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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.

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    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.

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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.

14

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  %
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.

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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
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.”

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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  —  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  —  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.

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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.
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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.”

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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.

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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 

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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
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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  <