Chegg, Inc. (NYSE:CHGG), the leading student-first connected
learning platform, today reported financial results for the three
months ended March 31, 2023.
“As artificial intelligence technology continues to evolve at a
rapid pace, we are embracing it aggressively and prioritizing our
investments to meet this opportunity,” said Dan Rosensweig, CEO
& President of Chegg, Inc. “We believe we are in the best
position to take advantage of the advancements in AI for the
benefit of students, because we can leverage our proprietary data,
our 150,000+ experts, and our decade-plus years of experience as we
launch CheggMate.”
First Quarter 2023
Highlights
- Total Net Revenues of $187.6 million, a decrease of 7%
year-over-year
- Subscription Services Revenues declined 3%
year-over-year to $168.4 million, or 90% of total net revenues,
compared to 86% in Q1 2022
- Net Income was $2.2 million
- Non-GAAP Net Income was $38.1 million
- Adjusted EBITDA was $57.6 million
- 5.1 million Subscription Services subscribers, a
decrease of 5% year-over-year
Total net revenues include revenues from Subscription Services
and Skills and Other. Subscription Services includes revenues from
our Chegg Study Pack, Chegg Study, Chegg Writing, Chegg Math, and
Busuu offerings. Skills and Other includes revenues from Thinkful,
Advertising, and any other revenues not included in Subscription
Services.
For more information about non-GAAP net income and adjusted
EBITDA, and a reconciliation of non-GAAP net income to net income,
and adjusted EBITDA to net income, see the sections of this press
release titled, “Use of Non-GAAP Measures,” “Reconciliation of Net
Income to EBITDA and Adjusted EBITDA,” and “Reconciliation of GAAP
to Non-GAAP Financial Measures.”
Business Outlook
Second Quarter 2023
- Total Net Revenues in the range of $175 million to $178
million
- Subscription Services Revenues in the range of $159
million to $162 million
- Gross Margin between 72% and 73%
- Adjusted EBITDA in the range of $53 million to $55
million
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 second quarter 2023, see the below
sections of the press release titled “Use of Non-GAAP Measures,”
and “Reconciliation of Forward-Looking Net Loss to EBITDA and
Adjusted EBITDA.”
An updated investor presentation and an investor data sheet can
be found on Chegg’s Investor Relations website
https://investor.chegg.com.
Prepared Remarks - Dan Rosensweig, CEO
& President Chegg, Inc.
Thank you, Tracey and welcome everyone to our 2023 Q1 earnings
call. Chegg had a solid quarter, ending Q1 above our guidance on
total revenue and adjusted EBITDA. As we shared with you during our
last call, we believe that generative AI and large language models
are going to affect society and business, both positively and
negatively, at a faster pace than people are used to. Education is
already being impacted and, over time, we believe that this will
advantage Chegg.
In the first part of the year, we saw no noticeable impact from
ChatGPT on our new account growth and we were meeting expectations
on new sign-ups. However, since March we saw a significant spike in
student interest in ChatGPT. We now believe it’s having an impact
on our new customer growth rate.
Fortunately, we continue to see very strong retention rates,
suggesting that those students who already understand the value of
Chegg continue to choose us and retain us at high rates. We are
also expecting a positive recovery in enrollment trends, which
historically would be good news for Chegg. Because it’s too early
to tell how this will play out, we believe that it’s prudent to be
more cautious with our forward outlook. Therefore, we intend to
provide only the next quarter’s guidance at this time and Andy will
walk you through those details shortly.
We can all see that AI technology is evolving at a very rapid
pace, and at Chegg we are embracing it aggressively and
immediately. Throughout my career, I have witnessed the most
significant technology platform shifts - from the creation of the
internet to the explosion of mobile, and the movement of software
to the cloud - and we believe that AI is the next big shift.
Several months ago, I met with Sam Altman to discuss the future of
AI and education and coming out of those discussions, we quickly
reoriented our company to focus and prioritize on the utilization
and incorporation of AI into Chegg services.
The first big step is the introduction of CheggMate, which we
recently announced in cooperation with OpenAI. CheggMate will
harness the power of ChatGPT, paired with our proprietary data and
subject matter experts, to make learning more personalized,
adaptive, accurate, fast, and effective – all in an easy to use and
conversational manner. The combination of Chegg’s experience over
the last 13 years of improving student outcomes, and our
proprietary learning taxonomy, the 150,000 subject matter experts
in our network, and the billions of pieces of unique learning
content that Chegg owns, when coupled with the real-time
conversational nature of ChatGPT will establish CheggMate as a
powerful and distinctive learning tool, offered exclusively from
Chegg.
Based on our research, 85% of students would prefer to have
human experts involved in their study support, which is why we
believe that the future of learning is a blend of AI technology
with human-based support to build trust and ensure accuracy and
relevancy. Ultimately, we believe the introduction of CheggMate
will lead to an increase in the size of the market we serve and
strengthen our relationship with our users, while reducing content
costs.
Large language models are currently used horizontally, similar
to search, but history suggests, that over time, focused and
category leading verticals are where enduring value is created.
CheggMate is being designed for learning and tailored to an
individual student’s learning style and needs. It will offer
personalized assessments, practice tests, and instant feedback
along with Chegg’s proprietary step-by-step solutions. We are
moving very fast with a beta launch of CheggMate later this month
and, as we test and iterate, we will expand access throughout the
year.
As with all Chegg services, our goal is to deliver improved
outcomes and overwhelming value. With our recently introduced
partner offerings from DoorDash and Calm, we are seeing the
benefits of adding non-academic content to our subscriptions with
improved retention. These value-added partnerships are creating
more value for our subscribers and strengthening the Chegg brand,
and we expect to add more offers in the future.
Our partnership with Guild also continues to perform extremely
well and we see an even bigger opportunity ahead for us in our
Skills business. We are introducing new offerings, including Busuu,
our award-winning language learning product, as we expand the
catalog of course offerings through Guild. Other new additions
include UX Design and Frontline Leadership programs, while future
courses will focus on the latest advancements in artificial
intelligence to meet both student and employer demand. To improve
learning outcomes even more, we expect to add real-time
conversational support to all of our skills-based courses, which we
believe will improve completion rates.
While we are talking about Skills, I want to take a moment to
acknowledge the recent news that John Fillmore, President of our
Skills business, will be leaving Chegg after 10 years. John is
ready to take another big step in his own career, one which we
wholeheartedly support. John served in a variety of key roles at
Chegg during his tenure and I cannot thank him enough for his
friendship, counsel, wisdom, and leadership over the last decade. I
also want to take the opportunity to welcome Colin Coggins, who
joins us today as our Senior Vice President of Chegg Skills.
Our priorities outside of North America are to make our services
more personalized and accessible to everyone and to localize
content and pricing so we can expand into new geographic markets.
To that end, in Q3 we plan to roll-out a new payment system for
India to capture customers during the peak back-to-school season.
And in countries like Turkey, Mexico, India, and South Africa, we
continue to see our roll-out of local subscription pricing or
localized content and user experiences as a growth lever. In fact,
Q1 2023 was an all-time high for app acquisitions in Mexico, where
we recently rolled out our localized app.
We are excited and optimistic about the future and are moving
fast to leverage the best of AI to advantage the student. Our
unique position in the industry, coupled with our deep expertise in
learning, enables us to make this future a reality and will enable
us to grow our business for the benefit of our customers and our
shareholders. These transitions don’t happen overnight and are
rarely smooth at the start. Our position as a category leader and
our focus exclusively on the needs of students, has led to great
brand recognition and incredible customer loyalty for Chegg. With
13 years of experience educating students, our proprietary and
proven learning taxonomy, our billions of pieces of unique learning
content – created by more than 150,000 subject matter experts –
combined with exciting benefits of AI, will propel Chegg into the
future. We are embarking on a new chapter for our industry and
certainly for Chegg and we are making the adjustments we need to
meet this opportunity head on. We are confident we have the brand,
platform, balance sheet, operating model, and experience to make
the appropriate investments needed for the future and enhance our
position as a leader in the industry.
And with that I will turn it over to Andy…
Prepared Remarks - Andy Brown, CFO
Chegg, Inc.
Thanks Dan and good afternoon everyone.
Q1 was a solid quarter as we met or exceeded our revenue and
adjusted EBITDA guidance and delivered strong cash flow. Total
revenue was $188 million, driven by Subscription Services revenue
of $168 million. During the quarter we had approximately 5.1
million subscribers on the platform. Skills and Other revenue was
$19 million, driven by strong growth in Skills offset primarily by
the change in Required Materials model, which is now a revenue
share. Gross margin came in slightly higher than expected which
contributed to adjusted EBITDA beating guidance, which came in at
$58M, or 31% margin, and free cash flow was $56 million, the result
of a strong operating performance and higher interest rates, with
interest income contributing $11 million in the quarter, an
increase of $10M from the year-ago quarter.
Looking at the balance sheet, we ended the quarter with $1.2
billion of cash and investments. During the quarter, we entered
into an accelerated share repurchase agreement of $150 million
which we expect will reduce outstanding shares by approximately 7%
percent and will be completed during Q2. We continue to believe the
combination of our operating model, balance sheet, and cash flows
are among the strongest in the education industry, which will allow
us to continue to drive long-term shareholder value.
Moving on to guidance. While we continue to have confidence in
our ability to forecast the current quarter, given recent industry
developments our visibility beyond that is less certain. As such,
we will be guiding to the current quarter only, while these
conditions exist. Given this limited visibility, we are also
evaluating areas to reduce existing expenses and CAPEX to maintain
industry-leading margins and cash flow, even as we lean into
important investments in AI.
For Q2 we expect:
- Total revenue to be between $175 and $178 million,
- With Subscription Services revenue between $159 and $162
million,
- Gross margin between 72% and 73%,
- And adjusted EBITDA between $53 and $55 million.
In closing, we expect our investments in AI will drive long term
shareholder value as we believe embracing this technology allows us
to better serve students. And we believe there is nobody better
equipped to meet the current or future needs of students, than
Chegg. With an industry-leading brand, as well as a strong
operating model and balance sheet that allows for investments, all
while driving best-in-class margins and cash flows.
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
Daylight Time (or 4:30 p.m. Eastern Daylight Time). A live webcast
of the call will also be available at https://investor.chegg.com
under the Events & Presentations menu. An audio replay will be
available beginning at 4:30 p.m. Pacific Daylight Time (or 7:30
p.m. Eastern Daylight Time) on May 1, 2023, until 8:59 p.m. Pacific
Standard Time (or 11:59 p.m. Eastern Standard Time) on May 8, 2023,
by calling 1-844-512-2921, or outside the U.S. +1-412-317-6671,
with Conference ID 13737624. An audio archive of the call will also
be available at https://investor.chegg.com.
Use of Investor Relations Website for
Regulation FD Purposes
Chegg also uses its media center website,
https://www.chegg.com/press, as a means of disclosing material
non-public information and for complying with its disclosure
obligations under Regulation FD. Accordingly, investors should
monitor https://www.chegg.com/press, in addition to following press
releases, Securities and Exchange Commission filings and public
conference calls and webcasts.
About Chegg
Millions of people all around the world Learn with Chegg. Our
mission is to improve learning and learning outcomes by putting
students first. We support life-long learners starting with their
academic journey and extending into their careers. The Chegg
platform provides products and services to support learners to help
them better understand their academic course materials, and also
provides personal and professional development skills training, to
help them achieve their learning goals. Chegg is a publicly held
company based in Santa Clara, California and trades on the NYSE
under the symbol CHGG. For more information, visit
www.chegg.com.
Use of Non-GAAP Measures
To supplement Chegg’s financial results presented in accordance
with generally accepted accounting principles in the United States
(GAAP), this press release and the accompanying tables and the
related earnings conference call contain non-GAAP financial
measures, including adjusted EBITDA, non-GAAP operating expenses,
non-GAAP income from operations, non-GAAP net income, non-GAAP
weighted average shares, non-GAAP net income per share, and free
cash flow. For reconciliations of these non-GAAP financial measures
to the most directly comparable GAAP financial measures, please see
the section of the accompanying tables titled, “Reconciliation of
Net Income to EBITDA and Adjusted EBITDA,” “Reconciliation of GAAP
to Non-GAAP Financial Measures,” “Reconciliation of Net Cash
Provided by Operating Activities to Free Cash Flow,” and
“Reconciliation of Forward-Looking Net Loss to EBITDA and Adjusted
EBITDA.”
The presentation of these non-GAAP financial measures is not
intended to be considered in isolation from, as a substitute for,
or superior to, the financial information prepared and presented in
accordance with GAAP, and may be different from non-GAAP financial
measures used by other companies. Chegg defines (1) adjusted EBITDA
as earnings before interest, taxes, depreciation and amortization,
or EBITDA, adjusted for print textbook depreciation expense and to
exclude share-based compensation expense, other income, net,
acquisition-related compensation costs, and transitional logistic
charges; (2) non-GAAP operating expenses as operating expenses
excluding share-based compensation expense, amortization of
intangible assets, and acquisition-related compensation costs; (3)
non-GAAP income from operations as (loss) income from operations
excluding share-based compensation expense, amortization of
intangible assets, acquisition-related compensation costs, and
transitional logistic charges; (4) non-GAAP net income as net
income excluding share-based compensation expense, amortization of
intangible assets, acquisition-related compensation costs,
amortization of debt issuance costs, transitional logistic charges,
and including the income tax effect of non-GAAP adjustments; (5)
non-GAAP weighted average shares outstanding as weighted average
shares outstanding adjusted for the effect of shares for stock plan
activity and shares related to our convertible senior notes, to the
extent such shares are not already included in our weighted average
shares outstanding; (6) non-GAAP net income per share is defined as
non-GAAP net income divided by non-GAAP weighted average shares
outstanding; and (7) free cash flow as net cash provided by
operating activities adjusted for purchases of property and
equipment, purchases of textbooks and proceeds from disposition of
textbooks. To the extent additional significant non-recurring items
arise in the future, Chegg may consider whether to exclude such
items in calculating the non-GAAP financial measures it uses.
Chegg believes that these non-GAAP financial measures, when
taken together with the corresponding GAAP financial measures,
provide meaningful supplemental information regarding Chegg’s
performance by excluding items that may not be indicative of
Chegg’s core business, operating results or future outlook. Chegg
management uses these non-GAAP financial measures in assessing
Chegg’s operating results, as well as when planning, forecasting
and analyzing future periods and believes that such measures
enhance investors’ overall understanding of our current financial
performance. These non-GAAP financial measures also facilitate
comparisons of Chegg’s performance to prior periods.
As presented in the “Reconciliation of Net Income to EBITDA and
Adjusted EBITDA,” “Reconciliation of GAAP to Non-GAAP Financial
Measures,” “Reconciliation of Forward-Looking Net Loss to EBITDA
and Adjusted EBITDA,” and “Reconciliation of Net Cash Provided by
Operating Activities to Free Cash Flow,” tables below, each of the
non-GAAP financial measures excludes or includes 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, including those that
contribute to generating revenues, that it acquires in conjunction
with acquisitions, which results in non‑cash expenses that may not
otherwise have been incurred. Chegg believes excluding the expense
associated with intangible assets from non-GAAP measures allows for
a more accurate assessment of its ongoing operations and provides
investors with a better comparison of period-over-period operating
results. No corresponding adjustments have been made related to
revenues generated from acquired intangible assets.
Acquisition-related compensation costs.
Acquisition-related compensation costs include compensation
expense resulting from the employment retention of certain key
employees established in accordance with the terms of the
acquisitions. In most cases, these acquisition-related compensation
costs are not factored into management’s evaluation of potential
acquisitions or Chegg’s performance after completion of
acquisitions, because they are not related to Chegg’s core
operating performance. In addition, the frequency and amount of
such charges can vary significantly based on the size and timing of
acquisitions and the maturities of the businesses being acquired.
Excluding acquisition-related compensation costs from non-GAAP
measures provides investors with a basis to compare Chegg’s results
against those of other companies without the variability caused by
purchase accounting.
Amortization of debt issuance costs.
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 with a better
comparison of period-over-period operating results.
Transitional logistics charges.
The transitional logistics charges represent incremental
expenses incurred as we transition our print textbooks to a third
party. Chegg believes that it is appropriate to exclude them from
non-GAAP financial measures because it is the result of an event
that is not considered a core-operating activity and we believe its
exclusion provides investors with a better comparison of
period-over-period operating results.
Income tax effect of non-GAAP adjustments.
In the periods following the release of our U.S. valuation
allowance, we utilize a non-GAAP effective tax rate of 24% for
evaluating our operating results, which is based on our current
mid-term projections. This non-GAAP tax rate could change for
various reasons including, but not limited to, significant changes
resulting from tax legislation, changes to our corporate structure
and other significant events. Chegg believes that the inclusion of
a non-GAAP provision for income tax adjustments provides investors
with a better comparison of period-over-period operating
results.
Effect of shares for stock plan activity.
The effect of shares for stock plan activity represents the
dilutive impact of outstanding stock options, RSUs, and PSUs
calculated under the treasury stock method.
Effect of shares related to convertible senior notes.
The effect of shares related to convertible senior notes
represents the dilutive impact of our convertible senior notes, to
the extent such shares are not already included in our weighted
average shares outstanding as they were antidilutive on a GAAP
basis.
Free cash flow.
Free cash flow represents net cash provided by operating
activities adjusted for purchases of property and equipment and
purchases of textbooks and including proceeds from the disposition
of textbooks. Chegg considers free cash flow to be a liquidity
measure that provides useful information to management and
investors about the amount of cash generated by the business after
the purchases of property and equipment and textbooks, which can
then be used to, among other things, invest in Chegg’s business and
make strategic acquisitions. A limitation of the utility of free
cash flow as a measure of financial performance is that it does not
represent the total increase or decrease in Chegg's cash balance
for the period.
Forward-Looking
Statements
This press release contains forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, which include, without limitation,
statements regarding our future growth and the future of learning,
the impact of artificial intelligence (AI) technology on our
financial condition and results of operations, our investments in
AI driving long-term shareholder value and allowing us to better
serve students, our ability to build and utilize AI tools
(including CheggMate), leveraging AI to increase the size of the
market we serve, strengthen our user relationships, and reduce
content costs, the development and features of CheggMate, the
timeline for CheggMate's availability and its ability to make
learning more personalized, adaptive, accurate, fast, and effective
in an easy to use and conversational manner, expectations regarding
Chegg's execution against its strategic objectives, student
enrollment trends, our expansion into international markets,
increasing our international subscriber base through local pricing,
content, and user experience, the expansion of our current
partnership with Guild, our partnerships (such as those with Calm
and DoorDash) creating value for our subscribers and strengthening
our brand, our plan to add similar offers with more partners, our
new skills offerings and our ability to improve completion rates,
Chegg being in the best position to take advantage of advancements
in AI, Chegg’s ability to leverage its data, experts and experience
for the benefit of students, the impact of ChatGPT on new account
growth and retention, the completion of our accelerated share
repurchase, our ability to drive long term shareholder value, our
ability to forecast the current quarter, our ability to maintain
margins and cash flow, our financial guidance, as well as 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:
the effects of AI technology on Chegg’s business and the economy
generally; Chegg’s ability to attract new, and retain existing,
students, to increase student engagement, and to increase
monetization; Chegg’s brand and reputation; changes in employment
and wages and the uncertainty surrounding the evolving educational
landscape, enrollment and student behavior; Chegg’s ability to
expand internationally; changes in search engine methodologies that
modify Chegg’s search result page rankings, resulting in decreased
student engagement on Chegg’s website; the success of Chegg’s new
product offerings, including CheggMate; competition in aspects of
Chegg’s business, and Chegg's expectation that such competition
will increase; Chegg’s ability to innovate in response to
technological and market developments, including artificial
intelligence; Chegg’s ability to maintain its services and systems
without interruption, including as a result of technical issues,
cybersecurity threats, or cyber-attacks; third-party payment
processing risks; adoption of government regulation of education
unfavorable to Chegg; the rate of adoption of Chegg’s offerings;
mobile app stores and mobile operating systems making Chegg’s apps
and mobile website available to students and to grow Chegg’s user
base and increase their engagement; colleges and governments
restricting online access or access to Chegg’s services; Chegg’s
ability to strategically take advantage of new opportunities;
competitive developments, including pricing pressures and other
services targeting students; Chegg’s ability to build and expand
its services offerings; Chegg’s ability to integrate acquired
businesses and assets; the impact of seasonality and student
behavior on the business; the outcome of any current litigation and
investigations; Chegg’s ability to effectively control operating
costs; regulatory changes, in particular concerning privacy,
marketing, and education; changes in the education market,
including as a result of AI technology and COVID-19; and general
economic, political and industry conditions, including inflation,
recession and war. 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 Annual Report on Form 10-K for the year ended
December 31, 2022 filed with the Securities and Exchange Commission
on February 21, 2023, and could cause actual results to differ
materially from expectations.
CHEGG, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except for
number of shares and par value)
(unaudited)
March 31, 2023
December 31,
2022
Assets
Current assets
Cash and cash equivalents
$
281,302
$
473,677
Short-term investments
277,864
583,973
Accounts receivable, net of allowance of
$344 and $394 at March 31, 2023 and December 31, 2022,
respectively
22,000
23,515
Prepaid expenses
25,486
28,481
Other current assets
30,832
34,754
Total current assets
637,484
1,144,400
Long-term investments
613,863
216,233
Property and equipment, net
201,305
204,383
Goodwill
622,679
615,093
Intangible assets, net
73,086
78,333
Right of use assets
29,770
18,838
Deferred tax assets
163,776
167,524
Other assets
19,824
20,612
Total assets
$
2,361,787
$
2,465,416
Liabilities and stockholders'
equity
Current liabilities
Accounts payable
$
13,058
$
12,367
Deferred revenue
58,568
56,273
Accrued liabilities
68,026
70,234
Total current liabilities
139,652
138,874
Long-term liabilities
Convertible senior notes, net
1,189,650
1,188,593
Long-term operating lease liabilities
23,064
13,375
Other long-term liabilities
2,662
7,985
Total long-term liabilities
1,215,376
1,209,953
Total liabilities
1,355,028
1,348,827
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value per
share, 10,000,000 shares authorized, no shares issued and
outstanding
—
—
Common stock, $0.001 par value per share:
400,000,000 shares authorized; 119,628,297 and 126,473,827 shares
issued and outstanding at March 31, 2023 and December 31, 2022,
respectively
120
126
Additional paid-in capital
1,120,344
1,244,504
Accumulated other comprehensive loss
(45,338
)
(57,488
)
Accumulated deficit
(68,367
)
(70,553
)
Total stockholders' equity
1,006,759
1,116,589
Total liabilities and stockholders'
equity
$
2,361,787
$
2,465,416
CHEGG, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per
share amounts)
(unaudited)
Three Months Ended
March 31,
2023
2022
Net revenues
$
187,601
$
202,244
Cost of revenues(1)
49,150
55,085
Gross profit
138,451
147,159
Operating expenses:
Research and development(1)
46,907
52,415
Sales and marketing(1)
37,017
42,498
General and administrative(1)
58,973
46,870
Total operating expenses
142,897
141,783
(Loss) income from operations
(4,446
)
5,376
Interest expense, net and other income,
net:
Interest expense, net
(1,268
)
(1,597
)
Other income, net
12,076
6,180
Total interest expense, net and other
income, net
10,808
4,583
Income before provision for income
taxes
6,362
9,959
Provision for income taxes
(4,176
)
(4,217
)
Net income
$
2,186
$
5,742
Net income per share
Basic
$
0.02
$
0.04
Diluted
$
0.02
$
0.04
Weighted average shares used to compute
net income per share
Basic
123,710
132,162
Diluted
124,304
133,270
(1) Includes share-based compensation
expense as follows:
Cost of revenues
$
527
$
623
Research and development
10,914
11,776
Sales and marketing
2,499
4,386
General and administrative
19,806
16,299
Total share-based compensation expense
$
33,746
$
33,084
CHEGG, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
2023
2022
Cash flows from operating
activities
Net income
$
2,186
$
5,742
Adjustments to reconcile net income to net
cash provided by operating activities:
Share-based compensation expense
33,746
33,084
Other depreciation and amortization
expense
25,543
20,285
Deferred income taxes
3,441
(746
)
Operating lease expense, net of
accretion
1,496
1,640
Amortization of debt issuance costs
1,057
1,382
Gain on foreign currency remeasurement of
purchase consideration
—
(4,628
)
Print textbook depreciation expense
—
1,521
Loss from write-off of property and
equipment
120
626
Gain on textbook library, net
—
(610
)
Other non-cash items
(5
)
9
Change in assets and liabilities, net of
effect of acquisition of business:
Accounts receivable
1,578
292
Prepaid expenses and other current
assets
8,485
21,722
Other assets
2,803
8,342
Accounts payable
(336
)
(7,534
)
Deferred revenue
2,012
8,554
Accrued liabilities
(2,569
)
(7,555
)
Other liabilities
(6,397
)
(2,091
)
Net cash provided by operating
activities
73,160
80,035
Cash flows from investing
activities
Purchases of property and equipment
(17,166
)
(29,533
)
Purchases of textbooks
—
(3,692
)
Proceeds from disposition of textbooks
—
2,499
Purchases of investments
(497,372
)
(273,280
)
Maturities of investments
407,759
342,059
Acquisition of business, net of cash
acquired
—
(401,125
)
Net cash used in investing activities
(106,779
)
(363,072
)
Cash flows from financing
activities
Proceeds from common stock issued under
stock plans, net
145
456
Payment of taxes related to the net share
settlement of equity awards
(7,736
)
(7,467
)
Repurchases of common stock
(151,311
)
(300,450
)
Net cash used in financing activities
(158,902
)
(307,461
)
Effect of exchange rate changes
187
4,628
Net decrease in cash, cash equivalents and
restricted cash
(192,334
)
(585,870
)
Cash, cash equivalents and restricted
cash, beginning of period
475,854
855,893
Cash, cash equivalents and restricted
cash, end of period
$
283,520
$
270,023
Three Months Ended
March 31,
2023
2022
Supplemental cash flow data:
Cash paid during the period for:
Interest
$
437
$
437
Income taxes, net of refunds
$
2,017
$
1,101
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows from operating
leases
$
2,866
$
1,852
Right of use assets obtained in exchange
for lease obligations:
Operating leases
$
12,407
$
2,715
Non-cash investing and financing
activities:
Accrued purchases of long-lived assets
$
3,941
$
5,778
March 31,
2023
2022
Reconciliation of cash, cash equivalents
and restricted cash:
Cash and cash equivalents
$
281,302
$
267,731
Restricted cash included in other current
assets
63
70
Restricted cash included in other
assets
2,155
2,222
Total cash, cash equivalents and
restricted cash
$
283,520
$
270,023
CHEGG, INC.
RECONCILIATION OF NET INCOME
TO EBITDA AND ADJUSTED EBITDA
(in thousands)
(unaudited)
Three Months Ended
March 31,
2023
2022
Net income
$
2,186
$
5,742
Interest expense, net
1,268
1,597
Provision for income taxes
4,176
4,217
Print textbook depreciation expense
—
1,521
Other depreciation and amortization
expense
25,543
20,285
EBITDA
33,173
33,362
Print textbook depreciation expense
—
(1,521
)
Share-based compensation expense
33,746
33,084
Other income, net
(12,076
)
(6,180
)
Acquisition-related compensation costs
2,460
3,079
Transitional logistics charges
253
348
Adjusted EBITDA
$
57,556
$
62,172
CHEGG, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands, except
percentages and per share amounts)
(unaudited)
Three Months Ended
March 31,
2023
2022
Operating expenses
$
142,897
$
141,783
Share-based compensation expense
(33,219
)
(32,461
)
Amortization of intangible assets
(2,911
)
(2,801
)
Acquisition-related compensation costs
(2,455
)
(3,069
)
Non-GAAP operating expenses
$
104,312
$
103,452
(Loss) income from operations
$
(4,446
)
$
5,376
Share-based compensation expense
33,746
33,084
Amortization of intangible assets
6,250
6,442
Acquisition-related compensation costs
2,460
3,079
Transitional logistics charges
253
348
Non-GAAP income from operations
$
38,263
$
48,329
Net income
$
2,186
$
5,742
Share-based compensation expense
33,746
33,084
Amortization of intangible assets
6,250
6,442
Acquisition-related compensation costs
2,460
3,079
Amortization of debt issuance costs
1,057
1,382
Transitional logistics charges
253
348
Income tax effect of non-GAAP
adjustments
(7,855
)
—
Non-GAAP net income
$
38,097
$
50,077
Weighted average shares used to compute
net income per share, diluted
124,304
133,270
Effect of shares related to convertible
senior notes
18,226
22,875
Non-GAAP weighted average shares used to
compute non-GAAP net income per share, diluted
142,530
156,145
Net income per share, diluted
$
0.02
$
0.04
Adjustments
0.25
0.28
Non-GAAP net income per share, diluted
$
0.27
$
0.32
CHEGG, INC.
RECONCILIATION OF NET CASH
PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(in thousands)
(unaudited)
Three Months Ended
March 31,
2023
2022
Net cash provided by operating
activities
$
73,160
$
80,035
Purchases of property and equipment
(17,166
)
(29,533
)
Purchases of textbooks
—
(3,692
)
Proceeds from disposition of textbooks
—
2,499
Free cash flow
$
55,994
$
49,309
CHEGG, INC.
RECONCILIATION OF
FORWARD-LOOKING NET LOSS TO EBITDA AND ADJUSTED EBITDA
(in thousands)
(unaudited)
Three Months Ending June 30,
2023
Net loss
$
(3,900
)
Interest expense, net
1,100
Provision for income taxes
2,600
Depreciation and amortization expense
26,400
EBITDA
26,200
Share-based compensation expense
37,000
Other income, net
(12,600
)
Acquisition-related compensation costs
3,400
Adjusted EBITDA*
$
54,000
* Adjusted EBITDA guidance for the three
months ending June 30, 2023 represent the midpoint of the range of
$53 million to $55 million.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230501005267/en/
Media Contact: Emma McCulloch, press@chegg.com Investor Contact:
Tracey Ford, IR@chegg.com
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