Chegg Subscribers increased 69%
year-over-year
Chegg, Inc. (NYSE:CHGG), a Smarter Way to Student®, today
reported financial results for the three months ended September 30,
2020.
“We have always said that the future of education was
inevitable; to become increasingly online, on demand, and more
affordable,” said Dan Rosensweig, CEO & President of Chegg,
Inc., “The trends we are seeing in the industry and the momentum we
are experiencing globally give us the confidence to raise our
guidance again for 2020 and provide our initial outlook for
2021.”
Q3 2020 Highlights:
- Total Net Revenues of $154.0 million, an increase of 64%
year-over-year
- Chegg Services Revenues grew 72% year-over-year to
$118.9 million, or 77% of total net revenues, compared to 74% in Q3
2019
- Net Loss was $37.1 million
- Non-GAAP Net Income was $24.1 million
- Adjusted EBITDA was $31.9 million
- 3.7 million: number of Chegg Services subscribers, an
increase of 69% year-over-year
- 252 million: total Chegg Study content views
Total net revenues include revenues from Chegg Services and
Required Materials. Chegg Services primarily includes Chegg Study,
Chegg Writing, Chegg Tutors, Chegg Math Solver, Thinkful, and
Mathway. Required Materials includes print textbooks and
eTextbooks.
For more information about non-GAAP net income and adjusted
EBITDA, and a reconciliation of non-GAAP net income to net loss,
and adjusted EBITDA to net loss, see the sections of this press
release titled “Use of Non-GAAP Measures,” “Reconciliation of Net
Loss to EBITDA and Adjusted EBITDA,” and “Reconciliation of GAAP to
Non-GAAP Financial Measures.”
Business Outlook:
Fourth Quarter 2020
- Total Net Revenues in the range of $188 million to $190
million
- Chegg Services Revenues in the range of $162 million to
$164 million
- Gross Margin between 72% and 73%
- Adjusted EBITDA in the range of $82 million to $84
million
Full Year 2020
- Total Net Revenues in the range of $626 million to $628
million
- Chegg Services Revenues in the range of $507 million to
$509 million
- Gross Margin between 68% and 69%
- Adjusted EBITDA in the range of $201 million to $203
million
Full Year 2021
- Total Net Revenues of approximately $775 million
- Chegg Services Revenues of approximately $655
million
- Gross Margin of approximately 70%
- Adjusted EBITDA of approximately $260 million
For more information about the use of forward-looking non-GAAP
measures, a reconciliation of forward-looking net income (loss) to
EBITDA and adjusted EBITDA for the fourth quarter 2020, full year
2020, and full year 2021, see the below sections of the press
release titled “Use of Non-GAAP Measures,” and “Reconciliation of
Forward-Looking Net Income (Loss) to EBITDA and Adjusted
EBITDA.”
An updated investor presentation and an investor data sheet can
be found on Chegg’s Investor Relations website http://investor.chegg.com.
Prepared Remarks - Dan Rosensweig, CEO
Chegg, Inc.
Thank you, Tracey and welcome everyone to Chegg’s third quarter
earnings call. First and foremost, we hope you and your families
continue to be healthy and well, as we all navigate these
unprecedented times. It has become apparent to us, that this
terrible pandemic has only further highlighted the need for higher
education to transition to a model that is more on-demand,
student-centric, affordable, and does a much better job of
leveraging technology to the advantage of the learner. As evident
in our Q3 results, students more than ever before are relying on
Chegg as they navigate their semesters, whether they are back on
campus or not. And while our business continues to have an
extraordinary year, more importantly, we are helping millions of
students get through these uncertain times. In Q3, we saw
subscriber growth of 69% year-over-year, reaching 3.7 million
students in the quarter. This yielded total net revenue growth of
64%, year-over-year. The inevitable trend towards online learning,
the clear need for high-quality online support, and the momentum we
are experiencing globally, gives us the confidence to raise our
guidance again for 2020 and provide our initial outlook for 2021.
Andy will walk you through all of these numbers shortly, but I
would like to take a moment to share with you why we believe our
results will continue to perform at such a high level.
Millions of students around the world are now asking for a
better return for their education and demanding a shift to the
model we always knew it would become: increasingly online,
on-demand, adaptive, affordable, personalized, and tailored to the
modern learner. Chegg has been focused on these things for years
so, we believe we are in the best position to not only expand
academic support to students but also expand support to learners
throughout their professional journey. We have tailored our efforts
to reach students on different paths, including more at online
schools and community colleges, and we are also seeing increasing
demand for online learning support from students around the
world.
Even before the global pandemic, there was a real question
around the ROI of a college education and students are demanding
the ability to learn faster, have their education directly connect
to their career path, and accelerate their path from learning to
earning. We know that the modern student also looks very different
than they once did. They are older, many have families, they are
juggling work and school at the same time, so it comes as no
surprise that they need more flexibility when it comes to their
learning. More than ever before, like everything else in their
lives - entertainment, dining, banking - they expect education to
come to them, at the time that is most convenient for them, in the
format that they want, at a price they can afford, and that
provides a real ROI. Chegg’s online learning support platform is
designed to serve the students in just this way.
As a leader in education, we believe Chegg has more direct to
student relationships than any other institution, so we are often
asked if what we are seeing and experiencing across the industry
will continue. Our recent research shows that two thirds of U.S.
undergraduates who were asked about their experiences during the
recent lockdowns said they would welcome more online education
after the pandemic ends. Recent studies also show that the majority
of students feel their institution’s main priority should be new
ways of finding them a job or an internship. We are seeing a change
at the institutional level also, as approximately half of
professors now feel online education is an effective teaching
method, and feel better prepared to teach online, up from
approximately 38% in May. We believe that as students get older,
and learn in different environments, their need for high-quality,
online academic support will continue to grow.
What this means for Chegg is there’s an overwhelming need for
the services we provide, and we see that in the increased demand
and engagement across all our platforms, all over the world. And,
as students rely on Chegg for more academic support, we continue to
expand what we offer, more recently with the acquisition of
Mathway. These expanded offerings will also increase the value
proposition for Chegg Study Pack, which is why we are seeing higher
than expected take rates for that offering, including
internationally. Across our businesses, we are seeing extraordinary
growth right now. In the U.S., we are seeing growth from many
sectors – including students who are taking more courses online,
increased penetration into online colleges, and the impact of our
technology efforts to reduce account sharing, which was first
rolled out in August and more recently, we began to launch
multi-factor authentication across the platform as well.
Internationally, the sudden move off campus created an immediate
need for online support and introduced students to Chegg in record
numbers, accelerating our growth around the world. When you look at
the demographics outside of the United States, over 50% of the
population is under the age of 30 and they are looking to improve
their lives through education. It is clear they need scalable,
on-demand support for their courses, which is why they are turning
to Chegg. We now provide services to students in over 190 countries
and, in Q3 alone, we saw 25% of new questions asked and answered
from students outside the United States. This indicates how
powerful our model is and that it is a very cost-effective way for
us to acquire local content and local audiences, at scale.
Collectively, we saw 252 million content views in the quarter, an
increase of 82% year-over-year. It is increasingly evident that, in
the mind of the students around the world, the need for Chegg is
very real.
The other inevitable trend that we have identified is that
students everywhere are seeking alternative, less expensive,
pathways to pursue their careers. That is why we invested in
Thinkful and in skills-based learning. We think our strategy of
increasing the curriculum to match to the most in-demand jobs,
lowering our prices, offering Income Sharing Agreements, and
building in live chat support is a better model than anyone else
has to offer.
And while we continue to navigate this complicated time in our
history, while so many things have changed, some things remain the
same. There will always be a need for students to learn new skills
in order to improve their opportunities. There will always be
institutional pathways, but they will now be both offline and
online. There has always been a need to connect academic to
professional pathways and we believe this moment in time will
create a major acceleration of that trend. That is why we built
Chegg, from day one, to be an advocate for this transition in
higher education and why we continue to invest in supporting anyone
on their learning journey. This is why we are reinventing the model
of learning to earning, with lower priced, higher quality, human
support, at scale - all exclusively online. And building a company
like this can only be done by people who are dedicated to the
mission of putting students first. So, on that note, I want to take
a moment to congratulate the incredible Chegg team for, once again,
being honored this year as one of Fortune Magazine’s Great Places
to Work for the third year in a row. It’s a real Chegg threepeat! I
could not be prouder of this incredible group of employees who have
remained so focused and executed so brilliantly during this unusual
time in the world and I want to thank them for everything they do
to make Chegg great.
And, with that, I will turn it over to Andy. Andy?
Prepared Remarks - Andy Brown, CFO
Chegg, Inc.
Thanks Dan and good afternoon everyone.
First and foremost, I hope you and your families are staying
safe during these difficult times. As you can see from the results,
Chegg had another great quarter with our business metrics and
financials once again ahead of our expectations. During the quarter
we also executed a very well received convertible debt offering.
The success we are experiencing both domestically and
internationally give us the confidence to raise our guidance again
for 2020 and, as we have for the past 4 years, provide an early
initial outlook for next year, despite ongoing economic
uncertainties.
Looking specifically at the third quarter, total revenue was
$154 million, a 64% increase over Q3 2019, driven primarily by 69%
subscriber growth to 3.7 million, as we continue to see significant
growth opportunities in both domestic and increasingly in
international markets.
Adjusted EBITDA for the quarter was well ahead of what we
expected at $32 million, as we continue to see strong leverage in
the model, all while making incremental investments to build for
the future.
We ended the quarter with approximately $1.8 billion of cash and
investments. In the quarter, we completed a very issuer friendly
convertible debt offering along with a concurrent exchange of
approximately 50% of the outstanding principal on our 2023 notes
that were deep in-the-money. We expect to use the cash on our
balance sheet and future operating cash flows to fund our current
business, including potential acquisitions and to call or
repurchase outstanding notes at opportunistic times to minimize
shareholder dilution from these instruments. We continue to believe
the combination of our scale, balance sheet, operating model and
cash flows are the strongest in the education industry which we
believe provide a significant advantage to both our customers and
our shareholders.
Moving on to guidance. Based on the strong results from Q3 and
the continued momentum we are experiencing, we are increasing our
guidance for 2020.
For Q4 we now expect:
- Total revenue between $188 and $190 million, with Chegg
Services between $162 and $164 million;
- Gross margin between 72 and 73%;
- And adjusted EBITDA between $82 and $84 million
As a result, we are increasing our full year 2020 guidance and
now expect:
- Total revenue between $626 and $628 million, with Chegg
Services between $507 and $509 million;
- Gross margin between 68 and 69%;
- And adjusted EBITDA between $201 and $203 million.
Turning to 2021:
Our initial expectation for total revenue is approximately $775
million, with Chegg Services revenue growing to approximately $655
million. We expect gross margin to be approximately 70% and expect
continued leverage in the model with adjusted EBITDA expanding to
approximately $260 million, increasing adjusted EBITDA margin more
than 150 basis points over 2020.
In closing, we had another strong quarter in Q3. We delivered
above the high end of our expectations, giving us confidence to
increase Q4 and full year guidance, and provide a strong initial
outlook for 2021. It is becoming increasingly clear that our model
is the envy of the education landscape, by serving students
directly with high value, affordable services, while improving
their outcomes, helping them move from learning to earning.
With that, I’ll turn the call over to the operator for your
questions.
Conference Call and Webcast
Information
To access the call, please dial 1-877-407-4018, or outside the
U.S. +1-201-689-8471, five minutes prior to 1:30 p.m. Pacific
Daylight Time (or 4:30 p.m. Eastern Daylight Time). A live webcast
of the call will also be available at http://investor.chegg.com under the Events &
Presentations menu. An audio replay will be available beginning at
4:30 p.m. Pacific Daylight Time (or 7:30 p.m. Eastern Daylight
Time) on October 26, 2020, until 8:59 p.m. Pacific Daylight Time
(or 11:59 p.m. Eastern Daylight Time) on November 2, 2020, by
calling 1-844-512-2921, or outside the U.S. +1-412-317-6671, with
Conference ID 13711524. An audio archive of the call will also be
available at http://investor.chegg.com.
Use of Investor Relations Website for
Regulation FD Purposes
Chegg also uses its media center website, http://www.chegg.com/press, as a means of
disclosing material non-public information and for complying with
its disclosure obligations under Regulation FD. Accordingly,
investors should monitor http://www.chegg.com/press, in addition to
following press releases, Securities and Exchange Commission
filings and public conference calls and webcasts.
About Chegg
Chegg is a Smarter Way to Student. As the leading
direct-to-student learning platform, we strive to improve
educational outcomes by putting the student first in all our
decisions. We support students on their journey from high school to
college and into their career with tools designed to help them pass
their test, pass their class, and save money on required materials.
Our services are available online, anytime and anywhere, so we can
reach students when they need us most. Chegg is a publicly held
company based in Santa Clara, California and trades on the NYSE
under the symbol CHGG. For more information, visit www.chegg.com.
Use of Non-GAAP Measures
To supplement Chegg’s financial results presented in accordance
with generally accepted accounting principles in the United States
(GAAP), this press release and the accompanying tables and the
related earnings conference call contain non-GAAP financial
measures, including adjusted EBITDA, non-GAAP operating expenses,
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 Loss to EBITDA and Adjusted EBITDA,” “Reconciliation of GAAP to
Non-GAAP Financial Measures,” “Reconciliation of Net Cash Provided
by Operating Activities to Free Cash Flow,” and “Reconciliation of
Forward-Looking Net Income (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 (expense) income,
net, restructuring charges, acquisition-related compensation costs,
the loss from impairment on strategic equity investment and the
donation from Chegg Foundation; (2) non-GAAP operating expenses as
operating expenses excluding share-based compensation expense,
amortization of intangible assets, restructuring charges,
acquisition-related compensation costs, the loss from impairment on
strategic equity investment and the donation from Chegg Foundation;
(3) non-GAAP income from operations as (loss) income from
operations excluding share-based compensation expense, amortization
of intangible assets, restructuring charges, acquisition-related
compensation costs, the loss from impairment on strategic equity
investment and the donation from Chegg Foundation; (4) non-GAAP net
income as net loss excluding share-based compensation expense,
amortization of intangible assets, restructuring charges,
acquisition-related compensation costs, the loss from impairment on
strategic equity investment, the donation from Chegg Foundation,
amortization of debt discount and issuance costs, and the loss on
early extinguishment of debt; (5) non-GAAP weighted average shares
outstanding as weighted average shares outstanding adjusted for the
effect of dilutive options, restricted stock units, and shares
related to our convertible senior notes; (6) non-GAAP net income
per share is defined as non-GAAP net income divided by non-GAAP
weighted average shares outstanding; and (7) free cash flow as net
cash provided by operating activities excluding purchases of
property and equipment, 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 Loss to EBITDA and
Adjusted EBITDA,” “Reconciliation of GAAP to Non-GAAP Financial
Measures,” “Reconciliation of Forward-Looking Net Income (Loss) to
EBITDA and Adjusted EBITDA,” and “Reconciliation of Net Cash
Provided by Operating Activities to Free Cash Flow” tables below,
each of the non-GAAP financial measures excludes one or more of the
following items:
Share-based compensation expense.
Share-based compensation expense is a non-cash expense that
varies in amount from period to period and is dependent on market
forces that are often beyond Chegg's control. As a result,
management excludes this item from Chegg's internal operating
forecasts and models. Management believes that non-GAAP measures
adjusted for share-based compensation expense provide investors
with a basis to measure Chegg's core performance against the
performance of other companies without the variability created by
share-based compensation as a result of the variety of equity
awards used by other companies and the varying methodologies and
assumptions used.
Amortization of intangible assets.
Chegg amortizes intangible assets that it acquires in
conjunction with business combinations, which results in non-cash
operating expenses that would not otherwise have been incurred had
Chegg internally developed such intangible assets. Chegg believes
excluding the accounting expense associated with acquired
intangible assets from non-GAAP measures allows for a more accurate
assessment of its ongoing operations.
Restructuring charges.
Restructuring charges primarily relate to Chegg's strategic
partnership with the National Research Center for College &
University Admissions. These restructuring charges are excluded
from non-GAAP financial measures because they are the result of
discrete events that are not considered core-operating activities.
Chegg believes that it is appropriate to exclude restructuring
charges from non-GAAP financial measures because it enables the
comparison of period-over-period operating results from continuing
operations.
Acquisition-related compensation costs.
Acquisition-related compensation costs include compensation
expense resulting from the employment retention of certain key
employees established in accordance with the terms of the
acquisitions. In most cases, these acquisition-related compensation
costs are not factored into management's evaluation of potential
acquisitions or Chegg's performance after completion of
acquisitions, because they are not related to Chegg's core
operating performance. In addition, the frequency and amount of
such charges can vary significantly based on the size and timing of
acquisitions and the maturities of the businesses being acquired.
Excluding acquisition-related compensation costs from non-GAAP
measures provides investors with a basis to compare Chegg’s results
against those of other companies without the variability caused by
purchase accounting.
Amortization of debt discount and issuance costs.
Under GAAP, we are required to separately account for the
liability (debt) and equity (conversion option) components of our
convertible senior notes that were issued in private placements.
Accordingly, for GAAP purposes we are required to recognize the
effective interest expense on our convertible senior notes and
amortize the debt discount and issuance costs over the term of the
notes. The difference between the effective interest expense and
the contractual interest expense are excluded from management's
assessment of our operating performance because management believes
that these non-cash expenses are not indicative of ongoing
operating performance. Chegg believes that the exclusion of the
non-cash interest expense provides investors an enhanced view of
our performance and enables the comparison of period-over-period
results.
Loss on early extinguishment of debt.
In August 2020, in connection with our issuance of 0%
convertible senior notes due in 2026, we exchanged $172.0 million
aggregate principal amount of 0.25% convertible senior notes due in
2023 (2023 notes) and we have also settled immaterial conversion
requests for our 2023 notes. Under GAAP, we are required to compare
the fair value of exchanged or converted notes to the respective
carrying amount of the liability component and record a gain or
loss. The loss on early extinguishment of debt is a non-cash
expense, and we believe its exclusion provides investors with a
better comparison of period-over-period results.
Loss from impairment of strategic equity investment.
The loss from impairment of strategic equity investment
represents a one-time event to record an impairment charge on our
strategic equity investment in WayUp, Inc. The loss from impairment
of strategic equity investment is a non-cash expense and we believe
the exclusion of the impairment charge from non-GAAP financial
measures provides investors with a better comparison of
period-over-period results.
Donation from Chegg Foundation.
The donation from Chegg Foundation represents a one-time event
to transfer funds to a third party, for the benefit of Chegg.org,
our not for profit arm of Chegg. Chegg believes that it is
appropriate to exclude the donation from Chegg Foundation from
non-GAAP financial measures because it is the result of a discrete
event that is not considered a core-operating activity and enables
the comparison of period-over-period operating results.
Free cash flow.
Free cash flow represents net cash provided by operating
activities excluding purchases of property and equipment 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 the impact of the ongoing coronavirus
(COVID-19) pandemic on Chegg’s financial condition and results of
operations, Chegg's continued momentum and 2020 guidance; and those
included in the investor presentation referenced above, those
included in the “Prepared Remarks” sections above, and all
statements about Chegg’s outlook under “Business Outlook.” The
words “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“project,” “endeavor,” “will,” “should,” “future,” “transition,”
“outlook” and similar expressions, as they relate to Chegg, are
intended to identify forward-looking statements. These statements
are not guarantees of future performance, and are based on
management’s expectations as of the date of this press release and
assumptions that are inherently subject to uncertainties, risks and
changes in circumstances that are difficult to predict.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results,
performance or achievements to differ materially from any future
results, performance or achievements. Important factors that could
cause actual results to differ materially from those expressed or
implied by these forward-looking statements include the following:
Chegg’s ability to attract new students, increase engagement and
increase monetization; the ongoing uncertainty regarding the return
of students to in-person studies and remote learning, and the
effects of COVID-19 on college enrollment; Chegg’s ability to
attract new students from high schools and colleges, which are
populations with inherently high turnover; the ease of accessing
Chegg’s offerings through search engines; the rate of adoption of
Chegg’s offerings; the effect and integration of Chegg’s
acquisition of Imagine Easy Solutions, Cogeon, WriteLab, StudyBlue,
Thinkful, and Mathway; Chegg’s ability to strategically take
advantage of new opportunities; competitive developments, including
pricing pressures and other services targeting students; Chegg’s
anticipated growth of Chegg Services; Chegg’s ability to build and
expand its services offerings; Chegg’s ability to develop new
products and services on a cost-effective basis and to integrate
acquired businesses and assets; the impact of seasonality on the
business; Chegg's reputation with students and tutors; the outcome
of any current litigation and investigations; the ability of our
logistics partners to manage the fulfillment processes; the effect
of Chegg's transition to using FedEx as its logistics partner;
Chegg’s ability to effectively control operating costs; changes in
Chegg’s addressable market; regulatory changes, in particular
concerning education, privacy and marketing; changes in the
education market; and general economic, political and industry
conditions, including the ongoing COVID-19 pandemic. All
information provided in this release and in the conference call is
as of the date hereof and Chegg undertakes no duty to update this
information except as required by law. These and other important
risk factors are described more fully in documents filed with the
Securities and Exchange Commission, including Chegg’s Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2020
filed with the Securities and Exchange Commission on August 3, 2020
and Chegg's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2020 to be filed with the Securities and
Exchange Commission, and could cause actual results to vary from
expectations.
CHEGG, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except for
number of shares and par value)
(unaudited)
September 30, 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
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(1)
62,370
22,164
148,284
66,017
Gross profit
91,648
71,987
290,333
219,405
Operating expenses:
Research and development(1)
44,041
36,442
123,956
101,199
Sales and marketing(1)
24,625
16,822
60,621
47,334
General and administrative(1)
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
(1) Includes share-based compensation
expense as follows:
Cost of revenues
$
262
$
96
$
644
$
295
Research and development
8,433
5,741
23,044
15,876
Sales and marketing
2,431
1,843
7,053
5,405
General and administrative
10,403
9,185
28,668
25,779
Total share-based compensation expense
$
21,529
$
16,865
$
59,409
$
47,355
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
CHEGG, INC.
RECONCILIATION OF NET LOSS TO
EBITDA AND ADJUSTED EBITDA
(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
)
Interest expense, net
17,468
13,548
44,320
31,294
Provision for income taxes
1,066
623
2,875
1,832
Print textbook depreciation expense
3,637
—
10,699
—
Other depreciation and amortization
expense
13,254
7,435
33,088
21,369
EBITDA
(1,715
)
10,129
58,718
36,671
Print textbook depreciation expense
(3,637
)
—
(10,699
)
—
Share-based compensation expense
21,529
16,865
59,409
47,355
Other (expense) income, net
804
(7,751
)
(7,396
)
(14,571
)
Restructuring charges
—
28
—
97
Acquisition-related compensation costs
4,945
2,309
9,161
6,988
Loss from impairment of strategic equity
investment
10,000
—
10,000
—
Donation from Chegg Foundation
—
1,478
—
1,478
Adjusted EBITDA
$
31,926
$
23,058
$
119,193
$
78,018
CHEGG, INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(in thousands, except
percentages and per share amounts)
(unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Operating expenses
$
109,450
$
77,044
$
282,798
$
218,674
Share-based compensation expense
(21,267
)
(16,769
)
(58,765
)
(47,060
)
Amortization of intangible assets
(4,408
)
(1,490
)
(9,875
)
(4,993
)
Restructuring charges
—
(28
)
—
(97
)
Acquisition-related compensation costs
(4,945
)
(2,309
)
(9,161
)
(6,988
)
Loss from impairment of strategic equity
investment
(10,000
)
—
(10,000
)
—
Donation from Chegg Foundation
—
(1,478
)
—
(1,478
)
Non-GAAP operating expenses
$
68,830
$
54,970
$
194,997
$
158,058
(Loss) income from operations
$
(17,802
)
$
(5,057
)
$
7,535
$
731
Share-based compensation expense
21,529
16,865
59,409
47,355
Amortization of intangible assets
4,408
1,490
9,875
4,993
Restructuring charges
—
28
—
97
Acquisition-related compensation costs
4,945
2,309
9,161
6,988
Loss from impairment of strategic equity
investment
10,000
—
10,000
—
Donation from Chegg Foundation
—
1,478
—
1,478
Non-GAAP income from operations
$
23,080
$
17,113
$
95,980
$
61,642
Net loss
$
(37,140
)
$
(11,477
)
$
(32,264
)
$
(17,824
)
Share-based compensation expense
21,529
16,865
59,409
47,355
Amortization of intangible assets
4,408
1,490
9,875
4,993
Restructuring charges
—
28
—
97
Acquisition-related compensation costs
4,945
2,309
9,161
6,988
Amortization of debt discount and issuance
costs
17,018
13,089
42,910
30,114
Loss on early extinguishment of debt
3,315
—
3,315
—
Loss from impairment of strategic equity
investment
10,000
—
10,000
—
Donation from Chegg Foundation
—
1,478
—
1,478
Non-GAAP net income
$
24,075
$
23,782
$
102,406
$
73,201
Weighted average shares used to compute
net loss per share
126,194
120,085
124,162
118,547
Effect of shares for stock plan
activity
4,268
5,960
4,406
7,670
Effect of shares related to convertible
senior notes
8,721
4,098
4,422
3,709
Non-GAAP weighted average shares used to
compute non-GAAP net income per share
139,183
130,143
132,990
129,926
Net loss per share
$
(0.29
)
$
(0.10
)
$
(0.26
)
$
(0.15
)
Adjustments
0.46
0.28
1.03
0.71
Non-GAAP net income per share
$
0.17
$
0.18
$
0.77
$
0.56
CHEGG, INC.
RECONCILIATION OF NET CASH
PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(in thousands)
(unaudited)
Nine Months Ended September
30,
2020
2019
Net cash provided by operating
activities
$
168,655
$
86,575
Purchases of property and equipment
(57,457
)
(31,520
)
Purchases of textbooks
(49,641
)
—
Proceeds from disposition of textbooks
7,012
—
Free cash flow
$
68,569
$
55,055
CHEGG, INC.
RECONCILIATION OF
FORWARD-LOOKING NET INCOME (LOSS) TO EBITDA AND ADJUSTED
EBITDA
(in thousands)
(unaudited)
Three Months
Ending
Year Ending
Year Ending
December 31,
December 31,
December 31,
2020
2020
2021
Net income (loss)
$
18,600
$
(13,900
)
$
73,000
Interest expense, net*
22,300
66,600
8,300
Provision for income taxes
1,100
4,000
5,200
Print textbook depreciation expense
4,600
15,300
15,000
Other depreciation and amortization
expense
13,800
46,900
58,200
EBITDA
60,400
118,900
159,700
Print textbook depreciation expense
(4,600
)
(15,300
)
(15,000
)
Share-based compensation expense
24,600
84,000
108,000
Other income, net
(2,300
)
(9,700
)
(4,700
)
Acquisition-related compensation costs
4,900
14,100
12,000
Loss from impairment of strategic equity
investment
—
10,000
—
Adjusted EBITDA**
$
83,000
$
202,000
$
260,000
* Interest expense, net guidance for the year ending December
31, 2021 represents the impact of the early adoption of Accounting
Standards Update (ASU) 2020-06, Accounting for Convertible
Instruments and Contracts in an Entity's Own Equity on January 1,
2021. ASU 2020-06 removes the cash conversion feature separation
model for convertible instruments which we believe will result in
lower non-cash interest expense related to the amortization of debt
discount for the year ending December 31, 2021. We will continue to
evaluate the impacts of this guidance as we near our adoption
date.
** Adjusted EBITDA guidance for the three months ending
September 30, 2020 and year ending December 31, 2020 represents the
midpoint of the ranges of $82 million to $84 million and $201
million to $203 million, respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201026005791/en/
Media Contact: press@chegg.com Investor Contact: Tracey Ford,
IR@chegg.com
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