Chegg Reports 2023 Fourth Quarter and Full Year Financial Results
“It’s an exciting time at
Q4 2023 Highlights:
-
Total Net Revenues of
$188.0 million , a decrease of 8% year-over-year -
Subscription Services Revenues of
$166.3 million , or 88% of total net revenues, a decrease of 6% year-over-year - Gross Margin of 76%
- Non-GAAP Gross Margin of 78%
-
Net Income was
$9.7 million -
Non-GAAP Net Income was
$42.7 million -
Adjusted EBITDA was
$66.2 million - 4.6 million Subscription Services subscribers, a decrease of 9% year-over-year
Full Year 2023 Highlights:
-
Total Net Revenues of
$716.3 million , a decrease of 7% year-over-year -
Subscription Services Revenues of
$640.5 million , or 89% of total net revenues, a decrease of 5% year-over-year -
Gross Margin of 68% driven lower by a one-time content and related assets charge of
$38.2 million - Non-GAAP Gross Margin of 76%
-
Net Income was
$18.2 million -
Non-GAAP Net Income was
$141.8 million -
Adjusted EBITDA was
$222.4 million - 7.7 million Subscription Services subscribers, a decrease of 6% 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
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:
First Quarter 2024
-
Total Net Revenues in the range of
$173 million to$175 million -
Subscription Services Revenues in the range of
$155 million to$157 million - Gross Margin between 73% and 74%
-
Adjusted EBITDA in the range of
$43 million to$45 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 first quarter 2024, 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 http://investor.chegg.com.
Prepared Remarks -
Thank you, Tracey, and welcome everyone to our 2023 Q4 earnings call. To start, I am pleased to announce the appointment of
Now, back to the business at hand.
The process of embedding AI into every facet of Chegg’s platform is ongoing and iterative as we build a truly personalized learning assistant; a service that anticipates the students’ needs, adapts to their strengths and weaknesses, and supports them academically, professionally, and personally. There are numerous ways we intend to aggressively market our new product experience because the data tells us that, once a student tries us, they love us. Internationally, we focused our biggest effort on testing promotional pricing to convert the millions of students who have entered the funnel but did not yet subscribe. Additionally, we are building sharing into our service to increase word of mouth, expanding our presence on TikTok, and enhancing our SEO with increased questions from automated answers. Our business model benefits from more students asking more questions - as we index those questions in to search and other platforms - to drive even more customers.
Let me provide a little context. Since introducing automated answers in late December, we’ve seen a significant increase in the number of students asking new questions, as well as the number of questions per student. This is because our new automated service is delivering quality and accuracy almost immediately, which is a huge benefit to students. By building our own language models, along with our algorithms to check for quality, students can feel confident in what they are learning on
Importantly – as we scale – to ensure we meet our standards of accuracy and quality; we expect to launch the rest of our proprietary models by the end of Q1. These models are being trained on Chegg’s data and we are leveraging our 150 thousand subject matter experts to optimize our solutions for learning. In education, students cannot afford the illusion of accuracy to learn, they need it to be correct, immediate, and personalized. We believe this is what
The overall benefit of our new service to students is enormous and there are also significant benefits to
We are confident in the value of our new product and because of that confidence, and to be more competitive, we began testing promotional pricing in international markets in the middle of last year. We believed that if we could introduce our offering to more global learners, they would find the value and benefit of
As we have said, online learning support and skills-based learning are a huge market, and they are only getting bigger. AI is still in its infancy and our product roadmap is ambitious and exciting. Throughout 2024, we are introducing more AI-driven capabilities, such as conversational chat, which continues to layer in personalization and interactivity for our learners. We also plan to integrate personalized learning tools such as practice questions, flashcards, and study guides to our conversational learning experience. Looking beyond 2024, as AI automated translation gets better and cheaper, we plan to expand the localization of our offerings to non-English speaking users.
We also plan to build out more AI capabilities within Chegg Skills and integrate pathways for students with assessments and other tools. We are already seeing a reduction in the time it takes to launch new Skills programs by approximately 40%, which allows us to offer new courses at greater speeds and will significantly reduce our costs. And the importance of skills-based training has never been more critical. In fact, half of recent graduates are questioning how prepared they are to enter the workforce given the disruption of artificial intelligence. And employers agree, as 79% say that workers need more training to work with AI more effectively. So, the opportunity for Chegg Skills has never been greater or more important.
There are number of exciting opportunities ahead of us and in 2024 we remain focused on the following priorities;
- Returning to new account growth globally;
- Maintaining strong margins and cash flow;
- Rolling out the next phase of Chegg’s enhanced AI services;
- And leveraging our momentum in Skills for continued growth.
Every decade or so the pace of technological innovation accelerates, and new growth opportunities open up. The history of the internet has shown us that vertical players who know their customer, have reach, proprietary content, and can provide a personalized user experience will win and win big. Given the strength of our brand, with over 90% of our customers reporting they are satisfied with Chegg’s service, we believe we are well positioned to do just that in our sector.
Before I turn it over to Andy, I want to again thank him for all he has done for
Prepared Remarks -
Thanks, Dan, for those kind words, but more importantly congratulations David, on a well-deserved promotion and I look forward to working with you as you transition into your new role over the next few weeks.
Today, I will discuss our financial performance for the fourth quarter and full year 2023, as well as our outlook for the first quarter of 2024.
As Dan mentioned, we ended the year on a positive note, with total revenue, adjusted EBITDA and free cash flow all coming in above the high end of our expectations. While the year had its challenges, we executed well on our plan to reinvent the way we help students navigate their learning experience by leveraging AI, and we continued to see strong profitability and cash flows. This, along with the strength of our balance sheet, gave us the confidence to extinguish a significant amount of our debt at a discount and repurchase shares, which we believe have, and will continue to, enhance shareholder value.
Looking more specifically at our 2023 performance, total revenue was
Looking at Q4, total revenue came in above the high end of our guidance at
Looking at the balance sheet, we ended the year with cash and investments of
Our business is somewhat unique given our subscription model and the lifecycle of a student. While we are seeing encouraging signs in the business, it is too early to predict when we will return to revenue and margin growth. The green shoots in engagement, acquisitions, and retention will take time to build our renewal base before we see a positive impact on total subscribers and revenue. In the meantime, we will continue to be prudent with expense management and prioritization, while we continue to drive strong profitability and cash flows.
With respect to Q1 guidance we expect:
-
Total revenue between
$173 and$175 million , with Subscription Services revenue between$155 and$157 million ; - Gross margin to be in the range of 73 and 74 percent;
-
And adjusted EBITDA between
$43 and$45 million .
In closing, I am proud of what we have accomplished during my 12.5 years at
With that, I’ll turn the call over to the operator for your questions.
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Use of Non-GAAP Measures
To supplement Chegg’s financial results presented in accordance with generally accepted accounting principles in
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.
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 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
Amortization of 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
Content and related assets charge
As part of the design and build of our new generative AI experience, in
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.
Restructuring charges
Restructuring charges represent expenses incurred in conjunction with a reduction in workforce to better position us to execute against our AI strategy and to create long-term, sustainable value for its students and investors.
Loss contingency
The loss contingency represents a one-time accrual in connection with a demand for repayment of certain investment proceeds received in our capacity as an investor in
Gain on early extinguishment of debt
The difference between the carrying amount of early extinguished debt and the reacquisition price is excluded from management's assessment of our operating performance because management believes that these non-cash gains are not indicative of ongoing operating performance.
Income tax effect of non-GAAP adjustments
In the periods following the release of our
Tax benefit related to release of valuation allowance
The tax benefit related to the release of the valuation allowance on our
Transitional logistics charges
The transitional logistics charges represent incremental expenses incurred as we transition our print textbooks to a new third party logistics provider.
Realized loss on sale of investments
The realized loss on sale of investments represents the one-time sale of certain investments primarily to align with our updated investment policy.
Impairment of lease related assets
The impairment of lease related assets represents a non-cash impairment charge recorded on the ROU asset and leasehold improvements associated with the closure of certain corporate offices. The impairment of lease related assets is a one-time 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.
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.
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 ability to leverage AI and make it the core of everything we do, our proprietary algorithms optimizing the quality and accuracy of our exclusive content, our ability to compete more aggressively for new customers around the world, the results for students and our business of our packaging, pricing, and product strategy, our embedding of AI into every facet of our platform, our ability to build a truly personalized learning assistant (including a service that anticipates student needs, adapts to their strengths and weaknesses, and supports them academically, professionally, and personally), the ways we intend to aggressively market our new product experience, our ability to use international promotional pricing to convert the millions of students who have entered the funnel but did not yet subscribe to our service, our building of sharing into our service to increase word of mouth, expanding our presence on TikTok, enhancing our search engine optimization with increased questions from automated answers, our business model benefiting from more students asking more questions, as we index those questions into search and other platforms, to drive even more customers, trends of a significant increase in the number of students asking new questions and the number of questions per student since introducing automated answers in late
CONSOLIDATED BALANCE SHEETS (in thousands, except for number of shares and par value) (unaudited) |
|||||||
|
|
||||||
|
|
2023 |
|
|
|
2022 |
|
Assets |
|
|
|
||||
Current assets |
|
|
|
||||
Cash and cash equivalents |
$ |
135,757 |
|
|
$ |
473,677 |
|
Short-term investments |
|
194,257 |
|
|
|
583,973 |
|
Accounts receivable, net of allowance of |
|
31,404 |
|
|
|
23,515 |
|
Prepaid expenses |
|
20,980 |
|
|
|
28,481 |
|
Other current assets |
|
32,437 |
|
|
|
34,754 |
|
Total current assets |
|
414,835 |
|
|
|
1,144,400 |
|
Long-term investments |
|
249,547 |
|
|
|
216,233 |
|
Property and equipment, net |
|
183,073 |
|
|
|
204,383 |
|
|
|
631,995 |
|
|
|
615,093 |
|
Intangible assets, net |
|
52,430 |
|
|
|
78,333 |
|
Right of use assets |
|
25,130 |
|
|
|
18,838 |
|
Deferred tax assets |
|
141,843 |
|
|
|
167,524 |
|
Other assets |
|
28,382 |
|
|
|
20,612 |
|
Total assets |
$ |
1,727,235 |
|
|
$ |
2,465,416 |
|
Liabilities and stockholders’ equity |
|
|
|
||||
Current liabilities |
|
|
|
||||
Accounts payable |
$ |
28,184 |
|
|
$ |
12,367 |
|
Deferred revenue |
|
55,336 |
|
|
|
56,273 |
|
Accrued liabilities |
|
77,863 |
|
|
|
70,234 |
|
Current portion of convertible senior notes, net |
|
357,079 |
|
|
|
— |
|
Total current liabilities |
|
518,462 |
|
|
|
138,874 |
|
Long-term liabilities |
|
|
|
||||
Convertible senior notes, net |
|
242,758 |
|
|
|
1,188,593 |
|
Long-term operating lease liabilities |
|
18,063 |
|
|
|
13,375 |
|
Other long-term liabilities |
|
3,334 |
|
|
|
7,985 |
|
Total long-term liabilities |
|
264,155 |
|
|
|
1,209,953 |
|
Total liabilities |
|
782,617 |
|
|
|
1,348,827 |
|
Commitments and contingencies |
|
|
|
||||
Stockholders’ equity: |
|
|
|
||||
Preferred stock, |
|
— |
|
|
|
— |
|
Common stock, |
|
103 |
|
|
|
126 |
|
Additional paid-in capital |
|
1,031,627 |
|
|
|
1,244,504 |
|
Accumulated other comprehensive loss |
|
(34,739 |
) |
|
|
(57,488 |
) |
Accumulated deficit |
|
(52,373 |
) |
|
|
(70,553 |
) |
Total stockholders’ equity |
|
944,618 |
|
|
|
1,116,589 |
|
Total liabilities and stockholders’ equity |
$ |
1,727,235 |
|
|
$ |
2,465,416 |
|
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited) |
|||||||||||||||
|
Three Months Ended |
|
Years Ended |
||||||||||||
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net revenues |
$ |
187,987 |
|
|
$ |
205,193 |
|
|
$ |
716,295 |
|
|
$ |
766,897 |
|
Cost of revenues(1) |
|
45,804 |
|
|
|
51,424 |
|
|
|
225,941 |
|
|
|
197,396 |
|
Gross profit |
|
142,183 |
|
|
|
153,769 |
|
|
|
490,354 |
|
|
|
569,501 |
|
Operating expenses: |
|
|
|
|
|
|
|
||||||||
Research and development(1) |
|
45,724 |
|
|
|
46,316 |
|
|
|
191,705 |
|
|
|
196,637 |
|
Sales and marketing(1) |
|
29,746 |
|
|
|
38,080 |
|
|
|
126,591 |
|
|
|
147,660 |
|
General and administrative(1) |
|
53,426 |
|
|
|
61,700 |
|
|
|
239,783 |
|
|
|
216,247 |
|
Total operating expenses |
|
128,896 |
|
|
|
146,096 |
|
|
|
558,079 |
|
|
|
560,544 |
|
Income (loss) from operations |
|
13,287 |
|
|
|
7,673 |
|
|
|
(67,725 |
) |
|
|
8,957 |
|
Interest expense, net and other income (expense), net |
|
|
|
|
|
|
|
||||||||
Interest expense, net |
|
(658 |
) |
|
|
(1,302 |
) |
|
|
(3,773 |
) |
|
|
(6,040 |
) |
Other income (expense), net |
|
5,139 |
|
|
|
(4,218 |
) |
|
|
121,810 |
|
|
|
101,029 |
|
Total interest expense, net and other income (expense), net |
|
4,481 |
|
|
|
(5,520 |
) |
|
|
118,037 |
|
|
|
94,989 |
|
Income before (provision for) benefit from income taxes |
|
17,768 |
|
|
|
2,153 |
|
|
|
50,312 |
|
|
|
103,946 |
|
(Provision for) benefit from income taxes |
|
(8,103 |
) |
|
|
(295 |
) |
|
|
(32,132 |
) |
|
|
162,692 |
|
Net income |
$ |
9,665 |
|
|
$ |
1,858 |
|
|
$ |
18,180 |
|
|
$ |
266,638 |
|
Net income (loss) per share |
|
|
|
|
|
|
|
||||||||
Basic |
$ |
0.09 |
|
|
$ |
0.01 |
|
|
$ |
0.16 |
|
|
$ |
2.09 |
|
Diluted |
$ |
0.09 |
|
|
$ |
0.01 |
|
|
$ |
(0.34 |
) |
|
$ |
1.34 |
|
Weighted average shares used to compute net income (loss) per share |
|
|
|
|
|
|
|
||||||||
Basic |
|
109,093 |
|
|
|
125,750 |
|
|
|
116,504 |
|
|
|
127,557 |
|
Diluted |
|
118,902 |
|
|
|
127,518 |
|
|
|
128,569 |
|
|
|
149,859 |
|
|
|
|
|
|
|
|
|
||||||||
(1) Includes share-based compensation expense as follows: |
|
|
|
|
|
|
|
||||||||
Cost of revenues |
$ |
571 |
|
|
$ |
539 |
|
|
$ |
2,256 |
|
|
$ |
2,484 |
|
Research and development |
|
10,194 |
|
|
|
10,381 |
|
|
|
44,103 |
|
|
|
41,335 |
|
Sales and marketing |
|
2,408 |
|
|
|
2,681 |
|
|
|
9,524 |
|
|
|
13,857 |
|
General and administrative |
|
18,733 |
|
|
|
21,514 |
|
|
|
77,619 |
|
|
|
75,780 |
|
Total share-based compensation expense |
$ |
31,906 |
|
|
$ |
35,115 |
|
|
$ |
133,502 |
|
|
$ |
133,456 |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) |
|||||||||||
|
Years Ended |
||||||||||
|
|
2023 |
|
|
|
2022 |
|
|
|
2021 |
|
Cash flows from operating activities |
|
|
|
|
|
||||||
Net income (loss) |
$ |
18,180 |
|
|
$ |
266,638 |
|
|
$ |
(1,458 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
||||||
Share-based compensation expense |
|
133,502 |
|
|
|
133,456 |
|
|
|
108,846 |
|
Other depreciation and amortization expense |
|
129,718 |
|
|
|
89,997 |
|
|
|
63,274 |
|
Deferred tax assets |
|
26,575 |
|
|
|
(168,679 |
) |
|
|
(1,104 |
) |
(Gain)/loss on early extinguishments of debt |
|
(85,926 |
) |
|
|
(93,519 |
) |
|
|
78,152 |
|
Loss contingency accrual |
|
7,000 |
|
|
|
— |
|
|
|
— |
|
Impairment of intangible asset |
|
3,600 |
|
|
|
— |
|
|
|
— |
|
Loss from write-offs of property and equipment |
|
4,137 |
|
|
|
3,549 |
|
|
|
2,115 |
|
Amortization of debt issuance costs |
|
3,156 |
|
|
|
5,166 |
|
|
|
5,922 |
|
Operating lease expense, net of accretion |
|
6,079 |
|
|
|
6,327 |
|
|
|
5,994 |
|
Realized loss on sale of investments |
|
2,106 |
|
|
|
9,675 |
|
|
|
178 |
|
(Gain)/loss on textbook library, net |
|
— |
|
|
|
(4,976 |
) |
|
|
10,956 |
|
Print textbook depreciation expense |
|
— |
|
|
|
1,610 |
|
|
|
10,859 |
|
Gain on foreign currency remeasurement of purchase consideration |
|
— |
|
|
|
(4,628 |
) |
|
|
— |
|
Impairment on lease related assets |
|
— |
|
|
|
5,225 |
|
|
|
— |
|
Gain on sale of strategic equity investments |
|
— |
|
|
|
— |
|
|
|
(12,496 |
) |
Loss on change in fair value of derivative instruments, net |
|
— |
|
|
|
— |
|
|
|
7,148 |
|
Other non-cash items |
|
(1,228 |
) |
|
|
378 |
|
|
|
(47 |
) |
Change in assets and liabilities, net of effect of acquisition of businesses: |
|
|
|
|
|
||||||
Accounts receivable |
|
(7,799 |
) |
|
|
(3,752 |
) |
|
|
(5,004 |
) |
Prepaid expenses and other current assets |
|
3,476 |
|
|
|
17,191 |
|
|
|
(21,854 |
) |
Other assets |
|
10,829 |
|
|
|
14,563 |
|
|
|
16,387 |
|
Accounts payable |
|
13,057 |
|
|
|
(4,144 |
) |
|
|
3,241 |
|
Deferred revenue |
|
(1,585 |
) |
|
|
7,538 |
|
|
|
2,523 |
|
Accrued liabilities |
|
(7,342 |
) |
|
|
(20,111 |
) |
|
|
5,199 |
|
Other liabilities |
|
(11,337 |
) |
|
|
(5,768 |
) |
|
|
(5,607 |
) |
Net cash provided by operating activities |
|
246,198 |
|
|
|
255,736 |
|
|
|
273,224 |
|
Cash flows from investing activities |
|
|
|
|
|
||||||
Purchases of property and equipment |
|
(83,052 |
) |
|
|
(103,092 |
) |
|
|
(94,180 |
) |
Purchases of textbooks |
|
— |
|
|
|
(3,815 |
) |
|
|
(10,931 |
) |
Proceeds from disposition of textbooks |
|
9,787 |
|
|
|
6,003 |
|
|
|
8,714 |
|
Purchases of investments |
|
(637,939 |
) |
|
|
(730,509 |
) |
|
|
(1,688,384 |
) |
Proceeds from sale of investments |
|
394,533 |
|
|
|
458,489 |
|
|
|
206,041 |
|
Maturities of investments |
|
597,197 |
|
|
|
884,940 |
|
|
|
1,204,787 |
|
Proceeds from sale of strategic equity investments |
|
— |
|
|
|
— |
|
|
|
16,076 |
|
Acquisition of businesses, net of cash acquired |
|
— |
|
|
|
(401,125 |
) |
|
|
(7,891 |
) |
Purchases of strategic equity investments |
|
(11,853 |
) |
|
|
(6,000 |
) |
|
|
— |
|
Net cash provided by (used in) investing activities |
|
268,673 |
|
|
|
104,891 |
|
|
|
(365,768 |
) |
Cash flows from financing activities |
|
|
|
|
|
||||||
Proceeds from common stock issued under stock plans, net |
|
4,165 |
|
|
|
6,477 |
|
|
|
8,887 |
|
Payment of taxes related to the net share settlement of equity awards |
|
(16,440 |
) |
|
|
(26,549 |
) |
|
|
(94,423 |
) |
Proceeds from equity offering, net of offering costs |
|
— |
|
|
|
— |
|
|
|
1,091,466 |
|
Repayment of convertible senior notes |
|
(505,986 |
) |
|
|
(401,203 |
) |
|
|
(300,762 |
) |
Proceeds from exercise of convertible senior notes capped call |
|
297 |
|
|
|
— |
|
|
|
69,005 |
|
Payment of escrow related to acquisition |
|
— |
|
|
|
— |
|
|
|
(7,451 |
) |
Repurchase of common stock |
|
(334,806 |
) |
|
|
(323,528 |
) |
|
|
(300,000 |
) |
Net cash (used in) provided by financing activities |
|
(852,770 |
) |
|
|
(744,803 |
) |
|
|
466,722 |
|
Effect of exchange rate changes |
|
21 |
|
|
|
4,137 |
|
|
|
— |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
(337,878 |
) |
|
|
(380,039 |
) |
|
|
374,178 |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
475,854 |
|
|
|
855,893 |
|
|
|
481,715 |
|
Cash, cash equivalents and restricted cash, end of period |
$ |
137,976 |
|
|
$ |
475,854 |
|
|
$ |
855,893 |
|
|
Years Ended |
|||||||
|
|
2023 |
|
|
2022 |
|
|
2021 |
Supplemental cash flow data: |
|
|
|
|
|
|||
Cash paid during the period for: |
|
|
|
|
|
|||
Interest |
$ |
741 |
|
$ |
875 |
|
$ |
1,053 |
Income taxes, net of refunds |
$ |
11,074 |
|
$ |
6,841 |
|
$ |
7,388 |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|||
Operating cash flows from operating leases |
$ |
9,042 |
|
$ |
8,863 |
|
$ |
7,772 |
Right of use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|||
Operating leases |
$ |
12,407 |
|
$ |
10,232 |
|
$ |
— |
Non-cash investing and financing activities: |
|
|
|
|
|
|||
Accrued purchases of long-lived assets |
$ |
9,650 |
|
$ |
4,927 |
|
$ |
2,982 |
Issuance of common stock related to repayment of convertible senior notes |
$ |
— |
|
$ |
— |
|
$ |
235,521 |
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
2021 |
Reconciliation of cash, cash equivalents and restricted cash: |
|
|
|
|
|
|||
Cash and cash equivalents |
$ |
135,757 |
|
$ |
473,677 |
|
$ |
854,078 |
Restricted cash included in other current assets |
|
— |
|
|
63 |
|
|
— |
Restricted cash included in other assets |
|
2,219 |
|
|
2,114 |
|
|
1,815 |
Total cash, cash equivalents and restricted cash |
$ |
137,976 |
|
$ |
475,854 |
|
$ |
855,893 |
RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA (in thousands) (unaudited) |
||||||||||||||
|
Three Months Ended |
|
Years Ended |
|||||||||||
|
|
2023 |
|
|
|
2022 |
|
|
2023 |
|
|
|
2022 |
|
Net income |
$ |
9,665 |
|
|
$ |
1,858 |
|
$ |
18,180 |
|
|
$ |
266,638 |
|
Interest expense, net |
|
658 |
|
|
|
1,302 |
|
|
3,773 |
|
|
|
6,040 |
|
Provision for (benefit from) income taxes |
|
8,103 |
|
|
|
295 |
|
|
32,132 |
|
|
|
(162,692 |
) |
Print textbook depreciation expense |
|
— |
|
|
|
— |
|
|
— |
|
|
|
1,610 |
|
Other depreciation and amortization expense(1) |
|
20,773 |
|
|
|
25,702 |
|
|
129,718 |
|
|
|
89,997 |
|
EBITDA |
|
39,199 |
|
|
|
29,157 |
|
|
183,803 |
|
|
|
201,593 |
|
Print textbook depreciation expense |
|
— |
|
|
|
— |
|
|
— |
|
|
|
(1,610 |
) |
Share-based compensation expense |
|
31,906 |
|
|
|
35,115 |
|
|
133,502 |
|
|
|
133,456 |
|
Other (income) expense, net |
|
(5,139 |
) |
|
|
4,218 |
|
|
(121,810 |
) |
|
|
(101,029 |
) |
Acquisition-related compensation costs |
|
204 |
|
|
|
3,438 |
|
|
6,290 |
|
|
|
14,427 |
|
Content and related assets charge(1) |
|
— |
|
|
|
— |
|
|
7,647 |
|
|
|
— |
|
Restructuring charges |
|
— |
|
|
|
— |
|
|
5,704 |
|
|
|
— |
|
Loss contingency |
|
— |
|
|
|
— |
|
|
7,000 |
|
|
|
— |
|
Transitional logistics charges |
|
— |
|
|
|
266 |
|
|
253 |
|
|
|
2,463 |
|
Impairment of lease related assets |
|
— |
|
|
|
1,814 |
|
|
— |
|
|
|
5,225 |
|
Adjusted EBITDA |
$ |
66,170 |
|
|
$ |
74,008 |
|
$ |
222,389 |
|
|
$ |
254,525 |
|
(1) |
The total content and related assets charge during the year ended |
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except percentages and per share amounts) (unaudited) |
|||||||||||||||
|
Three Months Ended |
|
Years Ended |
||||||||||||
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Cost of revenues |
$ |
45,804 |
|
|
$ |
51,424 |
|
|
$ |
225,941 |
|
|
$ |
197,396 |
|
Content and related assets charge |
|
— |
|
|
|
— |
|
|
|
(38,242 |
) |
|
|
— |
|
Amortization of intangible assets |
|
(3,111 |
) |
|
|
(3,290 |
) |
|
|
(12,970 |
) |
|
|
(14,402 |
) |
Share-based compensation expense |
|
(571 |
) |
|
|
(539 |
) |
|
|
(2,256 |
) |
|
|
(2,484 |
) |
Acquisition-related compensation costs |
|
(4 |
) |
|
|
(6 |
) |
|
|
(21 |
) |
|
|
(35 |
) |
Restructuring charges |
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
Transitional logistics charges |
|
— |
|
|
|
(266 |
) |
|
|
(253 |
) |
|
|
(2,463 |
) |
Non-GAAP cost of revenues |
$ |
42,118 |
|
|
$ |
47,323 |
|
|
$ |
172,187 |
|
|
$ |
178,012 |
|
|
|
|
|
|
|
|
|
||||||||
Gross profit |
$ |
142,183 |
|
|
$ |
153,769 |
|
|
$ |
490,354 |
|
|
$ |
569,501 |
|
Content and related assets charge |
|
— |
|
|
|
— |
|
|
|
38,242 |
|
|
|
— |
|
Amortization of intangible assets |
|
3,111 |
|
|
|
3,290 |
|
|
|
12,970 |
|
|
|
14,402 |
|
Share-based compensation expense |
|
571 |
|
|
|
539 |
|
|
|
2,256 |
|
|
|
2,484 |
|
Acquisition-related compensation costs |
|
4 |
|
|
|
6 |
|
|
|
21 |
|
|
|
35 |
|
Restructuring charges |
|
— |
|
|
|
— |
|
|
|
12 |
|
|
|
— |
|
Transitional logistics charges |
|
— |
|
|
|
266 |
|
|
|
253 |
|
|
|
2,463 |
|
Non-GAAP gross profit |
$ |
145,869 |
|
|
$ |
157,870 |
|
|
$ |
544,108 |
|
|
$ |
588,885 |
|
|
|
|
|
|
|
|
|
||||||||
Gross margin % |
|
76 |
% |
|
|
75 |
% |
|
|
68 |
% |
|
|
74 |
% |
Non-GAAP gross margin % |
|
78 |
% |
|
|
77 |
% |
|
|
76 |
% |
|
|
77 |
% |
|
|
|
|
|
|
|
|
||||||||
Operating expenses |
$ |
128,896 |
|
|
$ |
146,096 |
|
|
$ |
558,079 |
|
|
$ |
560,544 |
|
Share-based compensation expense |
|
(31,335 |
) |
|
|
(34,576 |
) |
|
|
(131,246 |
) |
|
|
(130,972 |
) |
Amortization of intangible assets |
|
(2,594 |
) |
|
|
(2,839 |
) |
|
|
(11,417 |
) |
|
|
(11,470 |
) |
Acquisition-related compensation costs |
|
(200 |
) |
|
|
(3,432 |
) |
|
|
(6,269 |
) |
|
|
(14,392 |
) |
Content and related assets charge |
|
— |
|
|
|
— |
|
|
|
(3,600 |
) |
|
|
— |
|
Restructuring charges |
|
— |
|
|
|
— |
|
|
|
(5,692 |
) |
|
|
— |
|
Loss contingency |
|
— |
|
|
|
— |
|
|
|
(7,000 |
) |
|
|
— |
|
Impairment of lease related assets |
|
— |
|
|
|
(1,814 |
) |
|
|
— |
|
|
|
(5,225 |
) |
Non-GAAP operating expenses |
$ |
94,767 |
|
|
$ |
103,435 |
|
|
$ |
392,855 |
|
|
$ |
398,485 |
|
|
|
|
|
|
|
|
|
||||||||
Income (loss) from operations |
$ |
13,287 |
|
|
$ |
7,673 |
|
|
$ |
(67,725 |
) |
|
$ |
8,957 |
|
Share-based compensation expense |
|
31,906 |
|
|
|
35,115 |
|
|
|
133,502 |
|
|
|
133,456 |
|
Amortization of intangible assets |
|
5,705 |
|
|
|
6,129 |
|
|
|
24,387 |
|
|
|
25,872 |
|
Acquisition-related compensation costs |
|
204 |
|
|
|
3,438 |
|
|
|
6,290 |
|
|
|
14,427 |
|
Content and related assets charge |
|
— |
|
|
|
— |
|
|
|
41,842 |
|
|
|
— |
|
Transitional logistics charges |
|
— |
|
|
|
266 |
|
|
|
253 |
|
|
|
2,463 |
|
Restructuring charges |
|
— |
|
|
|
— |
|
|
|
5,704 |
|
|
|
— |
|
Loss contingency |
|
— |
|
|
|
— |
|
|
|
7,000 |
|
|
|
— |
|
Impairment of lease related assets |
|
— |
|
|
|
1,814 |
|
|
|
— |
|
|
|
5,225 |
|
Non-GAAP income from operations |
$ |
51,102 |
|
|
$ |
54,435 |
|
|
$ |
151,253 |
|
|
$ |
190,400 |
|
|
Three Months Ended |
|
Years Ended |
|||||||||||
|
|
2023 |
|
|
|
2022 |
|
|
2023 |
|
|
|
2022 |
|
Net income |
$ |
9,665 |
|
|
$ |
1,858 |
|
$ |
18,180 |
|
|
$ |
266,638 |
|
Share-based compensation expense |
|
31,906 |
|
|
|
35,115 |
|
|
133,502 |
|
|
|
133,456 |
|
Amortization of intangible assets |
|
5,705 |
|
|
|
6,129 |
|
|
24,387 |
|
|
|
25,872 |
|
Acquisition-related compensation costs |
|
204 |
|
|
|
3,438 |
|
|
6,290 |
|
|
|
14,427 |
|
Amortization of debt issuance costs |
|
546 |
|
|
|
1,082 |
|
|
3,156 |
|
|
|
5,166 |
|
Income tax effect of non-GAAP adjustments |
|
(5,368 |
) |
|
|
— |
|
|
(12,633 |
) |
|
|
— |
|
Gain on early extinguishment of debt |
|
— |
|
|
|
— |
|
|
(85,926 |
) |
|
|
(93,519 |
) |
Content and related assets charge |
|
— |
|
|
|
— |
|
|
41,842 |
|
|
|
— |
|
Restructuring charges |
|
— |
|
|
|
— |
|
|
5,704 |
|
|
|
— |
|
Loss contingency |
|
— |
|
|
|
— |
|
|
7,000 |
|
|
|
— |
|
Transitional logistics charges |
|
— |
|
|
|
266 |
|
|
253 |
|
|
|
2,463 |
|
Realized loss on sale of investments |
|
— |
|
|
|
9,057 |
|
|
— |
|
|
|
9,057 |
|
Tax benefit related to release of valuation allowance |
|
— |
|
|
|
— |
|
|
— |
|
|
|
(174,601 |
) |
Impairment of lease related assets |
|
— |
|
|
|
1,814 |
|
|
— |
|
|
|
5,225 |
|
Non-GAAP net income |
$ |
42,658 |
|
|
$ |
58,759 |
|
$ |
141,755 |
|
|
$ |
194,184 |
|
|
|
|
|
|
|
|
|
|||||||
Weighted average shares used to compute net income (loss) per share, diluted |
|
118,902 |
|
|
|
127,518 |
|
|
128,569 |
|
|
|
149,859 |
|
Effect of shares for stock plan activity |
|
— |
|
|
|
— |
|
|
514 |
|
|
|
— |
|
Effect of shares related to convertible senior notes |
|
— |
|
|
|
18,226 |
|
|
— |
|
|
|
— |
|
Non-GAAP weighted average shares used to compute non-GAAP net income per share, diluted |
|
118,902 |
|
|
|
145,744 |
|
|
129,083 |
|
|
|
149,859 |
|
|
|
|
|
|
|
|
|
|||||||
Net income (loss) per share, diluted |
$ |
0.09 |
|
|
$ |
0.01 |
|
$ |
(0.34 |
) |
|
$ |
1.34 |
|
Adjustments |
|
0.27 |
|
|
|
0.39 |
|
|
1.44 |
|
|
|
(0.04 |
) |
Non-GAAP net income per share, diluted |
$ |
0.36 |
|
|
$ |
0.40 |
|
$ |
1.10 |
|
|
$ |
1.30 |
|
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW (in thousands) (unaudited) |
|||||||
|
Years Ended |
||||||
|
|
2023 |
|
|
|
2022 |
|
Net cash provided by operating activities |
$ |
246,198 |
|
|
$ |
255,736 |
|
Purchases of property and equipment |
|
(83,052 |
) |
|
|
(103,092 |
) |
Purchases of textbooks |
|
— |
|
|
|
(3,815 |
) |
Proceeds from disposition of textbooks |
|
9,787 |
|
|
|
6,003 |
|
Free cash flow |
$ |
172,933 |
|
|
$ |
154,832 |
|
SELECTED QUARTERLY FINANCIAL DATA (in thousands) (unaudited) |
||||||||||||||
|
Three Months Ended |
|||||||||||||
|
|
|
|
|
|
|
|
|||||||
Subscription Services |
$ |
168,440 |
|
|
$ |
165,855 |
|
|
$ |
139,912 |
|
|
$ |
166,313 |
Skills and Other |
|
19,161 |
|
|
|
16,998 |
|
|
|
17,942 |
|
|
|
21,674 |
Total net revenues |
$ |
187,601 |
|
|
$ |
182,853 |
|
|
$ |
157,854 |
|
|
$ |
187,987 |
|
|
|
|
|
|
|
|
|||||||
Gross profit |
|
138,451 |
|
|
|
135,441 |
|
|
|
74,279 |
|
|
|
142,183 |
(Loss) income from operations |
|
(4,446 |
) |
|
|
(18,696 |
) |
|
|
(57,870 |
) |
|
|
13,287 |
Net income (loss) |
|
2,186 |
|
|
|
24,612 |
|
|
|
(18,283 |
) |
|
|
9,665 |
Weighted average shares used to compute net income (loss) per share: |
|
|
|
|
|
|
|
|||||||
Basic |
|
123,710 |
|
|
|
117,977 |
|
|
|
115,407 |
|
|
|
109,093 |
Diluted |
|
124,304 |
|
|
|
132,944 |
|
|
|
115,407 |
|
|
|
118,902 |
Net income (loss) per share: |
|
|
|
|
|
|
|
|||||||
Basic |
$ |
0.02 |
|
|
$ |
0.21 |
|
|
$ |
(0.16 |
) |
|
$ |
0.09 |
Diluted |
$ |
0.02 |
|
|
$ |
(0.11 |
) |
|
$ |
(0.16 |
) |
|
$ |
0.09 |
|
Three Months Ended |
|||||||||||
|
|
|
|
|
|
|
|
|||||
Subscription Services |
$ |
173,037 |
|
$ |
175,424 |
|
$ |
146,001 |
|
|
$ |
177,506 |
Skills and Other |
|
29,207 |
|
|
19,297 |
|
|
18,738 |
|
|
|
27,687 |
Total net revenues |
$ |
202,244 |
|
$ |
194,721 |
|
$ |
164,739 |
|
|
$ |
205,193 |
|
|
|
|
|
|
|
|
|||||
Gross profit |
|
147,159 |
|
|
149,037 |
|
|
119,536 |
|
|
|
153,769 |
Income (loss) from operations |
|
5,376 |
|
|
7,343 |
|
|
(11,435 |
) |
|
|
7,673 |
Net income |
|
5,742 |
|
|
7,476 |
|
|
251,562 |
|
|
|
1,858 |
Weighted average shares used to compute net income per share: |
|
|
|
|
|
|
|
|||||
Basic |
|
132,162 |
|
|
126,272 |
|
|
126,132 |
|
|
|
125,750 |
Diluted |
|
133,270 |
|
|
149,574 |
|
|
148,045 |
|
|
|
127,518 |
Net income per share: |
|
|
|
|
|
|
|
|||||
Basic |
$ |
0.04 |
|
$ |
0.06 |
|
$ |
1.99 |
|
|
$ |
0.01 |
Diluted |
$ |
0.04 |
|
$ |
0.06 |
|
$ |
1.23 |
|
|
$ |
0.01 |
RECONCILIATION OF FORWARD-LOOKING NET LOSS TO EBITDA AND ADJUSTED EBITDA (in thousands) (unaudited) |
|||
|
Three Months
|
||
Net loss |
$ |
(6,100 |
) |
Interest expense, net |
|
500 |
|
Provision for income taxes |
|
6,400 |
|
Other depreciation and amortization expense |
|
20,100 |
|
EBITDA |
|
20,900 |
|
Share-based compensation expense |
|
30,000 |
|
Other income, net |
|
(7,100 |
) |
Acquisition-related compensation costs |
|
200 |
|
Adjusted EBITDA* |
$ |
44,000 |
|
* Adjusted EBITDA guidance for the three months ending |
View source version on businesswire.com: https://www.businesswire.com/news/home/20240205619078/en/
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