Announces
“Nathan has been core to Chegg’s success from our earliest days as a textbook rental company, to leveraging AI today to create a truly personalized learning assistant,” said
“We had a very productive first quarter and successfully rolled out the first of many AI enabled experiences that will strengthen our product-market fit in 2024 and beyond,” said
First Quarter 2024 Highlights
-
Total Net Revenues of
$174.4 million , a decrease of 7% year-over-year -
Subscription Services Revenues of
$154.1 million , a decrease of 9% year-over-year - Gross Margin of 73%
- Non-GAAP Gross Margin of 75%
-
Net Loss was
$1.4 million -
Non-GAAP Net Income was
$29.6 million -
Adjusted EBITDA was
$46.7 million - 4.7 million Subscription Services subscribers, a decrease of 8% 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, non-GAAP gross margin and adjusted EBITDA, and a reconciliation of non-GAAP net income to net (loss) income, gross margin to non-GAAP gross margin and adjusted EBITDA to net (loss) income, see the sections of this press release titled, “Use of Non-GAAP Measures,” “Reconciliation of Net (Loss) Income to EBITDA and Adjusted EBITDA,” and “Reconciliation of GAAP to Non-GAAP Financial Measures.”
Business Outlook
Second Quarter 2024
-
Total Net Revenues in the range of
$159 million to$161 million -
Subscription Services Revenues in the range of
$144 million to$146 million - Gross Margin between 70% and 71%
-
Adjusted EBITDA in the range of
$38 million to$40 million
For more information about the use of forward-looking non-GAAP measures, a reconciliation of forward-looking net income to EBITDA and adjusted EBITDA for the second quarter 2024, see the below sections of the press release titled “Use of Non-GAAP Measures,” and “Reconciliation of Forward-Looking Net Income 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 -
Thank you, Tracey, and welcome everyone to Chegg’s Q1 2024 earnings call. It’s a truly exciting day for
We see the proliferation of AI, and our ability to uniquely harness its potential in education, as a transformative moment for
Prepared Remarks -
Thank you, Dan. I want to take a moment to acknowledge the tremendous impact you have had over the last 14 years, both on
We had a productive first quarter, continuing to roll out, and improve upon, our AI enabled experiences that will strengthen our product-market fit in 2024 and beyond. Executing against a multi-year product roadmap is essential to returning to subscriber growth, as we continue to cycle through the customer expansion, we experienced during the pandemic. We are focused on increasing our relevancy with students and getting
As we develop an education focused AI platform, we believe it is essential to own our large language models and quality assurance layer. This allows
Over the next few quarters, we are focused on rolling out enhancements and features that deliver an even richer personalized learning experience. Whether that means real time conversational support with our AI tutor, generating flashcards, generating practice problems, or creating a focused study guide. Our platform is designed to anticipate, generate, and deliver personalized solutions, which we expect will increase our value to students and expand the audiences we can serve in a cost-efficient way.
We have been testing pricing and packaging in the
As we look ahead, I could not be more excited for the future and the path
And with that I will turn it over to David…
Prepared Remarks -
Thank you, Nathan, and congratulations. Dan, I also want to thank you and I look forward to your continued guidance as you transition to your executive chairman role.
Today, I will present our financial performance for the first quarter of 2024, as well as our outlook for Q2.
As Nathan mentioned, we had a very productive quarter. We were acutely focused on delivering our new AI-driven experience to global learners and making progress on crucial metrics, like engagement and retention. We believe these actions will support both revenue and Adjusted EBITDA growth over time. We continued to deliver strong profitability and cash flows in the quarter, and our balance sheet remains very healthy. We are prioritizing creating shareholder value and emphasizing prudent expense management, as we navigate the path back to growth.
Focusing on our first quarter performance, total revenue was
First quarter Adjusted EBITDA of
Free Cash Flow was
Looking at the balance sheet, we ended the quarter with cash and investments of
The progress we are making with the product experience and refueling the flywheel, starting with automated solutions and engagement, will take time to build our new account acquisitions and renewal base before we see a positive impact on total subscribers and revenue. As a reminder, our unique subscription business model is reliant on two large customer acquisition periods—Q1 and Q4—as well as the student lifecycle. Meanwhile, as mentioned previously, we will increase our focus on efficiently managing expenses to maintain strong profitability and cash flows.
With respect to Q2 guidance we expect:
-
Total revenue between
$159 and$161 million , with Subscription Services revenue between$144 and$146 million ; - Gross margin to be in the range of 70 and 71 percent;
-
And adjusted EBITDA between
$38 and$40 million .
In closing, we are seeing encouraging signs in the business and are excited about the continued development of our personalized and interactive student interface. We believe we are well-positioned to meet the current and future needs of learners. The opportunity ahead for
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
Use of Investor Relations Website for Regulation FD Purposes
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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 (Loss) Income to EBITDA and Adjusted EBITDA,” “Reconciliation of GAAP to Non-GAAP Financial Measures,” “Reconciliation of Forward-Looking Net Income 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
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
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.
Income tax effect of non-GAAP adjustments.
We utilize a non-GAAP effective tax rate 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.
Gain on sale of strategic equity investment.
The gain on sale of strategic equity investment represents a one-time event to record the sale of our equity investment in
Transitional logistics charges.
The transitional logistics charges represent incremental expenses incurred as we transition our print textbooks to a third party.
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.
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,
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except for number of shares and par value) (unaudited)
|
||||||||
|
|
|
|
|||||
Assets |
|
|
|
|||||
Current assets |
|
|
|
|||||
Cash and cash equivalents |
$ |
143,747 |
|
|
$ |
135,757 |
|
|
Short-term investments |
|
247,013 |
|
|
|
194,257 |
|
|
Accounts receivable, net of allowance of |
|
24,741 |
|
|
|
31,404 |
|
|
Prepaid expenses |
|
20,429 |
|
|
|
20,980 |
|
|
Other current assets |
|
30,010 |
|
|
|
32,437 |
|
|
Total current assets |
|
465,940 |
|
|
|
414,835 |
|
|
Long-term investments |
|
221,665 |
|
|
|
249,547 |
|
|
Property and equipment, net |
|
188,430 |
|
|
|
183,073 |
|
|
|
|
628,784 |
|
|
|
631,995 |
|
|
Intangible assets, net |
|
48,143 |
|
|
|
52,430 |
|
|
Right of use assets |
|
23,521 |
|
|
|
25,130 |
|
|
Deferred tax assets |
|
140,200 |
|
|
|
141,843 |
|
|
Other assets |
|
15,961 |
|
|
|
28,382 |
|
|
Total assets |
$ |
1,732,644 |
|
|
$ |
1,727,235 |
|
|
Liabilities and stockholders' equity |
|
|
|
|||||
Current liabilities |
|
|
|
|||||
Accounts payable |
$ |
20,119 |
|
|
$ |
28,184 |
|
|
Deferred revenue |
|
54,056 |
|
|
|
55,336 |
|
|
Accrued liabilities |
|
73,555 |
|
|
|
77,863 |
|
|
Current portion of convertible senior notes, net |
|
357,458 |
|
|
|
357,079 |
|
|
Total current liabilities |
|
505,188 |
|
|
|
518,462 |
|
|
Long-term liabilities |
|
|
|
|||||
Convertible senior notes, net |
|
242,919 |
|
|
|
242,758 |
|
|
Long-term operating lease liabilities |
|
16,460 |
|
|
|
18,063 |
|
|
Other long-term liabilities |
|
4,603 |
|
|
|
3,334 |
|
|
Total long-term liabilities |
|
263,982 |
|
|
|
264,155 |
|
|
Total liabilities |
|
769,170 |
|
|
|
782,617 |
|
|
Commitments and contingencies |
|
|
|
|||||
Stockholders' equity: |
|
|
|
|||||
Preferred stock, |
|
— |
|
|
|
— |
|
|
Common stock, |
|
102 |
|
|
|
103 |
|
|
Additional paid-in capital |
|
1,057,837 |
|
|
|
1,031,627 |
|
|
Accumulated other comprehensive loss |
|
(40,672 |
) |
|
|
(34,739 |
) |
|
Accumulated deficit |
|
(53,793 |
) |
|
|
(52,373 |
) |
|
Total stockholders' equity |
|
963,474 |
|
|
|
944,618 |
|
|
Total liabilities and stockholders' equity |
$ |
1,732,644 |
|
|
$ |
1,727,235 |
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
|
|||||||
|
Three Months Ended
|
||||||
|
|
2024 |
|
|
|
2023 |
|
Net revenues |
$ |
174,350 |
|
|
$ |
187,601 |
|
Cost of revenues(1) |
|
46,497 |
|
|
|
49,150 |
|
Gross profit |
|
127,853 |
|
|
|
138,451 |
|
Operating expenses: |
|
|
|
||||
Research and development(1) |
|
44,435 |
|
|
|
46,907 |
|
Sales and marketing(1) |
|
30,375 |
|
|
|
37,017 |
|
General and administrative(1) |
|
55,534 |
|
|
|
58,973 |
|
Total operating expenses |
|
130,344 |
|
|
|
142,897 |
|
Loss from operations |
|
(2,491 |
) |
|
|
(4,446 |
) |
Interest expense, net and other income, net: |
|
|
|
||||
Interest expense, net |
|
(650 |
) |
|
|
(1,268 |
) |
Other income, net |
|
10,780 |
|
|
|
12,076 |
|
Total interest expense, net and other income, net |
|
10,130 |
|
|
|
10,808 |
|
Income before provision for income taxes |
|
7,639 |
|
|
|
6,362 |
|
Provision for income taxes |
|
(9,059 |
) |
|
|
(4,176 |
) |
Net (loss) income |
$ |
(1,420 |
) |
|
$ |
2,186 |
|
Net (loss) income per share |
|
|
|
||||
Basic |
$ |
(0.01 |
) |
|
$ |
0.02 |
|
Diluted |
$ |
(0.01 |
) |
|
$ |
0.02 |
|
Weighted average shares used to compute net (loss) income per share |
|
|
|
||||
Basic |
|
102,343 |
|
|
|
123,710 |
|
Diluted |
|
102,343 |
|
|
|
124,304 |
|
|
|
|
|
||||
(1) Includes share-based compensation expense as follows: |
|
|
|
||||
Cost of revenues |
$ |
513 |
|
|
$ |
527 |
|
Research and development |
|
9,209 |
|
|
|
10,914 |
|
Sales and marketing |
|
2,140 |
|
|
|
2,499 |
|
General and administrative |
|
17,427 |
|
|
|
19,806 |
|
Total share-based compensation expense |
$ |
29,289 |
|
|
$ |
33,746 |
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
|
||||||||
|
Three Months Ended
|
|||||||
|
|
2024 |
|
|
|
2023 |
|
|
Cash flows from operating activities |
|
|
|
|||||
Net (loss) income |
$ |
(1,420 |
) |
|
$ |
2,186 |
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|||||
Share-based compensation expense |
|
29,289 |
|
|
|
33,746 |
|
|
Depreciation and amortization expense |
|
19,687 |
|
|
|
25,543 |
|
|
Deferred income taxes |
|
2,877 |
|
|
|
3,441 |
|
|
Operating lease expense, net |
|
1,567 |
|
|
|
1,496 |
|
|
Amortization of debt issuance costs |
|
541 |
|
|
|
1,057 |
|
|
Loss from write-off of property and equipment |
|
478 |
|
|
|
120 |
|
|
Other non-cash items |
|
(31 |
) |
|
|
(5 |
) |
|
Change in assets and liabilities: |
|
|
|
|||||
Accounts receivable |
|
6,705 |
|
|
|
1,578 |
|
|
Prepaid expenses and other current assets |
|
3,583 |
|
|
|
8,485 |
|
|
Other assets |
|
(1,270 |
) |
|
|
2,803 |
|
|
Accounts payable |
|
(6,589 |
) |
|
|
(336 |
) |
|
Deferred revenue |
|
(1,159 |
) |
|
|
2,012 |
|
|
Accrued liabilities |
|
640 |
|
|
|
(2,569 |
) |
|
Other liabilities |
|
(1,580 |
) |
|
|
(6,397 |
) |
|
Net cash provided by operating activities |
|
53,318 |
|
|
|
73,160 |
|
|
Cash flows from investing activities |
|
|
|
|||||
Purchases of property and equipment |
|
(28,017 |
) |
|
|
(17,166 |
) |
|
Purchases of investments |
|
(79,028 |
) |
|
|
(497,372 |
) |
|
Maturities of investments |
|
50,731 |
|
|
|
407,759 |
|
|
Proceeds from sale of strategic equity investment |
|
15,500 |
|
|
|
— |
|
|
Net cash used in investing activities |
|
(40,814 |
) |
|
|
(106,779 |
) |
|
Cash flows from financing activities |
|
|
|
|||||
Proceeds from common stock issued under stock plans, net |
|
— |
|
|
|
145 |
|
|
Payment of taxes related to the net share settlement of equity awards |
|
(4,294 |
) |
|
|
(7,736 |
) |
|
Repurchase of common stock |
|
— |
|
|
|
(151,311 |
) |
|
Net cash used in financing activities |
|
(4,294 |
) |
|
|
(158,902 |
) |
|
Effect of exchange rate changes |
|
(226 |
) |
|
|
187 |
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
7,984 |
|
|
|
(192,334 |
) |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
137,976 |
|
|
|
475,854 |
|
|
Cash, cash equivalents and restricted cash, end of period |
$ |
145,960 |
|
|
$ |
283,520 |
|
|
|
Three Months Ended
|
|||||||
|
|
2024 |
|
|
|
2023 |
|
|
Supplemental cash flow data: |
|
|
|
|||||
Cash paid during the period for: |
|
|
|
|||||
Interest |
$ |
224 |
|
|
$ |
437 |
|
|
Income taxes, net of refunds |
$ |
641 |
|
|
$ |
2,017 |
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|||||
Operating cash flows from operating leases |
$ |
2,216 |
|
|
$ |
2,866 |
|
|
Right of use assets obtained in exchange for lease obligations: |
|
|
|
|||||
Operating leases |
$ |
— |
|
|
$ |
12,407 |
|
|
Non-cash investing and financing activities: |
|
|
|
|||||
Accrued purchases of long-lived assets |
$ |
6,302 |
|
|
$ |
3,941 |
|
|
|
|
|||||||
|
|
2024 |
|
|
|
2023 |
|
|
Reconciliation of cash, cash equivalents and restricted cash: |
|
|
|
|||||
Cash and cash equivalents |
$ |
143,747 |
|
|
$ |
281,302 |
|
|
Restricted cash included in other current assets |
|
224 |
|
|
|
63 |
|
|
Restricted cash included in other assets |
|
1,989 |
|
|
|
2,155 |
|
|
Total cash, cash equivalents and restricted cash |
$ |
145,960 |
|
|
$ |
283,520 |
|
RECONCILIATION OF NET (LOSS) INCOME TO EBITDA AND ADJUSTED EBITDA (in thousands) (unaudited)
|
||||||||
|
Three Months Ended
|
|||||||
|
|
2024 |
|
|
|
2023 |
|
|
Net (loss) income |
$ |
(1,420 |
) |
|
$ |
2,186 |
|
|
Interest expense, net |
|
650 |
|
|
|
1,268 |
|
|
Provision for income taxes |
|
9,059 |
|
|
|
4,176 |
|
|
Depreciation and amortization expense |
|
19,687 |
|
|
|
25,543 |
|
|
EBITDA |
|
27,976 |
|
|
|
33,173 |
|
|
Share-based compensation expense |
|
29,289 |
|
|
|
33,746 |
|
|
Other income, net |
|
(10,780 |
) |
|
|
(12,076 |
) |
|
Acquisition-related compensation costs |
|
255 |
|
|
|
2,460 |
|
|
Transitional logistics charges |
|
— |
|
|
|
253 |
|
|
Adjusted EBITDA |
$ |
46,740 |
|
|
$ |
57,556 |
|
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except percentages and per share amounts) (unaudited)
|
||||||||
|
Three Months Ended
|
|||||||
|
|
2024 |
|
|
|
2023 |
|
|
Cost of revenues |
$ |
46,497 |
|
|
$ |
49,150 |
|
|
Amortization of intangible assets |
|
(3,142 |
) |
|
|
(3,339 |
) |
|
Share-based compensation expense |
|
(513 |
) |
|
|
(527 |
) |
|
Acquisition-related compensation costs |
|
(6 |
) |
|
|
(5 |
) |
|
Transitional logistics charges |
|
— |
|
|
|
(253 |
) |
|
Non-GAAP cost of revenues |
$ |
42,836 |
|
|
$ |
45,026 |
|
|
|
|
|
|
|||||
Gross profit |
$ |
127,853 |
|
|
$ |
138,451 |
|
|
Amortization of intangible assets |
|
3,142 |
|
|
|
3,339 |
|
|
Share-based compensation expense |
|
513 |
|
|
|
527 |
|
|
Acquisition-related compensation costs |
|
6 |
|
|
|
5 |
|
|
Transitional logistics charges |
|
— |
|
|
|
253 |
|
|
Non-GAAP gross profit |
$ |
131,514 |
|
|
$ |
142,575 |
|
|
|
|
|
|
|||||
Gross margin % |
|
73 |
% |
|
|
74 |
% |
|
Non-GAAP gross margin % |
|
75 |
% |
|
|
76 |
% |
|
|
|
|
|
|||||
Operating expenses |
$ |
130,344 |
|
|
$ |
142,897 |
|
|
Share-based compensation expense |
|
(28,776 |
) |
|
|
(33,219 |
) |
|
Amortization of intangible assets |
|
(856 |
) |
|
|
(2,911 |
) |
|
Acquisition-related compensation costs |
|
(249 |
) |
|
|
(2,455 |
) |
|
Non-GAAP operating expenses |
$ |
100,463 |
|
|
$ |
104,312 |
|
|
|
|
|
|
|||||
Loss from operations |
$ |
(2,491 |
) |
|
$ |
(4,446 |
) |
|
Share-based compensation expense |
|
29,289 |
|
|
|
33,746 |
|
|
Amortization of intangible assets |
|
3,998 |
|
|
|
6,250 |
|
|
Acquisition-related compensation costs |
|
255 |
|
|
|
2,460 |
|
|
Transitional logistics charges |
|
— |
|
|
|
253 |
|
|
Non-GAAP income from operations |
$ |
31,051 |
|
|
$ |
38,263 |
|
|
|
Three Months Ended
|
|||||||
|
|
2024 |
|
|
|
2023 |
|
|
Net (loss) income |
$ |
(1,420 |
) |
|
$ |
2,186 |
|
|
Share-based compensation expense |
|
29,289 |
|
|
|
33,746 |
|
|
Amortization of intangible assets |
|
3,998 |
|
|
|
6,250 |
|
|
Acquisition-related compensation costs |
|
255 |
|
|
|
2,460 |
|
|
Amortization of debt issuance costs |
|
541 |
|
|
|
1,057 |
|
|
Income tax effect of non-GAAP adjustments |
|
713 |
|
|
|
(7,855 |
) |
|
Gain on sale of strategic equity investment |
|
(3,783 |
) |
|
|
— |
|
|
Transitional logistics charges |
|
— |
|
|
|
253 |
|
|
Non-GAAP net income |
$ |
29,593 |
|
|
$ |
38,097 |
|
|
|
|
|
|
|||||
Weighted average shares used to compute net (loss) income per share, diluted |
|
102,343 |
|
|
|
124,304 |
|
|
Effect of shares for stock plan activity |
|
792 |
|
|
|
— |
|
|
Effect of shares related to convertible senior notes |
|
9,234 |
|
|
|
18,226 |
|
|
Non-GAAP weighted average shares used to compute non-GAAP net income per share, diluted |
|
112,369 |
|
|
|
142,530 |
|
|
|
|
|
|
|||||
Net (loss) income per share, diluted |
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
Adjustments |
|
0.27 |
|
|
|
0.25 |
|
|
Non-GAAP net income per share, diluted |
$ |
0.26 |
|
|
$ |
0.27 |
|
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW (in thousands) (unaudited)
|
||||||||
|
Three Months Ended
|
|||||||
|
|
2024 |
|
|
|
2023 |
|
|
Net cash provided by operating activities |
$ |
53,318 |
|
|
$ |
73,160 |
|
|
Purchases of property and equipment |
|
(28,017 |
) |
|
|
(17,166 |
) |
|
Free cash flow |
$ |
25,301 |
|
|
$ |
55,994 |
|
RECONCILIATION OF FORWARD-LOOKING NET INCOME TO EBITDA AND ADJUSTED EBITDA (in thousands) (unaudited)
|
||||
|
Three Months Ending
|
|||
Net income |
$ |
1,900 |
|
|
Interest expense, net |
|
500 |
|
|
Provision for income taxes |
|
900 |
|
|
Depreciation and amortization expense |
|
20,500 |
|
|
EBITDA |
|
23,800 |
|
|
Share-based compensation expense |
|
22,000 |
|
|
Other income, net |
|
(7,000 |
) |
|
Acquisition-related compensation costs |
|
200 |
|
|
Adjusted EBITDA* |
$ |
39,000 |
|
|
* Adjusted EBITDA guidance for the three months ending |
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