June 22, 2021

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Business is my step

Chegg Reports 2020 Financial Results and Raises 2021 Guidance

23 min read

SANTA CLARA, Calif.–(BUSINESS WIRE)–Chegg, Inc. (NYSE:CHGG), a Smarter Way to Student®, today reported financial results for the three and twelve months ended December 31, 2020.

“We are incredibly grateful that, even in the midst of the many challenges of the past year, we outperformed all expectations and were able to continue to support students, in record numbers, around the world,” said Dan Rosensweig, CEO & President of Chegg, Inc. “The transition to online and hybrid learning is inevitable and, with the accelerated trends that we are seeing, we have the confidence to raise our guidance for 2021.”

Q4 2020 Highlights:

  • Total Net Revenues of $205.7 million, an increase of 64% year-over-year
  • Chegg Services Revenues grew 64% year-over-year to $176.0 million, or 86% of total net revenues, in-line with Q4 2019
  • Net Income was $26.0 million
  • Non-GAAP Net Income was $77.8 million
  • Adjusted EBITDA was $87.9 million
  • 4.4 million: number of Chegg Services subscribers, an increase of 74% year-over-year
  • 476 million: total Chegg Study content views

Full Year 2020 Highlights:

  • Total Net Revenues of $644.3 million, an increase of 57% year-over-year
  • Chegg Services Revenues grew 57% year-over-year to $521.2 million, or 81% of total net revenues, in-line with 2019
  • Net Loss was $6.2 million
  • Non-GAAP Net Income was $180.2 million
  • Adjusted EBITDA was $207.1 million
  • 6.6 million: number of Chegg Services subscribers, an increase of 67% year-over-year
  • 1,338 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 Math Solver, Chegg Study Pack, 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 income (loss), and adjusted EBITDA to net income (loss), see the sections of this press release titled “Use of Non-GAAP Measures,” “Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA,” and “Reconciliation of GAAP to Non-GAAP Financial Measures.”

Business Outlook:

First Quarter 2021

  • Total Net Revenues in the range of $182 million to $185 million
  • Chegg Services Revenues in the range of $152 million to $155 million
  • Gross Margin between 65% and 66%
  • Adjusted EBITDA in the range of $48 million to $50 million

Full Year 2021

  • Total Net Revenues in the range of $780 million to $790 million with a quarterly contribution of approximately 23.5% in Q1 2021, 24.5% in Q2 2021, 21.5% in Q3 2021 and 30.5% in Q4 2021
  • Chegg Services Revenues in the range of $665 million to $675 million
  • Gross Margin between 68% and 69%
  • Adjusted EBITDA in the range of $265 million to $270 million with a quarterly contribution of approximately 18.0% in Q1 2021, 27.0% in Q2 2021, 13.0% in Q3 2021 and 42.0% in Q4 2021
  • Capital Expenditures in the range of $90 million to $100 million
  • Free Cash Flow in the range of 50% to 60% of Adjusted EBITDA

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 first quarter 2021 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 to EBITDA and Adjusted EBITDA.” We have not reconciled our 2021 quarterly adjusted EBITDA contribution guidance to net income or 2021 free cash flow contribution guidance to net cash provided by operating activities because we do not provide guidance on net income, net cash provided by operating activities, or the reconciling items as a result of the uncertainty, timing, and the potential variability of these items. The actual amount of net income, net cash provided by operating activities, and such reconciling items will have a significant impact on our 2021 quarterly adjusted EBITDA and 2021 free cash flow. Accordingly, reconciliations of the 2021 quarterly adjusted EBITDA contribution guidance to net income or 2021 free cash flow to net cash provided by operating activities are not available without unreasonable effort.

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 our 2020 Q4 earnings call. Last year was a complicated time for the world, for our country, and particularly for students who were navigating the pandemic, rising social issues, and school closings. It was also an unprecedented time for Chegg, as we transitioned 1,900 employees out of our offices and into a remote working environment overnight. It was a year in which we increased our community support, committing over one million dollars to local organizations, including food banks, who were rising to meet the increased need from students across the country. Like many, we had to meet these challenges head on, but we never lost sight of putting students first and we are proud of our results and that we outperformed even our most enthusiastic expectations. It has always been our operating assumption that the transition to online learning was inevitable, but we certainly didn’t know the catalyst would be COVID-19. We believe this massive shift to learning online, accelerated by the pandemic, is an irreversible trend and is actually more student centric. With increased access to digital learning and support, more learners can learn more subjects, on any device, anywhere and anytime, with incredibly high-quality content and tools. Whenever there is a major platform disruption, there are new leaders that redefine the category and, as the largest direct-to-student online learning platform, Chegg’s products and services are increasingly critical to students’ success. Our results reflect the growing importance of Chegg’s learning support services to millions of students around the world. In 2020 we saw year-over-year annual subscriber growth of 67%, representing over 6.6 million subscribers, and total revenue growth of 57%. The trends towards online learning are continuing and, as a result, it gives us the confidence to raise our guidance in 2021, which Andy will walk you through in more detail shortly.

At the start of last year, we laid out our key objectives with no idea that a global pandemic was about to hit and the dramatic impact that it would have on our employees, students, our business, and the entire world. We entered 2020 with three core priorities:

  1. To deliver on our financial goals and continue to provide services that create overwhelming value for academic and professional learners;
  2. To continue investing in opportunities that leverage the strength of our brand, reach, customer base and provide opportunities for meaningful growth in future years;
  3. And to continue to invest in content and our technical infrastructure to allow us to take advantage of those opportunities, not only faster but also at greater global scale.

But within the first quarter, the world changed. Thankfully, as a software company that was built to scale online, we were able to meet the increased demand without missing a beat. However, the massive shift to online learning around the world did prompt us to reprioritize and accelerate efforts that weren’t on our roadmap at the start of the year; including our global eCommerce infrastructure, new and expanded international content, and our account sharing initiatives. We believe that our decision to expand our areas of focus in 2020 has set us up for continued strong growth in 2021 and beyond.

As we think about the future of higher education, it is clear that the trends have accelerated what we have been talking about for years and will have a permanent impact on the future of education. This last year has reaffirmed that platform companies that serve the needs of their primary constituents, that own their customer, the data, the channel of distribution, and the content, will outperform their peer groups and disproportionally benefit their customers and shareholders.

The pandemic has also revealed that there are two economies; the service economy, which was dramatically impacted by COVID-19 as 25 million people lost their jobs, and the technology economy, which saw a dramatic gain. It is clear that the need to reskill for the modern workforce is here and this represents a tremendous opportunity for Chegg. Skills-based training and support is emerging as a very large category especially when you consider the number of people globally that need to be up-skilled and re-skilled for the current job market. The reality is, that the majority of college age students don’t get a college degree, and there is a real demand right now for students to find programs that are far less expensive, are more skills-based, and deliver a greater return on their investment. While we are still early in building out this part of our business, we expect to be a prominent player in skills-based learning and expect to expand our footprint in the space going forward.

This is a highly disruptive moment in higher education’s history, and it has been anything but smooth. As institutions had to make the transition to virtual learning overnight, it became clear that schools were underinvested in technology, online assessment, and digital support for students and we believe it’s only going to get more challenging in the years ahead, as the shift to hybrid and online learning will be permanent. We also believe that higher education must acknowledge that the internet is here and is a permanent part of learning. As a result, educators must reimagine how they teach, what the curriculum needs to be, how students are assessed, and how to best support them and, if that doesn’t happen, ultimately it is the students that will suffer. As a leader in education, we take our role in this transition very seriously. That is why we invest millions of dollars every year building content, personalized learning experiences, and technology systems to support learning at scale. As part of our responsibility, we are also working with institutions as they make this transition, including introducing new technology and tools that limit students’ ability to use Chegg during designated exam periods. We accelerated our efforts in this area due to the pandemic and recently launched Honor Shield, a free tool available to institutions and professors. And we will continue to find ways to support the millions of hardworking students and educators who use online resources to enhance their learning experience. In fact, in a blind study of students who used Chegg for more than two months, they found that 90% reported that Chegg Study “helps them better understand their schoolwork.”

As we enter 2021, we have expanded our priorities to include an increased investment in international growth as, for the first time, we anticipate over more than a million subscribers outside the U.S.; because of its popularity, we will continue to invest in the Chegg Study Pack, by expanding our offerings to create even more overwhelming value for students; and we are significantly increasing investments in our skills offering, as we believe there will be a lot of activity in this industry, and see a huge opportunity to be a significant player, and a leader, in this space.

We have important and ambitious priorities this year, and, despite the ongoing pandemic, I have never been more confident about the opportunities ahead of us. And, with that, I will turn it over to Andy.

Prepared Remarks – Andy Brown, CFO Chegg, Inc.

Thanks Dan and good afternoon everyone.

Today I will discuss our financial performance for the fourth quarter and full year 2020, as well as our increased outlook for 2021.

By any measure, 2020 was our best year as a company. We far exceeded our initial expectations for revenue, adjusted EBITDA and all key operating metrics. In addition, we significantly increased investments in our future growth opportunities such as international expansion and skills, we pulled forward technological investments such as device management and MFA to combat account sharing and we purchased Mathway to expand our presence in the math category. And finally, we took advantage of favorable market conditions to raise capital, which creates additional opportunities for future growth. As such, we enter 2021 in an even stronger position than we entered 2020, and as a result we expect to extend our position as the leader in the direct-to-student market.

Moving on to 2020 performance, total revenue grew 57% to $644 million. This was driven by an almost $200 million year-over-year increase in Chegg Services revenue, which grew to $521 million and subscriber growth of 67% to 6.6 million for the year. This resulted in adjusted EBITDA margin of 32% or $207 million, up 66% year-over-year, demonstrating the continued leverage and power of our subscription model, which allowed us to increase our investments for future growth, while improving our adjusted EBITDA margin.

We ended the year on a high note, with Q4 total revenue growing 64% to $206 million, with Chegg Services growing to $176 million, which was above the high end of our expectations and more Chegg Services revenue than we achieved for all of 2016. Subscribers grew 74% in Q4, driven across all our subscription services as students continued to rely on Chegg for help to better understand their subject matter. This strong subscription services growth resulted in adjusted EBITDA of $88 million, an 87% increase over what we achieved in Q4 2019 and exceeded our adjusted EBITDA for all of 2018.

Looking at the balance sheet, we ended the year with cash and investments of $1.7 billion. This was bolstered during the year by free cash flow of $104 million, or 50% of adjusted EBITDA and the capital raise I mentioned earlier. We expect free cash flow to increase to 50% to 60% of adjusted EBITDA in 2021, as a result of increased profitability and a planned decrease in textbook purchases.

Moving to guidance for 2021. Based on the momentum we experienced exiting Q4 and the strength we are seeing in subscriber growth in early Q1, we are raising our guidance. We expect continued strong growth in the US, and increased contribution internationally where we expect to surpass one million subscribers in 2021. This will be slightly offset by reduced Required Materials revenue due to lower enrollments.

We are increasing our 2021 adjusted EBITDA margin by 200 basis points, despite the fact that we are experiencing increased shipping and logistics surcharges for Required Materials from our third-party logistics provider. While we hope these costs will improve, we are currently forecasting this to continue into the fall semester, costing us approximately 200 basis points of gross and adjusted EBITDA margin for 2021. We have provided a guide for seasonality in the investor deck that incorporates this change.

As such, for 2021, we now expect:

  • Total revenue to be between $780 and $790 million, with Chegg Services revenue between $665 and $675 million.
  • Gross margin to be between 68% and 69%,
  • Adjusted EBITDA to be between $265 and $270 million.
  • And finally, we expect CAPEX excluding textbook purchases to be between $90 and $100 million, growing approximately 17% from $81 million in 2020, with the vast majority for content that fuels our global growth.

Moving to Q1 we expect:

  • Total revenue between $182 and $185 million, with Chegg Services between $152 and $155 million
  • Gross margin between 65% and 66%
  • And adjusted EBITDA between $48 and $50 million.

In closing, 2020 has been our best year as a company. The trends we anticipated many years ago and built the foundation of our company on have accelerated; that is online, on demand and affordable services that have resulted in tens of millions of students globally using Chegg as a trusted partner for their academic and skills-based needs. We couldn’t be more thankful to those students for trusting Chegg on their educational journey and to our employees who executed on our vision of being a company that puts students’ first.

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 Standard Time (or 4:30 p.m. Eastern Standard 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 Standard Time on February 8, 2021, until 8:59 p.m. Pacific Standard Time on February 15, 2021, by calling 1-844-512-2921, or outside the U.S. +1-412-317-6671, with Conference ID 13714677. 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: A Smarter Way to Student®. We strive to improve educational outcomes by putting the student first. We support students on their journey from high school to college and into their careers with tools designed to help them learn their course materials, succeed in their classes, save money on required materials, and learn the most in-demand skills. Our services are available online, anytime and anywhere. Chegg is a publicly held company based in Santa Clara, California and trades on the NYSE under the symbol CHGG. For more information, visit www.chegg.com.

Use of Non-GAAP Measures

To supplement Chegg’s financial results presented in accordance with generally accepted accounting principles in the United States (GAAP), this press release and the accompanying tables and the related earnings conference call contain non-GAAP financial measures, including adjusted EBITDA, non-GAAP operating expenses, non-GAAP income from operations, non-GAAP net income, non-GAAP weighted average shares, non-GAAP net income per share, and free cash flow. For reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled, “Reconciliation of Net Income (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 to EBITDA and Adjusted EBITDA.”

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. Chegg defines (1) adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, or EBITDA, adjusted for print textbook depreciation expense and to exclude share-based compensation expense, other income, net, acquisition-related compensation costs, the loss from impairment on strategic equity investment, the donation from Chegg Foundation, and restructuring charges; (2) non-GAAP operating expenses as operating expenses excluding share-based compensation expense, amortization of intangible assets, acquisition-related compensation costs, the loss from impairment on strategic equity investment, the donation from Chegg Foundation, and restructuring charges; (3) non-GAAP income from operations as income from operations excluding share-based compensation expense, amortization of intangible assets, acquisition-related compensation costs, the loss from impairment on strategic equity investment, the donation from Chegg Foundation, and restructuring charges; (4) non-GAAP net income as net income (loss) excluding share-based compensation expense, amortization of intangible assets, acquisition-related compensation costs, amortization of debt discount and issuance costs, the loss on early extinguishment of debt, the loss from impairment on strategic equity investment, the donation from Chegg Foundation, and restructuring charges; (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 Income (Loss) 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 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.

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.

We have extinguished, exchanged, or settled conversion requests for our 0.25% convertible senior notes due in 2023 (2023 notes). Under GAAP, we are required to compare the fair value of such 2023 notes to the respective carrying amount 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 2021 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 classes 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 partner to manage the fulfillment processes; 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 September 30, 2020 filed with the Securities and Exchange Commission on October 26, 2020 and Chegg’s Annual Report on Form 10-K for the year ended December 31, 2020 to be filed with the Securities and Exchange Commission, and could cause actual results to vary from expectations.

CHEGG, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except for number of shares and par value)

(unaudited)

 

 

December 31, 2020

December 31, 2019

Assets

 

 

Current assets

 

 

Cash and cash equivalents

$

479,853

 

$

387,520

 

Short-term investments

665,567

 

381,074

 

Accounts receivable, net of allowance of $153 and $56 at December 31, 2020 and December 31, 2019, respectively

12,913

 

11,529

 

Prepaid expenses

12,776

 

10,538

 

Other current assets

11,846

 

16,606

 

Total current assets

1,182,955

 

807,267

 

Long-term investments

523,628

 

310,483

 

Textbook library, net

34,149

 

 

Property and equipment, net

125,807

 

87,359

 

Goodwill

285,214

 

214,513

 

Intangible assets, net

51,249

 

34,667

 

Right of use assets

24,226

 

15,931

 

Other assets

24,030

 

18,778

 

Total assets

$

2,251,258

 

$

1,488,998

 

Liabilities and stockholders’ equity

 

 

Current liabilities

 

 

Accounts payable

$

8,547

 

$

7,362

 

Deferred revenue

32,620

 

18,780

 

Current operating lease liabilities

6,603

 

5,283

 

Accrued liabilities

61,962

 

39,964

 

Total current liabilities

109,732

 

71,389

 

Long-term liabilities

 

 

Convertible senior notes, net

1,506,922

 

900,303

 

Long-term operating lease liabilities

19,264

 

14,513

 

Other long-term liabilities

5,705

 

3,964

 

Total long-term liabilities

1,531,891

 

918,780

 

Total liabilities

1,641,623

 

990,169

 

Commitments and contingencies

 

 

Stockholders’ equity:

 

 

Preferred stock, $0.001 par value – 10,000,000 shares authorized, no shares issued and outstanding at December 31, 2020 and December 31, 2019

 

 

Common stock, $0.001 par value – 400,000,000 shares authorized; 129,343,524 and 121,583,501 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively

129

 

122

 

Additional paid-in capital

1,030,577

 

916,095

 

Accumulated other comprehensive income (loss)

1,530

 

(1,096

)

Accumulated deficit

(422,601

)

(416,292

)

Total stockholders’ equity

609,635

 

498,829

 

Total liabilities and stockholders’ equity

$

2,251,258

 

$

1,488,998

 

CHEGG, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net revenues

$

205,721

 

$

125,504

 

$

644,338

 

$

410,926

 

Cost of revenues(1)

57,133

 

26,165

 

205,417

 

92,182

 

Gross profit

148,588

 

99,339

 

438,921

 

318,744

 

Operating expenses:

 

 

 

 

Research and development(1)

46,949

 

38,573

 

170,905

 

139,772

 

Sales and marketing(1)

21,293

 

16,235

 

81,914

 

63,569

 

General and administrative(1)

31,128

 

27,445

 

129,349

 

97,489

 

Restructuring charges

 

 

 

97

 

Total operating expenses

99,370

 

82,253

 

382,168

 

300,927

 

Income from operations

49,218

 

17,086

 

56,753

 

17,817

 

Interest expense, net and other income, net:

 

 

 

 

Interest expense, net

(21,977

)

(13,557

)

(66,297

)

(44,851

)

Other income, net

1,287

 

5,492

 

8,683

 

20,063

 

Total interest expense, net and other income, net

(20,690

)

(8,065

)

(57,614

)

(24,788

)

Income (loss) before provision for income taxes

28,528

 

9,021

 

(861

)

(6,971

)

Provision for income taxes

2,485

 

802

 

5,360

 

2,634

 

Net income (loss)

$

26,043

 

$

8,219

 

$

(6,221

)

$

(9,605

)

Net income (loss) per share:

 

 

 

 

Basic

0.20

 

0.07

 

(0.05

)

(0.08

)

Diluted

0.18

 

0.06

 

(0.05

)

(0.08

)

Weighted average shares used to compute net income (loss) per share:

 

 

 

 

Basic

128,955

 

121,151

 

125,367

 

119,204

 

Diluted

141,297

 

129,150

 

125,367

 

119,204

 

 

 

 

 

 

(1) Includes share-based compensation expense as follows:

 

 

Cost of revenues

$

306

 

$

131

 

$

950

 

$

426

 

Research and development

8,544

 

6,353

 

31,588

 

22,229

 

Sales and marketing

2,553

 

1,975

 

9,606

 

7,380

 

General and administrative

13,243

 

9,095

 

41,911

 

34,874

 

Total share-based compensation expense

$

24,646

 

$

17,554

 

$

84,055

 

$

64,909

 

CHEGG, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

Net loss

$

(6,221

)

 

$

(9,605

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

Print textbook depreciation expense

15,397

 

 

 

Other depreciation and amortization expense

47,018

 

 

30,247

 

Share-based compensation expense

84,055

 

 

64,909

 

Amortization of debt discount and issuance costs

64,573

 

 

43,202

 

Repayment of convertible senior notes attributable to debt discount

(20,433

)

 

 

Loss on early extinguishments of debt

4,286

 

 

 

Loss from write-offs of property and equipment

1,211

 

 

1,009

 

Loss from impairment of strategic equity investment

10,000

 

 

 

Gain on textbook library, net

(1,453

)

 

 

Deferred income taxes

(109

)

 

(39

)

Operating lease expense, net of accretion

4,901

 

 

4,385

 

Other non-cash items

(118

)

 

(416

)

Change in assets and liabilities, net of effect of acquisition of businesses:

 

 

 

Accounts receivable

(400

)

 

1,829

 

Prepaid expenses and other current assets

5,419

 

 

(12,930

)

Other assets

(4,214

)

 

(1,494

)

Accounts payable

1,119

 

 

(2,395

)

Deferred revenue

12,918

 

 

(1,682

)

Accrued liabilities

22,444

 

 

(206

)

Other liabilities

(3,951

)

 

(3,411

)

Net cash provided by operating activities

236,442

 

 

113,403

 

Cash flows from investing activities

 

 

 

Purchases of property and equipment

(81,317

)

 

(42,326

)

Purchases of textbooks

(58,567

)

 

 

Proceeds from disposition of textbooks

7,569

 

 

 

Purchases of investments

(1,045,564

)

 

(959,911

)

Proceeds from sale of investments

 

 

53,261

 

Maturities of investments

539,889

 

 

324,700

 

Acquisition of businesses, net of cash acquired

(92,796

)

 

(79,149

)

Purchases of strategic equity investment

(2,000

)

 

 

Net cash used in investing activities

(732,786

)

 

(703,425

)

Cash flows from financing activities

 

 

 

Proceeds from common stock issued under stock plans, net

15,483

 

 

35,100

 

Payment of taxes related to the net share settlement of equity awards

(80,680

)

 

(94,571

)

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

(303,967

)

 

 

Proceeds from exercise of convertible senior notes capped call

77,095

 

 

 

Repurchase of common stock

 

 

(20,000

)

Net cash provided by financing activities

588,627

 

 

603,509

 

Net increase in cash, cash equivalents and restricted cash

92,283

 

 

13,487

 

Cash, cash equivalents and restricted cash, beginning of period

389,432

 

 

375,945

 

Cash, cash equivalents and restricted cash, end of period

$

481,715

 

 

$

389,432

 

 

 

Years Ended December 31,

 

2020

 

 

2019

 

Supplemental cash flow data:

 

 

 

Cash paid during the period for:

 

 

 

Interest

$

1,766

 

 

 

$

1,332

 

Income taxes

$

3,436

 

 

 

$

2,070

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

Operating cash flows from operating leases

$

6,790

 

 

 

$

5,297

 

Right of use assets obtained in exchange for lease obligations:

 

 

 

Operating leases

$

13,688

 

 

 

$

3,364

 

Non-cash investing and financing activities:

 

 

 

Accrued purchases of long-lived assets

$

1,588

 

 

 

$

10,036

 

Accrued escrow related to acquisition

$

7,451

 

 

 

$

 

Issuance of common stock related to repayment of convertible senior notes

$

327,141

 

 

 

$

 

Issuance of common stock related to prior acquisition

$

 

 

 

$

3,003

 

 

 

December 31,

 

2020

 

 

2019

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

Cash and cash equivalents

$

479,853

 

 

 

$

387,520

 

Restricted cash included in other current assets

122

 

 

 

149

 

Restricted cash included in other assets

1,740

 

 

 

1,763

 

Total cash, cash equivalents and restricted cash

$

481,715

 

 

 

$

389,432

 

CHEGG, INC.

RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2020

 

2019

 

2020

 

 

2019

 

Net income (loss)

$

26,043

 

$

8,219

 

$

(6,221

)

$

(9,605

)

Interest expense, net

21,977

 

13,557

 

66,297

 

44,851

 

Provision for income taxes

2,485

 

802

 

5,360

 

2,634

 

Print textbook depreciation expense

4,698

 

 

15,397

 

 

Other depreciation and amortization expense

13,930

 

8,878

 

47,018

 

30,247

 

EBITDA

69,133

 

31,456

 

127,851

 

68,127

 

Print textbook depreciation expense

(4,698

)

 

(15,397

)

 

Share-based compensation expense

24,646

 

17,554

 

84,055

 

64,909

 

Other income, net

(1,287

)

(5,492

)

(8,683

)

(20,063

)

Acquisition-related compensation costs

71

 

3,478

 

9,232

 

10,466

 

Loss from impairment of strategic equity investment

 

 

10,000

 

 

Donation from Chegg Foundation

 

 

 

1,478

 

Restructuring charges

 

 

 

97

 

Adjusted EBITDA

$

87,865

 

$

46,996

 

$

207,058

 

$

125,014

 

CHEGG, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except percentages and per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses

$

99,370

 

$

82,253

 

$

382,168

 

$

300,927

 

Share-based compensation expense

(24,340

)

(17,423

)

(83,105

)

(64,483

)

Amortization of intangible assets

(4,403

)

(2,489

)

(14,278

)

(7,482

)

Acquisition-related compensation costs

(71

)

(3,478

)

(9,232

)

(10,466

)

Loss from impairment of strategic equity investment

 

 

(10,000

)

 

Donation from Chegg Foundation

 

 

 

(1,478

)

Restructuring charges

 

 

 

(97

)

Non-GAAP operating expenses

$

70,556

 

$

58,863

 

$

265,553

 

$

216,921

 

 

 

 

 

 

Income from operations

$

49,218

 

$

17,086

 

$

56,753

 

$

17,817

 

Share-based compensation expense

24,646

 

17,554

 

84,055

 

64,909

 

Amortization of intangible assets

4,403

 

2,489

 

14,278

 

7,482

 

Acquisition-related compensation costs

71

 

3,478

 

9,232

 

10,466

 

Loss from impairment of strategic equity investment

 

 

10,000

 

 

Donation from Chegg Foundation

 

 

 

1,478

 

Restructuring charges

 

 

 

97

 

Non-GAAP income from operations

$

78,338

 

$

40,607

 

$

174,318

 

$

102,249

 

 

 

 

 

 

Net income (loss)

$

26,043

 

$

8,219

 

$

(6,221

)

$

(9,605

)

Share-based compensation expense

24,646

 

17,554

 

84,055

 

64,909

 

Amortization of intangible assets

4,403

 

2,489

 

14,278

 

7,482

 

Acquisition-related compensation costs

71

 

3,478

 

9,232

 

10,466

 

Amortization of debt discount and issuance costs

21,663

 

13,088

 

64,573

 

43,202

 

Loss on early extinguishment of debt

971

 

 

4,286

 

 

Loss from impairment of strategic equity investment

 

 

10,000

 

 

Donation from Chegg Foundation

 

 

 

1,478

 

Restructuring charges

 

 

 

97

 

Non-GAAP net income

$

77,797

 

$

44,828

 

$

180,203

 

$

118,029

 

 

 

 

 

 

Weighted average shares used to compute net income (loss) per share

141,297

 

129,150

 

125,367

 

119,204

 

Effect of shares for stock plan activity

 

 

4,470

 

7,094

 

Effect of shares related to convertible senior notes

 

 

4,942

 

3,526

 

Non-GAAP weighted average shares used to compute non-GAAP net income per share

141,297

 

129,150

 

134,779

 

129,824

 

 

 

 

 

 

Net income (loss) per share

0.18

 

0.06

 

(0.05

)

(0.08

)

Adjustments

0.37

 

0.29

 

1.39

 

0.99

 

Non-GAAP net income per share

$

0.55

 

$

0.35

 

$

1.34

 

$

0.91

 

CHEGG, INC.

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW

(in thousands)

(unaudited)

 

 

 

 

 

 

Year Ended December 31,

 

2020

 

 

2019

 

Net cash provided by operating activities

$

236,442

 

$

113,403

 

Purchases of property and equipment

(81,317

)

(42,326

)

Purchases of textbooks

(58,567

)

 

Proceeds from disposition of textbooks

7,569

 

 

Free cash flow

$

104,127

 

$

71,077

 

CHEGG, INC.

RECONCILIATION OF FORWARD-LOOKING NET INCOME TO EBITDA AND ADJUSTED EBITDA

(in thousands)

(unaudited)

 

 

 

 

 

 

Three Months

Ending March

31, 2021

Year Ending

December 31,

2021

Net income

$

5,100

 

$

75,100

 

Interest expense, net

2,000

 

7,900

 

Provision for income taxes

1,500

 

6,200

 

Textbook library depreciation expense

4,300

 

15,500

 

Other depreciation and amortization expense

14,900

 

61,400

 

EBITDA

27,800

 

166,100

 

Textbook library depreciation expense

(4,300

)

(15,500

)

Share-based compensation expense

25,000

 

115,000

 

Other income, net

(1,900

)

(4,500

)

Acquisition-related compensation costs

2,400

 

6,400

 

Adjusted EBITDA*

$

49,000

 

$

267,500

 

* Adjusted EBITDA guidance for the three months ending March 31, 2021 and year ending December 31, 2021 represent the midpoint of the ranges of $48 million to $50 million and $265 million to $270 million, respectively.

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