Q4 2020 Chegg Inc Earnings Call
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Greetings and welcome to Chegg, Inc. Fourth quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
I'll now turn the conference over to your host Tracey Ford Vice President of Investor Relations you may begin good afternoon.
And for joining Chegg fourth quarter, 'twenty, and 'twenty conference call and.
On today's call are Dan Rosensweig, co chairperson, and CEO and Andy Brown, Chief Financial Officer.
A copy of our earnings press release, along with our Investor presentation is available at our Investor Relations website Investor Chegg Dot Com a replay of this call will also be available on our website, we routinely post information on our website and intend to make important announcements on our media center website at Chegg Dot Com slash.
Media Center.
We encourage you to make use of these resources.
Before we begin I would like to point out the during the course of this call. We will make forward looking statements regarding future events, including the future financial and operating performance of the company.
These forward looking statements are subject to material risks and uncertainties that could cause actual results could differ materially from those and the forward looking statements. We caution you to consider the important factors that could cause actual results to differ materially from those and the forward looking statements in particular, we refer you to the cautionary language.
Which included in today's earnings release, and the risk factors described in Chegg and quarterly report on form 10-Q filed with the Securities and Exchange Commission on October 26, 'twenty and 'twenty as well as our other filings with the SEC.
Any forward looking statements that we make today are based on assumptions that we believe to be reasonable as of this date, we undertake no obligation to update these statements as a result of new information or future events.
During this call we will present, both GAAP and non-GAAP financial measures, our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release on the Investor Slide deck found and our IR website investor Chegg Dot Com. We also recommend you review the Investor data sheet, which is also posted there and our IR web.
Right.
Now I will turn the call over to Dan.
Thank you Tracy and welcome everyone to our 'twenty and 'twenty Q4 earnings call.
Last year was of complicated time for the world for our country and particularly for students who are navigating the pandemic rising social issues and school closings and.
It was also an unprecedented time per check as we transitioned 1900 employees out of our offices and into a remote working environment overnight.
It was a year and which we increased our community support committing over $1 million to local organizations, including food banks, who are 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 of learning on line accelerated by the pandemic is an irreversible trend and it's actually more students 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 of major platform disruption there of new leaders that redefined the category and as the largest direct to student online learning platform Chegg products and services are increasingly critical to student's success.
Our results reflect the growing importance of Chegg learning support services to millions of students around the world.
And 2020, we saw year over year annual subscriber growth of 67% representing over 6.6 million subscribers and total revenue growth of 57 per cent.
The trends towards online learning are continuing and as a result, and it gives us the competence to raise our guidance in 'twenty and 'twenty, one, which Andy will walk you through and more details shortly.
At the start of last year, we laid out our key objectives with no idea that of global pandemic was about the hit and the dramatic impact it would have on our employees students our business and the entire world.
We entered 'twenty and 'twenty with three core priorities.
And deliver on our financial goals and to continue to provide services that create overwhelming value for academic and professional learners.
Second to continue investing and opportunities that leverage the strength of our brand reach customer base and provide opportunities for meaningful growth in future years and.
Third to continue to invest and content and our technical infrastructure to allow us to take advantage of those opportunities not only faster, but also a greater global scale.
But within the first quarter the world changed.
<unk> as a software company that was built to scale on line.
And we were able to meet increased demand without missing a beat.
However, the massive shift to online learning around the world did prompt us to re prioritize and accelerate efforts that weren't on our roadmap at the start of the year, including our global E Commerce infrastructure, new and expanded international content and our accounts sharing initiatives, we believe that our decision to expand.
Our areas of focus in 'twenty and 'twenty has set us up for continued strong growth and.
2021 and beyond.
As we think about the future of higher education. It is clear that the trends have accelerated what we had been talking about for years and we'll 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.
We will outperform their peer groups and disproportionately 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 of economy, which saw dramatic game.
And it's 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 upskill and reskill per the current job market.
The reality is that the majority of college age students don't get a college degree and there's a real demand right now for students defined programs that are far less expensive or more skills based and deliver a greater return on their investment.
While we are still early and building out this part of our business, we expect to be of prominent player and skills based learning and expect to expand our footprint and the space going forward.
This is a highly disruptive moment and higher education and history and it has been anything but smooth and institutions had to make the transition to virtual learning overnight and it became clear that schools. We're underinvested in technology, All line assessment and digital support for students and we believe it's only going to get more challenging and the.
Years ahead, as the shift of hybrid and online learning will be permanent.
We also believe that higher education must acknowledge that the internet is here and as a permanent part of learning.
As a result educators much re imagine how they teach what the curriculum needs to be how students are assessed and how best to support them and if that doesn't happen and ultimately it is the students that will suffer.
As the leader in education, we take our role in this transition very seriously.
That is why we invest millions of dollars every year of 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 honest shield a free tool avail.
All of them 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 and fac and the blind study of students who use chegg for more than two months. They found that 90% reported the Chegg study helps them better understand their schoolwork.
As we enter 'twenty 'twenty, one we have expanded our priorities to include and increased investment and the 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 and the Chegg study pack by expanding our offerings to create even more overwhelming value for students and we are significantly increasing investments and our skills offerings. As we believe there will be a lot of activity and this industry and see a huge opportunity to be a significant player and the leader in the space.
Yes.
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 Andy.
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 'twenty and 'twenty one.
By any measure 'twenty and 'twenty was our best year of the company.
We far exceeded our initial expectations for revenue adjusted EBITDA and all key operating metrics. In addition, we significantly increased investments and our future growth opportunities such as international expansion and skills. We pulled all the technological investments such as device management and MSA to combat the account sharing and we purchase.
Matt It's Mike.
Expand our presence and 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 'twenty 'twenty, one and an even stronger position than we entered 2020.
And as the result, we expect to extend our position as the leader in the direct to student market.
Moving on to 'twenty and 'twenty performance total revenue grew 57 per cent to $644 million. This was driven by and almost $200 million year over year increase and 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 per cent of 207 line 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 and a high note with coupons and total revenue growing 64 per cent 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% and Q4 driven across all of our subscription services as students continue to rely on Chegg will help to better understand their subject matter.
The strong subscription services growth resulted in adjusted EBITDA of $88 million and 87% increase over what we achieved in Q4 of 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 per cent of adjusted EBITDA and the capital raise I mentioned earlier.
We expect free cash flow to increase the 50 to 60 per cent of adjusted EBITDA in 'twenty and 'twenty one as the result of increased profitability and a planned decrease in textbook purchases.
Moving to guidance for 'twenty and 'twenty one.
Based on the momentum we experienced exiting Q4 and the strength, we are seeing and subscriber growth in early Q1, we are raising our guidance.
We expect continued strong growth and the U S and increased contribution internationally, while we expect to surpass 1 million subscribers in 'twenty and 'twenty one.
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, we are experiencing increased shipping and logistics surcharges for required materials from a 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 'twenty and 'twenty one.
We have provided a guide for seasonality and the Investor day that incorporates this change.
As such the 'twenty 'twenty one 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 81.002 million 20 with the <unk>.
As majority for content the fuels of 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 the company the.
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 and tens of millions of students globally using chegg as a trusted partner for their academic and skilled space needs.
We couldn't be more thankful to those students with trusting chegg on their educational journey and to our employees, who execute on our vision of being a company that put students first.
With that I'll turn the call over to the operator for your questions.
At this time, we will be conducting a question and answer session and she will.
Like to ask the question. Please press star one on your telephone Keypad, Inc.
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One moment, please let me pull for questions.
Our first question is from.
Jeff Silber with BMO capital markets. Please proceed with your question.
Thank you so much and let me congratulate you guys are really stellar year and and a tough environment. The numbers are really phenomenal.
And you spoke a bit about the international strength and expectations for that to continue can you give us a little bit more color aware of these international students coming from and what do you expect them to come from over the next few years.
Yeah look thank you very much of it.
It's really a credit to our team and the and I think people are pretty excited about just now.
The positive we are in 'twenty, one and even this early in the year.
Despite the pandemic continues because.
And we're going to come out of the pandemic stronger and we went in and we were strong going in.
And international is one of the reasons frankly.
It's interesting when and where.
And over 190 countries already.
You can imagine that the big ones are the English speaking ones first Canada, Australia U K.
And then frankly.
Frankly, we're seeing consistent growth from all countries that we're in and they're just starting from different baselines, Canada started first and.
And then Australia second U K third, but we see we see incredible growth from the mid east we see incredible growth from Asia.
We are staying out of China, and the best of our ability.
But we so it's hard for us to predict.
One country over the other in terms of growth rates, what we would say is the bigger countries will be bigger for us collectively it's our belief that the international opportunity is actually bigger than the domestic opportunity.
So so we're pretty excited about what we see and.
And for those who don't follow that closely we have a different model than say, a netflix or spotify, where they either need to create content or license. The content. We have this unique model, where we where our content is ubiquitous across the world because stem is stem.
And business is business and there are some nuances and those nuances get asked and then answered by US afterwards, and so the model. It is incredibly high growth extraordinarily efficient and that's why you continue to see growth and our margins. So international has been the real.
The positive surprise for us and and it's we're not picking winners right now we're just we're going after all of them.
Alright, that's great to hear.
My follow up questions of different topic of about a month ago, you guys launched honor shield a way to support the integrity of online exams I know theres been some negative media story and it's about how students might've been abusing the chegg product can talk to what's a little bit about this product and how youre going to offset that issue going forward. Thanks.
Yeah and look at it it's fascinating I think I think once again reported don't understand what Chegg does and the way we do it and.
It's sort of like traditional media defending traditional media.
And actually looking at the changes and the advancements that are happening and every industry.
Look the Internet is here to stay technology is here to say what happened for the schools. Unfortunately, as they were woefully under invested and technology. They didn't prepare to teach online. They tried not to turn the line and then when push came to share of the Gabe take home tests of often those tests were old questions or their audit.
Generated many of you may not know there's a lot of tests of our auto generated by tools that they licensed from the publishers. They don't even develop their own test question and.
So they were not prepared for it so we stepped in and we said look that's not what Chegg was built for that's not what we want it for the overwhelming majority of I mean overwhelming majority of students users every week, whether they have of tenants and other crudes or not because they have no scalable support from their institutions and frankly overwhelmingly none of.
And the never had it and high school and so we're the first high quality affordable on demand supports where they can use the master the subject, which is why we shared that research about just how much smarter and how much more comfortable and they get with the data, but we said look we have a role to play here too.
And so the first thing is we doubled the number of people that we have that handle these kinds of issues almost overnight because we saw our subscriber base double almost overnight and not just domestically outside the U S. So that's the first thing so if we ever got contacted by schools. Our policy is we take it down first and then we investigate it and then if we should be put it back up we do.
It's the first thing and the second thing.
The second thing is.
We use technology and AI to.
Actually build technology that blocks of people from asking multiple questions. So you cant submit of test all at once there are other sites that do that.
And we're not one of the ones that does that because that's not what we're for so actually if you submit it either and text or you submit it and photos, we now use technology AI and machine learning.
Learning to actually block it ask which specific question you want to ask and then the last thing. We did was lots of ownership, which is what you asked about and the case of honor Shield. We said look we what we want to do is provide a free tool that's really robust that can scale that any professor any school and the world can pre submit their tests.
And give us the specific time that those tests happen and then we block the ability for that question to be answered during that test time.
And then we store them on a segregated server and then the plan is to delete the mall and then they go back to the professor So we stepped up and did that all within 90 days because we saw the possibility for this and Fortunately.
<unk> press that you know one of them one of the articles was written by somebody who works for one of our competitors. So.
I think everybody understands that this was an unexpected time that everybody has a role to play but it's been our belief for years that if schools don't realize the internet is here and they don't invest in technology, if they don't re imagine what they teach how they teach it and how they assess students than the students going to continue to suffer and so we're.
All the ins together, including Chegg and we're pleased that hundreds of institutions have already reached out and we're already working with them. So we're excited about those things, but it's going to be a never ending battle and we will continue to take it on because that's what leaders do.
Alright, great. Thanks, so much for the color yeah. Thanks for the question.
Yeah.
And all sorts of AD and just to remind everyone. Please limit yourself to one question and one follow up question.
And our next question will come from Stephen Sheldon with William Blair. Please proceed with your question.
Hi, Thanks.
Great to see the increased revenue guidance for 'twenty and 'twenty, one, but just wanted to ask about assumptions for the second half of the year in particular, it seems to assume and based upon the quarterly cadence of you guys laid out a pretty big slowdown and year over year revenue growth I think you'd noted some assumed headwinds and required materials. So can you help roughly frame what you've maybe assume between the two.
Segments and the second half of 'twenty 'twenty, one is and I'm just curious about what you're expecting in particular for Chegg services revenue growth. Thanks.
Yeah. So so first thing is we were we arent in segments and that's just a dirty word for me so one business segment, but.
But the way we we're viewing the the 2021 is not a lot different and then as we as we looked at the in November.
You know there are as you as you're aware of some uncertainties as we come through Covid and we believe with the accounted for those appropriately.
But as Dan said, we we we recognize that you know education has fundamentally changed its accelerated the trend.
And that we've been talking about the literally years and.
And we believe the tailwind that we have seen over the last call. It 12 months or so will continue.
The question. The the open the question is how strong or are they going to be it's not are they going to be there and.
And we think you know when I went and when we put our forecast and our guidance together.
We we incorporated that into the the thought process.
Yeah, and so I guess within required materials and guests are you assuming that the revenue and the second half is down a decent amount year over year.
Not really I mean, if you take the you know.
And I go back to required materials, what we've been saying for many years and it's kind of a flattish type business from both of you know and and that's kind of where we're at I mean, the required materials. If you take a look at the guide that we provided as you know it's within a range of what we've seen in prior years clearly we had the transition year last year. When we went from from Inc.
And what they were owning the textbooks to us owning them.
The net net of this is.
The required materials as of kind of a plus or minus type business don't expect any significant growth and don't expect any significant declines it'll plus or minus.
5 million of herself.
Great. Thank you.
Hmm.
Yeah.
And our next question is from Ryan Macdonald with Needham and company. Please proceed with your question.
Yes, good afternoon, and congrats on an excellent quarter, Dan I guess, the first one for you.
You've made a lot of the investments on the technology front to work on accounts sharing can you just talk about some of the early returns you're seeing from that or or any sort of differences and and and conversion activity from students that might've been abusing or using sharing and accounts that might've looked to now start paying for the solution set since you put.
Those those investments in technologies and the place.
Yeah, It's a it's a fantastic question, it's a little bit complicated to answer but the news is all good. So you know a lot of people ask what happens post COVID-19 and I think and you just articulated.
Chegg success in the U S is not a result of people being on campus or not being on campus.
It is the reality that we're great at what we do but we also had an extraordinary number of people who were sharing accounts and we were working on that technology. As you know several quarters before and we were beginning to make significant headway you know there's three buckets of people there is people that.
And that steal them theres people that sell them and theres people that share of them and the biggest category by far were the people that share and but we focused on the Steelers and the.
And the resellers first because that's just the different kind of technology and as Andy mentioned, we moved up investments that were planned actually for 'twenty one into 'twenty because when when students got off campus. They the proximity sharing which is I mean, your dormer and your room I see them and the library that Couldnt do it anymore and that really just highlighted for everybody including us.
Just how big.
The opportunity was for us if we blocked it faster. So we took two significant steps at one in August and one in October and based on what we can tell a lot of people don't realize that even though a lot of people are taking classes online and there's still were asked to come back to campus, which is crazy and higher education and you saw the outcome of that but nonetheless.
And we feel that it made a significant impact and that's why we continue to see extraordinary growth and Chegg study because of.
The value proposition is overwhelming for the student it helps them learn.
They can get it anytime day or night and for the 14 95.
They just feel it's worth it now because they werent able to share it anymore. So I can't give a specific number because it just was coincidental with when COVID-19 happened.
And then outside the U S. We obviously didn't have that problem, but what COVID-19 did for US was it and it allows students for the first time to go to the Internet and look for help and they found us and it is sustained because outside the U S. In most countries. They went back to school and you could see the growth continuing going on so I would say it's been an extraordinary win.
For Chegg and our investors and I think we're seeing it because those people that we believe we're sharing that now of buying their own they're using it the same as the original accounts, they're staying on as long they are engaged with it as frequently as the subscribers that came before them they're renewing at the same rate. So that's all good.
So we're very happy with the results so far.
Excellent and then sort.
Follow up question I wanted to ask about think full you recently announced the partnership with ASU tougher and boot camps to those students can you discuss the structure of the partnership and do you expect to continue to look for additional universities to partner with or be more focused on sort of direct to student going forward. Thanks.
Yeah. So great question. So we did not go seek that partnership.
What has happened is chegg and when we acquired thankful we expanded the curriculum, we lowered the prices.
And we increased the assays to give people of diverse backgrounds of the opportunity to take advantage of these things and changed their lives and.
And on top of that we did something that no other competitor and the market has which is we have 24 seven and on demand support from our chat based tutoring.
And as a result of that.
We put ourselves in a position where we're the best price and the greatest support and the relevant curriculum and that got noticed by a number of institutions, who wants students to finish and to graduate and so we've been contacted by a number of them were testing it with ASU to see whether or not these are the kinds of partnerships that we want.
He was a phenomenal university, they're forward thinking and they see us is of great partner to be able to accelerate their path and to what Chegg has been talking about for years, which is learning to earning is here 75 per cent of college age students never get a degree.
43% of those that go on to colleges don't get a degree and so somebody has got to make them employable and ASU seize that opportunity and chegg seized that opportunity. So it was a terrific partnership I wouldn't be surprised if you see a few more of them.
But even there we're going direct to the student it's just in partnership with ASU marketing it and the way. The deal works is we do the content and we do the teaching they use their brand and they use their marketing.
And then there's a revenue split that's you know to both sides benefit, but it really eliminates the cost of marketing for us and eliminates the cost of curriculum creation for them and and we'll see I mean, we just announced it. So it's too early to say whether or not this is a model we want to extend the other places, but it's very clear that institutions see this as an opportunity and are interested.
Working with Chegg.
Excellent. Thank you very much.
And our next question is from Douglas Anmuth with Jpmorgan. Please proceed with your question.
Great. Thanks for taking the questions Dan.
And I just want to follow up on on skills based obviously elevated with the pandemic and and a top priority into 'twenty and 'twenty. One I'm. Just curious if you could talk more about how the product suite is going to expand both organically and then potentially through M&A and.
And then I guess, how do you think about ranking and kind of skills based priority relative to.
The core.
More college focused experience.
Yeah, the phenomenal phenomenal question, Doug and that's that's the right way to think about it and in our mind and that's how we've been thinking about it and what's very clear is and the academic support role that business is doing phenomenally well, it's seeing accelerated growth, it's expanding globally, it's getting more profitable each and every day and kicks.
Awful lot of cash flow and we will see a lot of growth for a lot of years.
But what's also clear is the modern student doesn't want to take on debt that 50% of the world's population is below the age of 30 that students around the world are trying to empower themselves and pay for themselves and it needs to be affordable.
And so our view is have the highest quality with the greatest support so that students are more likely to alerting and passed.
Some of portable and that'll.
Allows us to lower our price isn't and allows us to do.
The other kind of financing methods for the students so they take less of the risk which institutions. Unfortunately don't do on behalf of students.
So when we look at the market.
And you realize that it's actually a bigger market than the academic support and the academic support market is a massive market and we look at the overlap when we say our brand is trusted you know when you think about the number of years.
This past.
My 11 year anniversary of checks and.
And when you think about a number of students that have come through and use our brand. It's probably in excess of 70 million students have used our brand and subscribe to something or use something over the course of that period of time, so they like us and they trust us. So we think theres an opportunity to promote to the students that are currently and school to students that have left us and.
To the 25 million people, who realize that if you don't take of tech enabled job of your.
And the potential for a great deal of difficulty so for US organically, it's working great and that we can expand the content and we can build our support at scale, which again no one else and our opinion has tried to do or is able to do and we spent a lot of time and energy and money to do that but the second thing is it's going to be one of those.
Is that that there'll be one two or three players that win big as a platform company.
And with our brand and our reach and our E commerce capabilities and our technology.
And our balance sheet, we think we're and the best position to do two skills, what we've done with academic support which is really define the space grow it make it very large and very profitable and so we you know, we're we're positioned to grow organically and non organically if theres an opportunity to find the right and I said at the right price like we've always done.
And I think if you look at the return on things that we've acquired the return quite handsomely to our investors and we think those opportunities and the next few years will be available and we are in a position to do that if that's the right decision to make.
That's great. Thanks can I just follow up with one on honor Shield I mean, historically your DTC company working directly with.
And with students and and consumers basically, but with the honor shield I mean, this is the product targeted toward institutions and professors just curious if we'll see more along those lines going forward.
Yeah, No. It's a fair question and what's interesting, though Doug is if you think about higher education, and that's what really 4500 5000 institutions, but they're made up of millions of professors and each professor and makes their own rules and it's one of the blessings of higher education, and one of the real problems with higher education.
Theres no consistency.
There's no opportunity to push people to change the curriculum of forced them to use technology, you actually have to do hand to hand combat with each professors. So to US we were treating it like of direct to consumer opportunity, which as we've communicated to us many of them as we can we put it in the press.
They worked through our S E T group, which as you can call customer service.
Students advocacy team.
And because of colleges.
And we built technology that Super easy to use you can go look at the site now they can listen to anything and then if they want and need to make a phone call and they can do it if they wanted to chat based they can do it. So we're treating it like we're going direct to each professor of rather than to a specific school by themselves because in higher education really no school, except the for profit can make a decision for them.
The top down.
Got it okay very helpful. Thank you.
Great questions.
And as a reminder, and also due to the amount of of questions. Please limit all the questions and the only one question only thank you.
And our next question and this room, Josh Baer with Morgan Stanley. Please proceed with your question.
Hi, This is Chris on for Josh Congrats on the amazing quarter I wanted to ask on the various growth levers you have right now there's obviously international of the bundles skills and account sharing should any of these initiatives and their contribution to the model of let's say peak and the next two years or should all of these should we be taking of.
Longer term view on all of these four growth drivers. Thanks.
I'll start and this is Dan and then I'll turn it over to Andy because.
I think theres modeling questions that are probably inherent and that I would say the one that has had the most immediate impact as accounts sharing and I think people are confusing that domestically as if there were a stay at home company are and how to stay on the company that's completely irrelevant to check.
What's relevant is that students know who we are they want us we provided the unbelievable service and the numbers reflect that.
So that's the one that probably catches up first inner.
The international it is Andy articulated you know.
And this is something we only started talking about two years ago and we're estimating that this year, we'll have over 1 million non U S. Subscribers. So I think that gives you an indication of two things how quickly it's growing and how large it's likely to get.
And that so that's one that's just really really early.
Skills is even earlier than that right thankful and it was a small acquisition to give us.
And our sense of how the market works how to do pricing, what's the content that needs head of support of students. It's been an incredible learning experience and is doing really really well for us. So that one is also very very early and our existence the bundle.
It depends on how you look at it and I think Andy can walk you through how we think about it and as a model, but we've been marketing the bundle really exclusively only to new customers and the take rate has been much higher than we expected and has been similar outside the U S.
The two inside the U S, which both have been really pleasant surprises.
And so that means in years to come will actually start to reap the benefit of all of those starting to renewed so a higher percentage of our renewal base, which is very high it's higher than our newer customer base.
And we will renew and even higher numbers, so that one builds over time.
So I don't really know how to explain it to you except we're thrilled that we have all of those factors.
To go after right now Andy I don't know if you want to add anything to that.
No I think I think Dan nailed it I mean, when you think about where we are of the company today versus where we were just in a couple of years ago, where we were primarily.
The U S College based the opportunity.
The opportunity I mean, we've of course.
Lastly expanded the truth be told the academic side of this has allowed us to do that so we've got we've got both the domestic side that continues to grow the very fast pace and then we've added on the other two growth vectors that are attacked handset Super early right International low.
And they started does investments and early 2019, and then more recently and the skills base. So I think when I think about our future is much brighter than our past and I'll pass the has been pretty darn good.
Got it thank you.
And our next question is from Brent Thill with Jefferies. Please proceed with your question.
Dan you've grown extremely well.
And while having great bottom line growth as well, it's pretty rare and tech as you know many have asked you know can you continue that pace and the cadence of.
Top line growth and bottom line growth or is there some point, where you kind of have to hit their breaks a little bit makes the bigger investments and and take a take a pause.
Just curious your thoughts on the overall trajectory. Thank you.
Yeah, and it's a very fair question and I think any operator would ask those kinds of questions and what's interesting.
And we sort of alluded to it and our prepared remarks, but we declared for our employee base 2000, twenty's of the year of plumbing, which is we actually made significant investments in systems and.
Analytics and the ability to do.
A b testing and outside the U S. Not just inside of the U S to do E commerce and local pricing.
And these were all things that we planted on on 'twenty and 'twenty being the year of that kind of investment and we are we did it I mean, we still have a few more things to do obviously and the and then you know platform.
The platform companies that stop investing and their platform and lose overtime and so I've learned that lesson, we're not going to do that but what's fascinating is.
So for US we don't have to do like going for maintenance, we did that in 2020, but at the same time because of accounts sharing and those things, which the team was able to to do faster than we thought because the opportunity presented itself. We've done a lot of those things that we needed to do to be able to accept this level of growth and.
And so theres, nothing technologically and front of US right now for us to not handle this level of growth and that we were very fortunate and that 2020 was going to be that year, and we were able to do it and handle that growth. The question over the growth rates I'll, let Andy handle that because you know, there's there's there's lapping and those kinds of things.
But we feel really good I mean, you saw as we were one of the few companies that had the courage and November to give out not.
Not only Q4, but of 'twenty one plan and then we feel comfortable enough only five weeks into the year to elevate even that one so I think we're not seeing the wall that other companies might see but I'll, let Andy handle the rest of that question.
Yeah.
Dan and I actually kind of nailed it and the fact of the matter and we've got a very scalable model lots of lots of leverage and our model.
And and.
Dan mentioned earlier, I mean stem is stem it doesn't matter, whether you're a U S College students the college student and Turkey stemmed the stem and so we got a lot of leveraging of our model from a content.
And so yeah, we are.
The we don't see ourselves anywhere close to a steady state from a margin perspective at this point.
We think there's a lot more leverage and the model as we continue to scale of the top line and we believe the top line will continue to grow the very fast pace. So we're like I said I like I commented on the last call I'm much more excited about the future of in the past and in the past and has been really good.
Yeah.
Thanks.
And our next question is from Jason and Celaeno with Keybanc capital markets. Please proceed with your question.
Hey, guys. Thanks for taking my question.
The 1 million international subs by the end of the year and that's a big number.
How should we think about seasonality of this ramp and then maybe quickly are you adjusting the price of your products per country.
I'll take I'll take the Andy I'll take the second part first and then you could talk about seasonality.
So okay Gulfport, yeah, yeah. So.
At the moment, what we're doing is presenting the pricing and local currency and and local language and we are now able to we are starting to be able to answer questions asked not and English and returned and the answer is not anymore. So that's a big as part of the investment we made and technology last year, which is the beginning of translation and.
And we have a lot more to go there, but we've started that effort.
So.
So to that degree.
I think we.
I think we are in good shape and I think what Andy said was we'll cross the million I think it will.
And b, even larger than that but we shall see and and so as it relates to seasonality I'll, let Andy explained it but it is interesting day.
The different there they do have different start dates of Australia is completely different start dates and have different times of year, which they do things they have different holidays. So.
That's a little bit of of work in progress, but I'll, let Andy explain how we're thinking about it.
Yeah, Dan Dan nailed it right I mean, my brother lives and Australia and they.
Just came out of their summer break so which is very different than the U S and some other parts of the world.
But the net net of this rule is and just as a reminder, I think I've mentioned this in the prepared remarks, there is the seasonality chart and the Investor Relations deck I think it's slide 17, if I recall correctly.
And that's all of it so all of the seasonality that we're anticipating even though it's of working progress like Dan said is included in that slide.
So it referenced that.
Okay. Thank you.
And our next question is from Mike Grondahl of Northland Securities. Please proceed with your question.
Hey, guys congrats on the quarter and if you just look at your Capex ex the textbooks of $90 million to $100 million.
Is there any way you can kind of give us a rough range kind of by major growth driver sort of where that's going or just sort of ranked by major growth driver.
Yeah, I mean, it's real simple of a vast majority of our Capex actually goes to expert Q&A.
We've got over and over 15 million questions asked and answered and archived on our platform today and and 90% of those are expert Q&A and.
And so that's where the most of the the the dollars go I mean, obviously, we invest and some other things and as you.
You know we've had some public publish of contracts and things like that but the vast majority of expert Q&A.
Got it and then I'll leave it at that thanks, guys.
Thanks, Mike.
And our next question is from Alex Zuckerman with Craig Hallum Capital Group. Please proceed with your question.
Great. Thanks, very much for taking my question I just wanted to ask you about the the tutors business and you can tell us a little bit about why that business what was unwound.
And and just give us the general sense of of of what that would contributing to the business. Obviously it was lower margin.
But from a revenue perspective, and if you can give us a sense of what that was contributing and and and maybe any more insight and that decision will be great. Thanks.
Yeah, I'll I'll start with the decision of Andy wants to talk about the numbers he can it.
It actually we so it was very very interesting. So what is tutoring do the way we were doing it which is it's real time academic support and.
And Chegg study has become so robust we have over 50 million questions. In there we're able to answer the questions. You know we have an SLA of four hours, but most of them under an hour at this point, we're able to do it increasingly of multiple languages. You can do it by text you can do it by your your camera phone I mean, it's just it's and we.
Use AI to do matches better and we have a lot of technology that allow the eliminates duplication of questions and and grouping of questions and and.
And so it has become so robust that it replaced what our consumer tutor product was actually trying to do which is real time support.
But.
What we were building is chat based tutoring, which allows for multiple students to be tutored by the same tutor without being in the same class.
So instead.
Instead of pointing it to consumers, where we were doing you know.
A couple of hundred thousand and sessions.
And we're able to point them towards Chegg study, because it does that and more and what we've done is we've redeployed.
And our chat based tutoring into think book So that was what I was talking about earlier is one of the biggest differentiator is that students are looking for is when they're trying to learn a job skill.
And they don't understand it.
Nobody to call when Youre doing it online and.
And we now have the ability of just click a button inside exactly where you are in the course and we have now redeploy those tutors to real time tutoring support of job based skills and that is making a difference and our growth rates, it's making a difference and the number of students that graduate it's making a difference and the number of students to become employable and that needs.
The scale and that's a better use of that technology than the consumer business, which is really not generating that much revenue.
Because we were charging so little remember we were charging 50 cents per minute. So we can do hundreds and we can do millions of sessions and it still won't generate a lot of revenue was more of a more of something to do for students that would never get access to those kinds of things. The Chegg study has just become so robust. So so much faster than we imagined that it actually takes that role.
And so that's why we made the decision and we feel really good about it.
Great. That's really helpful. Thank you yep.
And.
And our next question is from Brett cannot book of Wood.
Barry and where capital markets. Please proceed with your question.
Hi, guys congrats on the good quarter and and thanks for taking my question.
And you ended the year with.
It gets of rather big cash position.
Obviously, the acquisitions of past have been.
Relatively small to that cash with us and what what is your capital allocation plan going forward.
And as M&A M&A is still going and be the number one priority there and if that is the priority of I guess, where would you look to further expand it would've been most of the on the painful side and now that you have of tastes for that market.
Yeah. So yeah. So yeah. So good question, we do have a.
A great capital structure and I would include our stock and our cash combined and that's intentional.
Dan mentioned earlier, there's a there's you know there's there's areas, where we can either organically or inorganically potentially moving into other areas, particularly and the skills area. So this gives us the ability potentially to do that having set that are just keeping with us for a while and and.
Our our of the way, we handle acquisitions, whether it's small and large is not any different.
And we play and the fairway as I call it of being a golf and we will continue to do that the other thing and we mentioned this when we did the last capital raise as a part of what we did was kind of pre fund.
Potentially calling of buying back some of our outstanding bonds that will deepen the money and where we're being a little diluted shareholders because that was the other thing that we.
The reason we went after the capital back in August.
So it gives us the ultimate flexibility as far as whether or not more fancy financing future opportunities or reducing dilution and therefore cost of our shareholders.
Perfect and maybe if I could just ask one more just regarding the maybe the the international subscriber count that you guys put out there is.
Is there any way or could you guys provide me a growth rate for that should we expect international accounts for more than 10 per cent of revenues and 'twenty 'twenty one.
Yeah. So so you know once again, we talked about the millions of subscribers in 2021 or at least a millions of subscribers in 2021.
We're not breaking out revenue at this point and time.
But needless to say international is important it is growing extremely fast and the like Dan said 190 countries at this point and and many of those kind of companies countries excuse me of countries.
And have some fairly significant scale.
Perfect. Thanks, so much growth.
Okay.
And our next question is from Eric Martin Newsy with Lake Street Capital markets. Please proceed with your question.
And just curious to hear where the head count finished up for the end of 'twenty and 'twenty and then looking at the Chegg services growth for 'twenty, one you're calling for about 29% growth. There I'm wondering where you think the head count and need to get to support that by the end of 'twenty one.
Yeah. So so from a head count standpoint, as we exited the year of approximately 19 hundreds and.
Employees worldwide, a significant contingent of that being outside the U S and India in Israel we.
We don't anticipate growing that the.
Base significantly during the year, we made some very large additions and the middle of the Ash last year. When we saw the opportunity to invest incrementally more and international we went after some.
And we pulled in and as we talked about I think on the last call. We pulled in development of things like the device management and MSA.
And I'll, let you use and so we made a lot of those investments in the we would've made in 'twenty and 'twenty, one and 2020, obviously they continue into 'twenty and 'twenty, one, but you know I don't see us making a.
As big of investment and head count as we did the this year.
So would you say growth, but just nowhere near the level of revenue or doesn't grow at all.
He called it grows.
C leverage clearly you see that already and the and the model, where we're forecasting of 200 bps increase and our overall margins.
And and a big part of our cost structure is head count. So we're certainly don't anticipate that it will grow.
Certainly wont grow any faster than revenue.
Okay. Thanks.
Mhm.
And our next question is from Arvin, Robert Ramani with Piper Sandler. Please proceed with your question.
Hi, Thanks for taking my question and congrats on a terrific quarter.
My first question is around the international which is incredibly exciting.
You provided some color on the international but I wanted to ask is there anything unique you're doing on international.
And the win against competitors.
And of customer acquisition, and our product I mean, what what what kind of what's the unique angle to international that's that's enabling you to see this level of success.
Yeah look it's a great question and unless you're deep in the space is it's hard to know this but.
We don't really have any competition.
We have very little competition and the U S.
Nobody's growing as fast as we are and nobody has our balance sheet and really very few people that maybe one or two are profitable at all and.
And we're increasing our profitability and generate a lot of free cash flow. So you know.
What we do is hard to replicate even under the best of circumstances, because you'd have to come up with something better and less expensive and we haven't raised our prices for 10 years, and we have over $50 million.
Q&A and already and our database and it's growing we've already invested and the ability to to start to do translation. So you're kind of asking any language. It could be translated to any of them the language of any expert.
So there really arent any competitors of any significance on a global scale that we're coming up against including and the U S.
And then on a country by country basis, most of them are bootstrap startups of all of who are reaching out.
But what makes us different I think is our quality the depth of what we have the speed and which we do with the ability to charge such a low price.
And for it to be something that continues to expand so whatever subject you're in and theres always going to be more subjects and more content and it is a network effect that builds on itself. So.
What's interesting and Andy alluded to it earlier, which is the content that we've created and spent a lot of years doing and a lot of money doing it.
It's really about translating it to the non English speaking people, we're getting a lot of the English speaking people first and now we're starting to get the non English speaking people, who were taking standard and the goal is to get the non English speaking people, who are not taking steps. So I think our comprehensiveness of the quality the price even the brand now I mean, we're.
Great word of mouth product, we don't spend that much and advertising.
The anywhere in the world, let alone collectively across the world. So.
And it's we're very fortunate to be in a position where the content.
And is almost ubiquitous and most of the world. It's the same type of publishers, who develop the curriculum for most institutions. So we're not reinventing the wheel like other companies who have to move into those countries have to do its just the unique opportunity and we're capitalizing on it.
Right right and so I mean, it looks like international and considerably can can you know over the medium term, but could become even even.
Yeah.
The big of a portion of the overall revenue.
It will.
Yeah.
And that's exciting and then you know.
From a tech perspective, you know, you'll have really been and making some good strides using our AI.
And I and it takes to improve the overall product.
And and of course, you know and.
And shrink and of our product gets that's monetized appropriately.
Are there any sort of factors from a tech perspective our.
Net debt are.
And of limiting kind of the speed of moving at.
The only two.
And I have more of these kind of specialized technology of scale and so you need do you need from partnerships are you feeling of sort of pretty pretty well resourced.
From from Oh, and I think book.
Perspective look I think every engineer every data scientists and let's say, they're never fully resource, but CEO of say you're over resource. So we always have that debate and the fact I always make sure of final budget season.
But I mean, what what the beauty of our model is that kind of effort and centralized you don't need different technologies and different countries, you don't need different data science concepts and algorithms and different countries and the need to be right and the different code, obviously different local languages and those things and as we mentioned earlier on the call we've made significant investments and.
The ability to onboard people to support them to do the data of the analytics.
There will always be new and better technology.
That will make us even more efficient and we have an extraordinary team that.
That works on all of those things.
I would say from our standpoint translation is the one we're focused on a lot. This year, just because international is growing so fast and.
And there's a lot of we don't have to invent translation and others have done a really good job and we work with them on those kinds of things.
Great and.
Thank you very much and good luck for 'twenty and 'twenty one.
You very much for the for the question.
Okay.
And we have reached the end of the question and answer session and I will now turn the call over to Dan Rosensweig for closing remarks.
Yeah.
Yes, Thank you everybody for joining us.
And thank you for your consistent support and it's been a really complex here for everybody.
And we just keep trying to focus and execute so one of thank you all for joining us and I also want to say that I'm honestly never been more excited about the impact of the Chegg can have.
And the business is obviously great between impact that it has that drives the employees of chegg and the ability to affect so many more students.
On a global scale and now than we've ever been able to do before.
And it's clear that we're able to do that because what we do is more important than ever and as I think of many of you were beginning to realize is we have and it's a bigger opportunity than even we imagine.
We're confident and we can deliver on our priorities and the promise of our mission because of the tremendous chegg team and I want to take a moment to acknowledge and thank them as they continue to be celebrated with leading industry awards for culture diversity and the company and they are built and are building over the last few months. They have been recognized by Fortune magazine is of great.
The place to work and received multiple awards from comparably, including the best culture and the best company for diversity, we're committed to building and inclusive company and environment that fosters innovation celebrates each of our unique perspectives and creates the culture of belonging.
So thank you to our entire team for all they did over the past year to support each other and our students and it's not been easy and they've been great. Thank.
Thank you to all of the customers around the world that continue to turn to chegg to be of part of their learning journey and thank you to all of you on the call of those of you who may have been who may have just joined US on this journey and those who have been on the journey with us for many years. We are excited for all of that is ahead and look forward to talking to you again next quarter and we're really grateful for.
And your continued interest and the company.
And stay healthy.
This concludes today's conference you may disconnect disconnect geologically the time, thank you for your participation.
Okay.