Q2 2022 Chegg Inc Earnings Call
[music].
Thank you for standing by this is the conference operator welcome to the Chegg, Inc. Second quarter 2022 earnings Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded after.
After the presentation, there will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star zero.
I would now like to turn the conference over to Tracey Ford Vice President of Investor Relations and ESG. Please go ahead.
Good afternoon. Thank you for joining <unk> second quarter 2022 conference call on.
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 on our Investor Relations website, Investor Dot 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 that 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 to differ materially from those in the forward looking statements.
We caution you to consider the important factors that could cause actual results to differ materially from those in the forward looking statements in particular, we refer you to the cautionary language included in today's earnings release and the risk factors described in <unk> annual report on Form 10-K filed with the security and Exchange Commission on February 22.
'twenty, two 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 do information or future events.
During the 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 on our IR website investor Chegg Dot Com. We also recommend you review the Investor data sheet, which is also posted in our IR website.
Now I will turn the call over to Dan.
Thank you Tracy.
Welcome everyone to our Q2 2022 earnings call Chegg.
Chegg had a good second quarter with Chegg services revenue growing 9% year over year, increasing to $5 3 million subscribers for the quarter.
Our team is doing an excellent job of executing on the current opportunities in front of us and with the impact of constant upgrades to our user experience. We are seeing continued strong conversion rates as well as over 100 basis point increase in our Chegg study and Chegg study pack retention rate year over year.
We're executing very well on our servicing strategies, resulting in record high take rates for our Chegg study pack. This bodes very well for future increases in both ARPA and lifetime value of our growing customer base.
Our newer investments such as Chegg skills, and Bruce who are also starting to scale, which is contributing to improvements to our top and bottom lines now and we believe even more so in the future.
Given these positive trends, we are moderately raising our guidance for the year, which Andy will walk you through it.
The last few years have been challenging for higher education ecosystem with impacts on enrollment of course load and the overall mental health for both students and faculty.
That said, we have always been focused on solving big student pain points, and helping improve learning outcomes.
We help students master their subjects and better understand their course material, while increasingly providing them with high quality skills based learning opportunities to make them more employer.
In doing so we believe we substantially improve graduation rates and the ROI of their learning journey.
Our results speak for themselves as 92% of students reported their check helps them learn their course work better.
94% say, they get better grades when they use chegg to understand their coursework.
As the learning leader in higher education, Chegg is constantly monitoring our industry, particularly through the lens of the student.
We're seeing some very interesting new trends in our most recent survey as the data suggest a significantly higher number of students are taking summer school. This year compared to last year. The reasons are a direct result of the Covid experience and a significant number of them are taking summer school to accelerate the pace of getting their degree and catch up on their courses.
Our previous study showed that students were taking fewer and easier courses during the pandemic.
So it's no surprise that this summer they are taking a harder classes specifically subjects in study.
What is also interesting is that we believe students are increasingly thinking about their academic journey as a 12 month endeavor in order to better balance work horse load and family throughout the year.
In fact, 38% of students surveyed are extending college, so they can make more money now.
They can do this because schools are going increasingly online, making summer school more convenient and accessible.
In addition, 85% of summer school students surveyed said they plan to attend or have already enrolled in school for the fall.
Historically higher summer attendance has indicated stronger student enrollment in the fall semester.
If these trends continue it is good for the higher education industry as a whole and chegg in particular.
For the back to school season, our priorities in the U S are the continued rollout of learn with Chegg, our personalization platform, which we believe will expand our Tam to new users and increase our value to existing customers, both of which should improve conversion and retention over time.
We are also rolling out the student facing side of University significantly expanding the content of courses and learning tools for students. This fall.
As our value to students increases so does our pricing power in mid July we initiated a very moderate $1 price increase in our base Chegg study service going from $14 95 to $5 95 for our monthly subscription.
All other pricing in the U S remains the same.
This has been rolled out initially to only new Chegg study customers, but we will be expanding to include all existing subscribers in October .
According to our price tests over the past several months, we expect to see a minimal decrease in conversion, while seeing an increased number of students choosing the chegg study pack bundle because the price value relationship is even better.
Our ultimate goal is to have all students subscribe to the Chegg study pack, which is why we recently added diversity content into the bundle, making it even more attractive and valuable offering.
Through University, we are at.
Adding the content students have specifically been requested such as practice tests quizzes and study guys from professors from some of the top universities in the world.
We are providing new content and new formats that we have previously not had on chip.
Overtime, we believe University will expand our Tam in the U S and globally in both stem and non stem subjects.
We are very excited about the impact University will have on student outcomes as well as the traction we are already seeing from educators.
There are now more than 180000 pieces, a professor develop content on our platform.
And we have over 6000 professors, who have already been verified to participate from almost 30% of all higher education institutions in the U S.
And that number continues to increase.
Student benefits are clear and we're excited to see how faculty are leveraging university as a new distribution channel to educate even more students around the world.
These efforts lead to increased dynamic learning and personalization for our students and is learning shifts to classes and courses versus textbooks. So does check more we personalized user experience. The more we can program individualized learning pathways around their needs styles and their preferred learning sources all.
This should improve engagement retention and ultimately their learning outcomes.
Outside North America, our goal is to rapidly increase our subscriber base by finding the optimal price to conversion relationship in each country.
While also ensuring we have high quality and relevant content that has been localized to serve those moves.
Due to our investments in infrastructure price testing and payments Chegg is already serving more than 1 million students outside of North America.
As we grow we are increasing our focus on some of the biggest near term opportunities, which include Australia, Turkey, South Korea, Saudi Arabia, India and Mexico.
Students have made it clear that.
They need more than just academic support which is why we are scaling our efforts in chegg skills, both direct to consumer and through our partnership with guilt.
<unk> is proving to be an excellent partner and we're experiencing early positive momentum we continued to increase our catalog, where we see the opportunity to meet more lender demand through our direct to student offering and through guild as they expand their customer list.
Our programming strategy is to align our courses with most in demand skills in the market and our most popular courses include cyber security software engineering data analytics and design UX with price range is ranging between 1250 and $9500 per course.
Students are having a positive experience with our curriculum, resulting in both strong take rates and course completion.
We are very excited to be working with some of the biggest companies in the world through Guild, and we continue to believe that by offering high quality skills training through employer partnerships and direct students chegg skills, including Bruce who will be a significant player in a very large market in the future.
Like our skills business language learning is desired by both corporations and students. So our plan is to integrate <unk> into our skills platform in the coming years.
As our audience expands so do the needs of students.
As a result, we have recently launched new high quality content in the categories of financial literacy career soft skills and mental health, which you can now find on chegg and through large distribution channels, such as Yahoo, and MSN helped me to extend the Chegg brand in.
In addition to content you can expect to see us partner with leaders in these categories with product offerings to our students starting in 2023.
As always Greg.
<unk> work, we have accomplished this last quarter would not be possible without our amazing employees. Their tireless work to put students first has once again, resulting in continued recognition for our teams over the past few months, we were proud to win comparably awards for women diversity and our entire leadership team as well as <unk>.
You named one of Fortune's best place to work for millennials. So I wanted to celebrate our incredible employees for this recognition and with that I will turn it over to Andy.
Thanks, Dan and good afternoon, everyone Q2 was another solid quarter for <unk> with revenue and adjusted EBITDA coming in above the high end of the range at some school was stronger than we have experienced historically for reasons Dan mentioned earlier.
While this is an encouraging sign we believe it is prudent to wait and evaluate the fall semester trends before making any material change to our second half guidance.
With that backdrop, let me walk you through the Q2 results for Q2 total revenue was $195 million. This was driven.
By Chegg services revenue growth of 9% to 189 million subs.
Subscribers grew to $5 3 million during the quarter.
Gross margin also came in at the high end of our expectations at 77%, resulting in adjusted EBITDA margin of 35% or $68 million.
Looking at the balance sheet, we ended the quarter $1 6 billion of cash and investments.
Late in the quarter, we announced an increase in our securities buyback authorization by $1 billion.
Giving us the continued flexibility to buy back either outstanding debt or stock during times of market dislocation at prices favorable to our shareholders.
This is possible as we have a strong balance sheet and have an operating model with one of the strongest free cash flow margins across the education industry.
Moving onto guidance given the strength of our Q2 results, we are increasing the midpoint of our revenue and adjusted EBITDA guidance ranges for the year.
As a result for 2022, we now expect total revenue to be between 745 and $770 million with Chegg services revenue between 715 and $740 million.
Gross margin between 73, and 74% and adjusted EBITDA between 225, and $235 million or 30% adjusted EBITDA margin.
For Q3, we expect total revenue to be between 156 and $160 million with Chegg services revenue between 152 and $155 million.
Gross margin between 70% and 72%.
And adjusted EBITDA between 36 and $38 million.
In closing we are operating very well despite concerns about inflation the economy and challenges in the education industry.
We believe we are positioned to emerge even stronger once these headwinds subside due to our best in class offerings beloved brand a strong upward you can model that generates cash and a best in class balance sheet.
With that I'll turn the call over to the operator for your questions.
Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.
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Okay.
The first question is from Doug Anmuth from Jpmorgan. Please go ahead.
Hey, its Brian its Mike on for Doug. Thanks for taking my questions and you can see summer enrollment trends are back on track and early fall semester trends seem encouraging however, just considering the macro backdrop could you just provide any color of how that's embedded in the guide.
Any macro risk is in there and then how do you feel Jacobs positioned in times of economic downturn.
Well historically.
If there is a recession.
Yes.
Higher education enrollment goes up.
Yes.
Summer schools are strong, which it definitely is right. Now then usually that results in a strong fall.
But to your question about what the risk in the guidance, we tried very hard not to get enthusiastic about the signs we're seeing too early.
Because we really wont know for four to six weeks just how strong the fall session is so.
We are assuming at the moment that enrollment in the fall is no different that enrollment in the fall was last year.
<unk>.
Where we're just being.
We're quietly confident but were not being aggressive here, we're just going to wait and see what happens, but our ability to take advantage of an upswing would be great. We're obviously well positioned for that and.
And we like what we're seeing right now.
The next question is from Stephen Sheldon from William Blair. Please go ahead.
Hey, Thanks, It sounds like you are getting great traction with University contents I just wanted to ask about how youre planning to leverage and monetize it it seems like based upon the commentary.
Our content may only be available in the bundle.
Maybe essentially serve as another part of the value proposition to drive Upselling to Chegg study pack so am.
Am I thinking about that right and how you're thinking about the broader opportunity to attract non <unk> students to the platform.
Yes, great question.
So yes to your first question, which is the way we're going to monetize it first our objective all along has been to get students to take the bundle over the base Pat we're seeing really amazing traction to be honest with you, which we think reveals itself in 'twenty three and 'twenty four.
The price increase that we took was very moderate in the base, but the goal for that price increase was of course to generate that revenue from those customers, but to encourage even a higher percentage of those.
Students take steady path all the test indicated that and so far in July and the beginning of August that's exactly what we're seeing so we're really bullish on that then the next part of that was to add diversity content into the bundle to make it even more attractive.
It makes it each customer worth about 33% more than it would be if they took the base. So it's really a valuable opt.
Opportunity for us to upgrade existing customers and then ultimately have everybody a subscriber to the bundle of all the time so.
That is how we're using it initially now the second question.
We are accumulating content for both stem and non step and we are directing our experts to be able to provide solutions step by step solutions for non stem subjects, which historically, we havent done.
That category that size of that Tam is equal to the size of the Tam that we're going after where there are existing business, which is another 10 million students in the U S. So we think we have a tremendous amount of growth ahead of US first when students come back and hopefully this summer as a sign of that and the fast the numbers indicate that it's up four points.
6% from last year. That's also a good sign but we don't want to get ahead of ourselves I think that would be a mistake at this point.
And then we have this whole another category of 10 million students of which about 20% of them subscribe to chegg, but episodic when they're forced to take the stem class, we want them to stay with us when they're taking their other classes political science the other kinds of.
Majors that people are in history and others. So we're very bullish on our future growth in the U S and.
<unk> will start by encouraging people to take the bundle and then we will be using it and directing our expert Q&A to be able to accumulate content and the non stem areas. So both are really big step forward for us and this is a good time to take it.
The next question is from Ryan Macdonald from Needham. Please go ahead.
And Andy Thanks for taking my question and congrats on a nice quarter.
Just curious with the progress youre, making on boost you underneath the chegg umbrella thus far.
And what efforts, perhaps have been made in terms of starting that to drive that cross sell activity within the existing core existing Shanghai.
Yeah also spot on questions. So.
We're making very good progress with our strategy and we will talk more about that strategy in the fall, but you can start to imagine that the U S, where theyre not particularly penetrated.
We have the opportunity to create a much more aggressive premium model.
Yeah.
We're not prepared to talk about much detail today, but that will be really our first major effort to go after the U S market to be much more competitive in the U S market.
And we have the resources to do it and.
I imagine that for 'twenty three we'll have a lot more to talk about as it relates to that so.
So it's exciting.
Summer is difficult in Europe as you can imagine.
Everybody traveling and post COVID-19.
The fall will be the beginning of those tests and then we'll talk more about it at the end of the year and in February .
The next question is from Josh Baer from Morgan Stanley . Please go ahead.
Thanks for the question just wanted to check on the the really positive Summer school trends sure had an impact at the end of Q2.
Like how should we think about the impact to Q3.
Kind of thinking about guidance missing consensus maybe consensus was just wrong, maybe if part of it is that Q3 is into the next academic year and don't want to get ahead of yourself just wondering like how the really strong summer school trends fit with.
Expectations around Q3.
Yes.
Andy get into much more detail.
But in Andy's prepared remarks, I think he was very clear that we are we are taking what we see.
On the top line, but you are seeing even more leverage on the bottom line.
<unk>.
We believe we will continue to get a lot more profitable as we scale and we are and we're very confident in that.
We're just being very cautious about the fall because we'll know in five or six weeks. So there's no reason for us at this point to get ahead of it all the signs are good.
And so we're banking the revenue upside that we experienced but we're not taking any other right now because it's just not prudent.
At this moment.
But if the trends continue yes, it's an excellent.
Yes, I mean, Dan just Dan Dan nailed it.
It's really this simple we are seeing we did see positive trends during the summer you saw that in our results for Q2.
In my prepared remarks, very clearly that we are not adjusting our expectations for the second half you see that in the numbers on the revenue line at least.
We're not we're not about to get ahead of our skis.
Yeah.
We're just a few weeks away from getting a sense for what the fall really looks like.
And then we'll make any adjustments that we think are necessary when we come to the next call which is in early November .
Yeah.
But we are absolutely sending a signal about increased profitability because.
As was in the prepared remarks, as Bruce who continues to grow at Hill's continues to build and as more people take the bundle.
And our renewals continue to be at record rates and our conversions remain very high.
Is.
All increased profitability it should be at one point in the year, where we just have to be cautious because we won't know for sure.
For the next four to five weeks.
The next question is from Brent Thill from Jefferies. Please go ahead.
Good afternoon, Dan.
Maybe just share a little bit of the playbook as you go into this year.
Versus past years, how you've you've made some tweaks on that and.
It's just a quick follow up if COVID-19 was kind of the primary reason for the return back to summer school.
I guess.
When you think about how your arena and how confident you are that that thats not just maybe a one time catch up what are the signals that you're that you are seeing that.
That may indicate.
It would have no summer school machine.
Continue into the fall can you give us little more color.
What happened this summer in like why that would continue thank you.
Yeah, well again fair questions and a reason for us to be very optimistic, but very cautious about changing anything until November .
So there's a couple of things that I think people should understand.
Perhaps we haven't done the best job in communicating in the past last fall.
The market.
The college market just dropped out when you really take into consideration. The fact that chegg is growing now, even though 1 billion and a half students left higher education. The overwhelming majority of which were the chegg type customers. The fact that we're back to growth is a really good thing.
And really positive signs.
About your specific.
Question on Summer School history has shown that strong summer schools equally strong fall reset.
Good thing and it was in our prepared remarks as well.
As we survey students regularly.
And we believe our surveys are projected bowl because we use them to do our own planning and to build out our products and add new things.
And we've asked the question what percentage took summer school this year versus last year, it's substantially up and we ask them why and the overall reasons.
To accelerate the timing, which it takes them to graduate and to catch up that means that they're going to continue into the fall then went as 83% of them said that.
They had already registered or find a registered for the fall that unusually high number for the last three years.
But that those are the reasons that we think we're experiencing such a good summer.
As to what that means for us deeper down in the survey.
And again, we mentioned this in prepared remarks that if it holds as a trend its an excellent trend for for US, which is they're thinking of taking fewer classes. During what you and I would consider the traditional semester.
By taking some classes over the course of the summer that means an extension of the number of months that we have relationships with so when we say we're having a good summer it's not just that we're seeing good top of the funnel. It means that people, who historically would have either paused or stopped and then come back in the fall are still renewing over.
The course of the summer.
So those are all really good signs about the long term value proposition. If college is viewed as fewer classes during the traditional semesters, but the total number of classes in a course of a year and they spread it over the summer that's really good for our business that makes US a 12 month product for a larger subset of students than we've been before.
That makes sense.
Thanks.
Yes.
The next question is from Jason <unk> from Keybanc capital markets. Please go ahead.
Great. Thanks.
One for Dan on international So the pricing test that youre doing in those select geographies. How are those efforts going and I am curious if you are looking at toggling the list price and these three hours or if youre doing it with discounts promotions.
<unk>.
Curious on.
How that's gone.
Yeah Fair question, So theres a lot of learning for us to do.
We were the beneficiary of huge international growth all at once when students went out for Covid and now we are aligning the business in terms of the product the content local languages and local pricing and we've built that infrastructure over the course of the last year, which has allowed us to do a lot of price test. The reality is there was a lot of those.
Tests were at the end of the semester in over the summer. So we have a lot more learning to do we have what we what we said in the prepared remarks with those six places we have huge top of the funnel interests and we're not at the conversion level that we feel really is representative of where we can get to so what we're doing now and we're <unk>.
We use the fall and the winter to find out is where is that optimal pricing and that will be more something that we could talk about in greater detail of what we learned in 2003, but remember we really only we're prepared to start testing.
At the end of last quarter and that's the summer months. So the summer months are not.
Nearly as robust.
As the fall and particularly in Europe , where they literally just take off.
So we still have a lot more learning to do but what we have learned if those six places have very large top of the funnel.
Interest in what we're doing.
And.
We're obviously growing there, but we want to grow a lot faster there. So we're still trying to figure out the right messaging.
And the right pricing and that will just take some time, but we're very confident we'll get there.
Our next question is from Mike Grondahl from Northland Securities. Please go ahead.
Hey, guys.
Any chance Youll, maybe say what the strong summer School added Inc.
Incrementally to revenues or subs and then maybe secondly, just how are you going to communicate the $1 price increase in October .
Andy wanted to Mike.
Yeah, Mike I'll take the first one I think you see when you talk about summer school, a big part of summer school likely in Q.
Q2 numbers excuse me.
And we had a nice beat even at the top end of that range that we gave you guys. Just 90 days ago. So I think that's a clear indicator of.
The type of momentum that we saw in Q2 and some school.
Dan do you want to handle the next one.
Yes so.
What we've done now is every new customer only seed price and Theres no messaging.
What.
The next step is in October and we picked October for very specific reason, which is that's the heart of mid terms in the beginning of finals and so we always have our best renewal percentages there anyway as.
As you can imagine so its been very thoughtful.
We've been testing messaging, but we also.
They have to send out a notice in advance.
Which if notified them that's going to happen.
So all of our testing all of our messaging suggests it's going to be really positive.
But again, just being smart and cautious because the world keeps evolving in ways that historically hasnt, we're just going to be patient and wait and see but the messaging is exactly what you can imagine it's very short, it's very sweet it's no different than anybody else Spotify or others have done.
And it's a very moderate to $1 increase.
And.
And so the messaging is just here's all the value that we've added here all the new assets in the product.
And.
Here's the here's your renewal pricing if you want to upgrade here's everything Thats now in Chegg study pack as well.
And so we will get some upgrades.
Our forecast assumes again that the college market does not get any bigger although signs or it could.
And then second that we have some loss in renewals during that period.
But the overall revenue uptake of both the increase in the dollar for each one of them plus the percentage of people all new customers, we're seeing such a higher take rate of the bundle that this will be very accretive in 2023.
Yes, Mike I think just for your information I think given the fact that we're just starting this with new customers just more recently.
Dan's point it doesn't affect renewals until October it's very moderate in the second half of the year, but the big win for us for all the reasons, Dan said is really in 2023.
The next question is from Brian Peterson from Raymond James. Please go ahead.
Hi, Jessica on for Brian I, just wanted to ask as well considering chegg upside potential what would you call out the key drivers for <unk> growth like how should we considered and mix between your description plan bundle.
Actual growth and other offering and contribution towards <unk>.
Thanks.
Yeah, Great question, and so we don't usually break that out so let's just to remind people that chegg services, which is now the company post textbooks.
Includes Chegg study Chegg study pack, our skilled business as well as ads and writing tools and math.
And boosted that so if we take out boosted.
That the <unk> increase year over year is eight 6% already.
So.
The way to think about it is the core of what drives the business is Chegg study and Chegg study pack that the <unk> on them are going up substantially that as a result of increased retention.
And increased percentage of people, taking the bundle, which is what we've been saying all along has been our objective while we invest in content user experience. While we built the bundles was writing about it and it's working better than we would've expected, particularly at these complicated times.
Over time, as more and more and more of our renewals move from $14 95 to <unk> 95, or $15 95 to about 19 tightening back with the bundle Youll see a tremendous amount of addition of profit and free cash flow.
So we already sort of towards the top marks on free cash flow.
I will have Andy just described to you again about last year this year and what we expect for next year.
But just how the model works.
We are seeing internally by nearly 9% increase in our booth.
On the core subscription products absent boosted Lucerne brings it down because they have they have annual plans and two year plans that are as low as seven bucks a month, but if you remove that it's going up quite nicely and very fast and we will continue to do so over the next many years and all of that incremental profit.
So Andy do you want to sort of add to the cash flow.
Yeah.
Yeah.
I think truth be told we're a unique company really in meta.
Certainly in the education sector, where we have a strong free cash flow our free cash flow and we've said this for many years is 50%, 50% to 60% of our EBITDA and we're strong EBITDA generating company I mean last year alone we were above that range at over $170 million.
We're going to be deeply in that range this year and to Dan's point without getting into numbers for next year.
We believe that that will be actually even further in that range and increase free cash flow fairly significantly.
Next year, just as a reminder, here I mean, one of the things we maybe haven't talked about enough is and we've talked about diversity, but diversity.
There was a big jump in Capex. This year with respect to was getting a critical mass of content, that's kind of a wash.
So the jump is a one time thing that will be much more moderate it next year.
As a result, we anticipate that we will see like I said, a significant increase in our free cash flow once again.
Stress. This enough. This is very unique in this industry, where we are.
In many cases generating more free cash flows and companies are generating EBITDA.
Sure.
The next question is from Arvind <unk> from Piper Sandler. Please go ahead.
Hi, Thanks for taking my question just had a couple of questions.
I wanted to ask about about <unk> in particular.
What has already been integrated and what still still remaining and then the second part to the to the same topic is what are some of the benefits already.
With the integration and and.
What are you looking to to kind of see over the next six or 12 months ago.
Yeah, I'm not sure I fully heard the first part of your question, but you said something about what did we degraded.
I don't know if there are no questions we integrate.
Whenever you integrate it great.
With boost and what what's the domain name because I know there are multiple stages to this to this integration.
Yes, so the.
Integration takes time and remember we only closed this ended January .
So plus Covid has made traveling very difficult.
So the integration is going as we expected because we knew those realities.
When we acquired the company.
What we're going to see in the fall.
Is a lot of integration into learn with Chegg and our personalization system. So we already know through our surveys and research that over 50% of all existing U S. Chegg customers have an interest or need to learn language.
So as they return in the fall, we will begin to be able to market to that second.
And we will be integrating all of the data as you can imagine and there are opportunities to added to the bundle or to add as an upgrade to the bundle.
And then of course.
As I mentioned earlier, we are looking much more aggressive we have a tremendous amount of volume that comes in.
If you're interested in Brazil, but we have a paywall on day, one, whereas the lingo has a freemium model. So we expect to be much more competitive in the premium space in the United States.
Under under our ownership and Bruce who could do on our own.
No.
We think thats going to be an exciting move and we'll use our targeting inside of Chegg.
Defy the brand recognition for boosted when we acquired inside of Chegg U S was very low almost zero, whereas the lingo is very high and we expect to turn those tables over the next couple of years, because we have the opportunity to know everybody who is taking the language you are studying abroad.
And who might be interested in the language. That's part of why we're building such a robust personalization system, which is super exciting because when people do personalized and do it by course rather than textbook they.
They actually renew better.
And engage more so we've got a lot of good growth and it's a lot of fun.
At a very difficult time, and we'll see if this summer trends hold to the fall and if they do that's good news for us.
The next question is from Eric Sheridan from Goldman Sachs. Please go ahead.
Thanks, so much for taking the questions number one which should continue to see spend per customer continuing to move up can you just help refresh philosophically how you think about reinvesting back in the business in real time versus sort of harvesting profits as you think out beyond just the 22 environment on a multi year view that would be number one.
And I was interested with what you said on the call about moving into sort of soft skills things like financial literacy and mental health can you talk a little bit about what investments you need to make there and what you think investing in those sort of skills, what that would do for the platform. Thank you.
Yeah phenomenal questions and nice to meet you.
So.
From from our standpoint, I think Andy has made it clear and he'll he'll correct me, if I'm wrong, but in the core products Chegg study and Chegg study pack the gross margins are extraordinarily high.
And the drop down to EBITDA and free cash flow are extraordinarily high and that gives us a luxury that nobody else in the education space has which is we produce a lot of EBITDA and a lot of cash flow.
I think last year, we produced $170 million worth of free cash flow.
So you can imagine as Andy pointed out the 23 will be better than this year.
You can imagine better than that year. So we have a lot of cash. We also have $1 $6 billion worth of cash on the balance sheet.
And.
We have grown.
So all of those give us the freedom to make smart investments, what we really don't breakout is that our investment in Bruce who loses money this year and will lose a lot less money next year and that's why we put in the prepared remarks that as these businesses get bigger they lose less can ultimately make money same with skills. So the turn.
And from what think what was into the partnership with Gill and our own ability to market to our own audience and the ability to market to partners.
All of those things are investments that we have made substantially already that we're now willing to.
Planned to get the benefit of those investments.
And then a lot of our investment as Andy pointed out this year was in University and in content and we wanted to get a critical mass of content and believe me 180000 pieces of content is a critical mass of content very very quickly since we only started in October and that will that will not need to be anywhere near the.
Spend next year to this year, because we'll be adding incremental content, we don't have to get the critical mass because we already have it.
So we feel like we have.
Ability to make significant investments and we are it's just that even with those investments. The company is going to get more profitable. So we're not holding back investments to be more profitable, which others have to do we just have a model that is extraordinarily profitable I'll turn it over to Andy to give you a few more details on that.
No Dan I think I think you nailed it I think.
What do you need to think about this Eric is that as we scale, we're going to do two things, we're going to invest in our future growth and we're going to leverage youre going to see leverage on the bottom line. So when you look at our EBITDA margin, we've got a lot of room to get leverage out of that as the as the top line scales and we don't have to start future investments, where we are.
Somewhat once again I use the word unique on what we've talked about.
Free cash flow, but I think we're unique also in this area, where our model inherently have the core part of our business, perhaps a lot of profits and cash flow to the bottom line.
And that gives us that optionality.
To go to pull levers one way or another more investment.
Or more profitability and we believe we can do both over the next several years.
Yeah, and just because I know youre new to the company now and we're grateful for that so thank you.
We have been making substantial investments in content over many many years substantial investment in our technological platform over the last couple of years, which we're now getting the benefit of both in international pricing and presentation and localization and and learn with Chegg, which is our personalization platform. So we have been investing.
And now we're going to get the benefit of those investments.
And that's really exciting.
This concludes the question and answer session I would like to turn the conference back over to Dan for any closing remarks.
Yes. Thank you.
Operator, and thank you everybody who joined the call.
These are complicated times for everybody and particularly in the higher education industry, but the signs are strong and we haven't seen them in a while.
We're incredibly excited about the investments that we're making in language and international expansion and getting people more people to take the study pack through University and at our skilled business and we're seeing momentum in all of them.
We are digging out of a big hole.
Students that last all at once and yet we're returning to revenue growth, which is very exciting for us, which just shows you the power and the strength of the business.
And.
And we're very excited about the second half of the year. So thanks, everybody for joining and congratulations to gears, who runs Chegg study and Chegg study pack at a brand new baby today enable Ari. So we're excited about that as well one more future check customer anyway. Thank you all will be in touch.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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