Q3 2022 Chegg Inc Earnings Call
[music].
Thank you for standing by this is the conference operator welcome to the Chegg, Inc. Third quarter 2022 earnings Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation there'll 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 and zero I would now like to turn the conference over to Tracey Ford V. P of Investor Relations and ESG. Please go ahead.
Good afternoon. Thank you for joining Chegg third quarter 2022 conference call.
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 Chegg Dot Com a.
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 Securities Exchange Commission on February 22nd 2022.
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 industrial 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 and welcome everyone to our Q3 2022 earnings call Chegg.
Chegg had a strong third quarter exceeding both our top and bottom line expectations with Chegg services revenue growing 8% year over year, reaching four 8 million subscribers.
Let's reflect excellent execution and show the inherent profitability of our model, while continuing to invest in future growth.
We regularly monitor trends in education.
As has been reported U S undergraduate enrollment has stabilized and returned to pre pandemic norms.
What has changed is that students are increasingly going to schools offering online and hybrid classes, which are now offered by over half of the U S higher education institutions.
In addition, 59% of U S. Students are now majoring in stem and business with more than 80% taking stem being cautious.
Our data also suggest students are spreading their course load over the full year. We believe these trends are all positive for check with.
We continue to make investments we continue to make investments to increase the value of checks offerings, both to our existing students as well as expand the opportunity to reach new levels.
In addition to providing academic support we're also adding non academic services and job skills preparation, which we believe will expand our Tam increase retention increase our pool and better serve students. We believe this is a major opportunity, which is why we recently announced the promotion of Nathan Scholz Chief.
Waiting officer, Nathan is now responsible for all of our direct to student offerings for those who don't know Nathan He has been a chegg for 15 years and has held almost every senior role with the company.
Most recently he and his team built our learning services group launched the Chegg study pack and led the integration of writing and math way. This promotion is well deserved a long time in coming and organized the company around future growth Congratulations nation.
This school year, we increased the price of our base product Chegg study by one dollar and the U S. As expected we saw minimal impact on conversion and retention and a positive impact on the take rate to the Chegg study pack.
Chegg study and Chegg study pack are now renewing at similar rates and we see the highest satisfaction scores from students using the Chegg study pack.
Our strategy continues to be to increase our Tam as well as the percentage of students who subscribe to the Chegg study pack.
This increases our pool and profitability and most importantly serves the students better.
As we add more value, we expect to add more students, which is why we continue to invest in more forms of content subjects and personalization.
As an example, our investment in University, which was recently made available to students is performing well, allowing us to better target. The exact learning content students want in addition to University. Our plan is to expand value by adding non academic services and jobs skills preparation in the future. So today, we're pleased to announce.
Partnership call the number one platform for mental fitness and well being and the most preferred wellness brand for college users.
Every chegg study pack subscriber globally will now receive com premium so suite, which is a 70 dollar annual value.
Mental health challenge facing college students is huge it's real and it's affecting their lives today.
With over half the U S students reporting that mental health is impacting their studies and nearly a third of students worldwide reporting their mental health has worsened since returning to campus. We hope. This partnership provides some of the support they need.
Internationally, we are prioritizing market share growth by delivering compelling value propositions for students in their countries, increasing our subscriber base through local pricing content and user experience. These efforts are focused on expanding our reach in major markets, including Turkey, where we recently launched a fully localized apps and have.
Seeing a significant increase in downloads activation and engagement.
We also just launched our Spanish language App in beta and we believe this will be a major opportunity for us going forward.
Students need continue to evolve, including the growth in demand for language learning, we're expanding the U S footprint, a boost too and have just launched an AD supported premium model with over half of U S. Students reporting wanting to learn another language, we'd see a tremendous opportunity for U S growth boost.
Bruce who is also now a key part of our growing partnership with Gil. Thanks to the early success of our partnership and our strong outcomes. We're pleased to announce that we are adding boost whose language learning into guild marketplace in early 2023.
Gartner ship with Guild continues to yield excellent results and as they grow their customer base among large employers.
We are seeing increased adoption of our courses as well as a very strong learning completion rate, which is how we're measured for quality and value.
We want to thank Guild, and look forward to continuing to expand our partnership.
The great work, we have accomplished would not be possible without our amazing employees for their tireless work to put students first has once again resulted in recognition for our teams. This quarter. We are proud to win comparably awards for our benefits and perks and compensation work life balance and perhaps most important happiest employees.
<unk> as well as being recognized as a fortune best workplaces for women and for technology.
So chegg employees recently participated in our first global day of impact, where we furthered our commitment to put students success and health first together take volunteer support the 13 Global organization supporting education hunger mental health and more our teams have helped almost 5000 students and I couldn't be prouder and more.
With that I'll turn it over to Ed.
Thanks, Dan and good afternoon, everyone Q.
Q3 was another good quarter for checks with revenue and adjusted EBITDA coming in above the high end of our expected ranges as the momentum we saw in Q2 carried into Q3.
During the quarter, we also made a significant capital allocation to reduce our outstanding debt.
Material discount to par.
With that backdrop, let me walk you through the Q3 results.
Well Q3 total revenue was 165 million. This was driven by Chegg services revenue growth of 8% year over year to 159 billion as.
Our subscribers grew 9% to $4 8 million for the quarter.
Gross margin continued to be strong and came in above the high end up right spectation at 73% demonstrating.
Demonstrating continued leverage in our model.
We are also seeing increased leverage in our operating expenses.
All while continuing to make significant investments for future growth opportunities.
This combined with the gross margin improvement resulted in a large adjusted EBITDA beat for the quarter Inc.
Increasing our expected profitability for the year.
Before moving onto the balance sheet. Some of you may have noticed that our Q.
Q3, GAAP net income of 252 million exceeded our net revenue of $165 million, let me explain.
There were two discrete items that contribute to this.
First during the quarter, we opportunistically repurchased $500 million of our outstanding 2026 notes for $400 million.
These notes were trading at a significant discount to par and thus provided a risk free return for our shareholders.
This resulted in a net gain after certain costs of 94 million and was recorded in the other income line on the income statement.
The second item was the release of the vast majority of our valuation allowance against our deferred tax assets of $175 million.
Which was recorded in the benefit from income taxes line on the income statement.
In simple terms. This release was take them because we have shown a consistent track record of GAAP profitability and we expect to remain profitable for the stable future as such we now expect to be able to recognize the full benefits of these deferred tax assets.
Now looking at the balance sheet, we ended the quarter with $1 2 billion of cash and investments as mentioned earlier during the quarter, we used 400 billion to retire $500 million of our outstanding debt.
We also repurchased one 1 million shares of our common stock at an average price of $20.10.
We believe these actions increase shareholder value and where possible given the strength of our balance sheet and an operating model that generates significant cash flows.
Moving onto guidance with a solid Q3 behind us and the fall semester now in full swing, we have a better understanding of what to expect for the remainder of the year.
As a result, we have significantly narrowing the ranges and increasing the midpoint for the year.
We are also monitoring global macro economic trends around inflation, and a possible recession or the potential impact it could have on our business as we enter 2023.
For full year 2022, we now expect total revenue to be between 762 $765 million with Chegg services revenue between 730 and $733 million.
Gross margin between 73 and 74%.
And adjusted EBITDA between 252, and 255 million or 33% adjusted EBITA margin and then an increase of approximately 280 basis points from our prior guidance.
We also expect free cash flow to be at the higher end, our expected range of 50% to 60% of adjusted EBITDA.
This result in Q4 guidance up total revenue to be between 202 hundred $3 million with Chegg services revenue between 197, and 200 million gross margin between 74, and 76% and adjusted EBITDA between 71, and 74 million or 30.
6% margin.
In closing the Chegg team continues to operate at a high level.
And we have a balance sheet and an operating model that is second to none.
This allows us to invest in the current business as well as new opportunities such as international expansion and skills to deliver increased profits and cash flows.
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 we would like to request you limit yourself to one question if youre using a speakerphone. Please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then two we will pause for a moment as colors joined the queue.
Our first question comes from Stephen Sheldon with William Blair. Please go ahead.
Hey, Thank you.
I guess just on the subscriber trends I'm curious what trajectory you saw in subscribers coming out of the summer months and then over over the last few months and did that look any different.
If you look at the U S market versus some of your your international markets.
Yeah. This is Dan.
I think we saw what we expected or more on the high end of the range of what we expected.
As we said in the summer we saw a surge in summer school students starting to make things up and I think we reported them at 85% of them said that they had an expectation to continue into the fall and we saw that and we captured a lot of that and we're really proud of the execution that we've done.
I would say that our international because of inflation and other things is.
Ah is a little less consistent than the U S market was actually stronger.
And we're very happy with that stronger in subscriptions and stronger in the percentage uptake rate for the bundle and for our renewals both international and U S are doing really well for both the bundle and for renewals. So I would say that what we saw was the stronger end of what we were hoping to see.
Thank you nice results.
Thank you.
Our next question comes from Doug amendments of J P. Morgan. Please go ahead.
Hey, it's Bryan Smith on for Doug. Thanks for taking my questions just to start can you dig a bit deeper into your commentary around overall back to school trends versus pre pandemic levels.
Just how core slowed intensity is trending as well and then just sticking with the macro to our students at you know public two year colleges responding to the current environment.
A meaningful amount of your sub base. Thanks.
Yeah.
Here is what we saw.
You asked a lot of questions. There what we saw was a stronger incoming freshman class at a return of the previous pressured class what we haven't seen yet, but I expect that well at some point is the return of the millions of half people that left to go into the workforce.
In terms of the workload intensity, we are seeing in because I think our commentary says we are seeing.
More students in the semester, there engaged very highly throughout the semester earlier in the semester, which is why I think we've picked up so many subs early in Q3.
They're just taking fewer classes and we think that is a result of the commentary that we said in Q2, which is we think a large portion of students now, particularly state school students. The largest state schools are considering calls at 12 months a year versus two semesters in the summer off that's good for us because that's part of the reason why.
We believe we're seeing increase renewal intensity so.
That perspective, the trends that we're seeing or what we saw and we're benefiting from.
Our next question comes from Mike Grondahl of Northland Securities. Please go ahead.
Hey, guys. Congrats on the progress and I guess I was just looking for a little bit of insight into the the dollar price increase for new subscribers. I think you launched in July and you gave some color how that went on your June call and it was.
We're gonna be rolled out to existing subscribers in October .
Curious how when what you saw and did it truly push more people to the bundle.
Yes.
Everything.
That we were hoping to see we saw so we didn't see a reduction in conversion when we rolled out the price increase the new subscribers we saw literally.
Insignificant amounts of non renewals when we rolled out the increase.
The increase to the base and we saw a multi point increase in people taking the bundle.
Everything that the test suggested we would see we've seen it now at scale and that's really good news and that's you know again reasons why you were saying as Andy pointed out in his prepared remarks, just the leverage in our model.
You know I think as our revenue growth our profitability is growing much more significantly and we're generating a lot more cash so.
Those things are what we expected to see from the price increase and the increase take rate and improvement in renewal. So those were all really good results.
All of the choices we make.
Got it thank you.
Yep.
Our next question comes from Ryan Macdonald of Needham. Please go ahead.
Hi, Thanks for taking my questions and congrats on a nice quarter and again I am curious as we think about the continued expansion internationally you talked about in the prepared remarks here launch of a fully localized app in Turkey can you give us a sense of you know.
What sort of the pipeline in terms of localization looks like and potentially what sort of impact we might see on an ARP, who as these fully localized apps.
<unk> be rolled out and the potential there that this can be offset by in terms of subscriber adoption. Thanks.
Yeah, I I think I think you're not going to see a noticeable impact on our two given just how big the U S is.
And and.
And for a while.
I think what you'll see if we're successful is what we're seeing in Turkey, which is an increase in downloads and increase in engagement and increase in conversions and an increase in retention, which are literally a home run that's what we were hoping to see.
The next one we just rolled out which is Spanish language as we said we would.
We're always out in Mexico, we have no results to report on there.
And we talked a while back about six range or six countries, where we're focused on and that's what we'll be doing all of our efforts and just to remind people.
What this allows for is for students to use it in English uses in their local language ask a question in English asked good question in the local language get a response in English get a response in their local language.
And all of those things increase.
Conversion and retention, which is an increase in profitability. So I think more than a potential impact in the short term on ARPA Youll see a continued increase in profitability, which is great. Because every one of these is incremental profit so.
That's all good news for us.
Our next question comes from Jeff Gilbert of BMO capital markets. Please go ahead.
Hi, This is Ryan on for Jeff I was just wondering if how did traffic trend throughout the quarter was the lift in September and now October in line with expectations that the kids went back to school.
Yes.
We.
Part of what we said at the very beginning of this year is what Andy has articulated is we wanted to get back to when we had 19 straight quarters of you.
Making and then improving.
Improving our guidance, which is subscription models are supposed to be consistent and more predictable.
That's basically what we've seen and been able to predict since April so we're very very very happy about that.
Where we're seeing changes is just good changes, we're seeing an increase in take rate, we can see constant improvement in retention.
And and the funnels have remained strong and.
No one's asked yet, but I think the bundles are going to be a massive opportunity for us to increase conversion and retention and our pool.
Because the more value we put in the bundle for the same price and the more we're able to create value beyond just the academic year.
Earnings for our business. So then also com today, it's pretty significant and the first of what we believe to be more.
Brands that students are familiar with and and wants to come through check and there's no lack of interest from a big name partners. So we're very excited about that.
Thanks, Dan.
Yep.
Our next question comes from Brent Thill of Jefferies. Please go ahead.
Good afternoon, Dan on the career Onboarding piece, I think you're alluding to more things to come here can you just walk through strategically what.
What youre going to be doing here and maybe you know a transition to Andy on that I know you get tired of me asking this question, but when you think about a 36% operating margin guide.
Versus you know skills in the career Onboarding International all of these things you want to do.
Have you gift, giving yourself enough runway to to give to to put these in and make sure you're you're kind of full throttle into these new these new endeavors.
I'll, let Andy answer that very good question, but my answer is yes of course, I mean, if you look.
It's just we have a great model branch so what can I say it really does generate this level of profitability and cash flow and it gives us the freedom to continue to invest which is why you're seeing the success, what we're seeing but Andy can go a little bit more into detail on that but the strategy is is pretty exciting which is.
We started off with textbooks to lower the price of college and.
Reduce the pain and and we did that and then we built a very big brand, which it allowed us to build we believe the premier homework help tutoring for the masses to allow anybody, particularly the people, who historically have not who've been underserved by other institutions or their families or or economically or.
Structurally to be able to do.
Get unstuck and continue on with their studies.
And that is what Chegg study became and then Chegg study pack was a recognition that there's a set of students that their majors require them to have even more things and we can provide overwhelming value for them.
We recognize that that is just part of what students need while they're on campus. So first they absolutely need non academic support because there's almost none on college campuses and as we said in our prepared remarks, you're seeing a real bifurcation of where students go theyre going to very large schools now that they can't get into the Ivy League.
So you're going to see a surge in the four year giant state schools that have football teams frankly.
And youre seeing a surge in H P seniors for underserved communities. Because finally, the government has chosen to invest in them, which we think is a good thing and youre seeing a surge in online not for profit schools and so those are areas, where chegg should thrive.
But you're also seeing them go to places where they have no support no support mental health support and financial literacy.
And and other areas.
Services that they want bundled into checks. So we think by doing that we'll attract a 10 million students that we don't currently have in the U S. On top of that we'll keep the students that we have longer and.
They'll see the value will continue to be able to.
To price accordingly.
Skills side breaks into three areas it breaks into the direct marketplace, which was the original state pool, which at the moment has been usurped by a corporate marketplace corporations or pay for it as a benefit which is why our relationship with Guild is really excellent. They are the largest provider of.
Education opportunities as well now through us.
For skills.
And the frontline workers, so Walmart Chipotle big companies like that.
They are really taking advantage of our skills in that very well has a chance to be a really large business and very profitable where others are not profitable because they have giant sales forces. We don't have to guild does that for us. So we think this is a big differentiator and a big opportunity for us.
Although it just started this year, we're seeing the benefits of it already and then the third area, which goes with the bundles and part of the reason that we've organized around this through Nathan is.
We believe that providing academic support.
Support for the rest of your life like things like Com as well as employable skills support Ken.
Ken I learned teams Adobe can I learn to use office 360 can I learn to use salesforce things that are easier to learn that are lower price that we can build one time in there like software. So their margins will be extraordinarily high that we can either sell directly to the student has a very low price and or bundle. It in.
Which we believe will get a higher conversion and a higher retention rate. So it's a we believe it's a really big growth strategy.
We're super excited about it as for are we investing enough I'll turn that back over to Ed.
Yes, I mean, Dan Dan nailed it upfront Brent and we we we where we absolutely have the right amount of resources. So against the opportunities ahead of US now and ahead of us and one of the things that we have done for many years, even though you've been with us for quite some time, even back when we were struggling to break even on an EBITDA.
A line.
We always we always said to ourselves is we're going to make sure we have enough resources to Buddy nothing wood behind the arrow whatever we're going to do we're now at a point, where we can focus on multiple things and you've seen many of the investments that we've made that are literally being tens of millions of dollars I'll just point to point out one for this year, we Stan talked earlier about university that literally isn't it.
Investment of tens of millions adults period. So you know we feel like we're in a very unique position you.
You know, we we as we continue to scale, we get more profitable as we continue to scale, we drive more cash as we continue to scale, we can invest more and we are and so we're investing in many things that you know I cant talk about today, but the world will reveal themselves over the next you know 612 18 months that we believe our future growth.
And it is for us so no where we're not under invested where we're very well invested and we continue to invest for future growth.
And by the way, we're not unhappy that we're profitable on every line, including Apple.
You don't often see software companies do that and yeah, I think they could and I think they should.
Because we've shown that you can do it and grow and make the proper amount of investments.
Our next question comes from Jason Celaeno of Keybanc. Please go ahead.
Hey, guys. Thanks for taking my question. This is kind of feeding off of the last question, but over the last couple of years checks R&D teams have been very busy.
The completion of the piracy enforcement measures we saw.
First the honor shield integration of boost to upgrading that you are in a more personal experiences big improvements international localization.
So when we think about the pace of R&D priorities over the next 12 to 24 months. You know would you say that these are in the R&D innovation will continue at the same pace.
Interested to hear.
Your answer.
Answer that thanks.
Yeah, well first of all I want you to speak at my eulogy because that was wonderful.
Absolutely.
So thank you, yes look we.
You know what my old boss, Terry somebody used to say don't tell anybody what you gotta do until after you've done it.
And so we are constantly investing where the north star, which is how do we create more value for the students how do we use their burden how do we solve their biggest problems how do we create leverage for them and therefore create leverage for us and so the things that you articulated all of them reduce friction in the system.
And so for US we always so for example, we're investing in in Q&A is now structured Q&A, where every question no matter what format. It comes in gets structured so that it's easier to discover by the way that reduces our capex because we end up doing fewer duplicate question.
Because it's all in a structured format. So we do a lot of things and infrastructure standpoint to reduce friction in the process and make us more profitable, but in terms of the things that we're investing in skills, we're absolutely investing and we're investing in building relationships directly with companies as well as through Guild for example.
We also just extended the relationship that we said with Bluetooth.
Inside of Guild, and we think that's an opportunity for extended growth. We havent really talked on this call about boosting three point O, which is the freemium model in the United States. Because you don't have very many customers in the United States, but you know what we have we have the largest reached the college students or anybody who believe and trust our brand and we know that one out of every two wants or needs to.
Sort of language. So we think we have opportunities to invest in language, we talked about the investment in skills. So we don't we don't do more than we can handle.
But we do the things we have a roadmap a multiyear road map of opportunities that we think will expand our Tam and continue to increase our pool.
It continued to increase the relevance and the value of what we offer to a larger group of people both domestically and internationally. I mean, you didn't mentioned, what we've already done in Turkey, and what we've done in Mexico, we have an extraordinarily talented product engineering design team.
And they have a very they have a multi year roadmap and we're sticking to it because at least at the moment it seems to be working but thank you for recognizing that.
Okay. Thank you.
Yep.
Our next question comes from Josh Baer of Morgan Stanley . Please go ahead.
Hi, It's Matt Wilson on for Josh Baer. Thank you for taking my question and congrats on the nice quarter.
Building on the last two questions annual guidance is calling for 200 basis point increase in margin expansion in the EBITDA margin.
Which is kind of in line with what you've done over the last few years can you talk about how much more room.
There is on the margin front and what leverage you have to pull beyond 2022 going into like 2023 and beyond.
Well I mean.
If you take a look at our history over the last 2345 years as we continue to scale the business just inherently gets more profitable.
Right.
And and particularly in the short term short timeframe right.
Because.
We think about it from a from a cost structure standpoint up much of the content is reusable. So it's not like we have to keep adding.
Gobs and gobs of new content, we do have a capex budget, but it it's reusable and whether or not we have <unk>.
<unk> subscribers.
10000 subscribers.
They can use the same content. So we do believe that our margins will continue to expand.
I don't even think about it personally are what the steady state is we're not at steady state, we're still growing and we expect to grow and we expect to expand margins for the foreseeable future.
Awesome. Thank you.
Yeah.
Our next question comes from Alex Fuhrman of Craig Hallum Capital Group. Please go ahead.
Hey, guys. Thanks for taking my question and congratulations on a strong start to the school year here I wanted to ask about your sales and marketing expense you know if we go back over the last five or 10 years. It seems like the third quarter when Youre gearing up for the beginning of the small semester is it.
Often one of your highest marketing expense quarters of the year end and you know so far in 'twenty two it looks like actually a pretty significant reduction in your marketing expense relative to what we saw in the first half of the year is that perhaps the beginning of a trend here I'm wondering if maybe as you add more pre.
Alex to the bundle if you start to maybe get some leverage off of your marketing and we maybe should see some more improve.
Improvement there just curious how you're thinking about marketing expenses as you continue to grow the business and add more to your product offering.
Yeah really great question. It gives me a chance to clarify something a lot of that is the fact that we no longer own textbooks.
So this was the quarter in which we spend a lot of money marketing textbooks, but now that we don't own them and they are an insignificant part of our business, although we still do millions of them.
The deals that the team.
Hi.
A really great for our shareholders.
For exactly the reason you pointed out so majority of the of the marketing expense in this quarter always went to textbooks not to Chegg study or to Chegg study pack or those other things. So yes. This is more of a steady state of what you can expect to see.
And we are seeing improvements in the top of the funnel we are a great company.
100, 100 plus million questions that we have all geared at T. O. That's part of the great flywheel that we've built that content is owned by us and therefore, it is unique and it gets indexed by Google and it gets index globally and as we make it more local language will see improvements in countries around the world. So.
That is our best form of marketing.
Again without the textbooks youll see this looking more like the steady state.
Our efforts will be on improving the funnel.
I mean, improving inside the funnel, which we think the bundles will hopefully have a significant impact because every point improvement in conversion is quite substantial and our revenue and our profit and if we take the bundles will go a long way to doing that so we're pretty excited about it. So I'm really glad you pointed that out.
Yeah. It doesn't really help me do that.
Yeah, Let me, let Alex let me just add to that please so when dance at steady state I I just want to make sure that the seasonality that you've seen in the past is going to be smooth. There is really what we're talking about here. So we don't have the where we have tons of marketing expense per textbooks that clearly goes away in Q3, and then to a great extent.
In the in Q1.
And the beauty of that is it also it also it also makes the seasonality of our profitability.
Call it less seasonal right because what ended up happening with textbooks, we would spend all of that money on marketing, but we only recognized a small amount of the revenue in the rest of the revenue will get recognized over the next the next three to four months. So I think what it does is it reduces the seasonal impact.
Both on the marketing line and the profitability line.
Okay.
Okay. That's really helpful. Thank you both.
Thank you for the question.
Our next question comes from Ryan Peterson of Raymond James. Please go ahead.
Hi, This is Jessica answer Brian I, just wanted to check in with all.
How is progress been on writing synergies.
Overall business also appreciate any color on all that.
Began raising brand awareness, among our existing customers as well as potential new customers. Thanks.
Yeah, Great question and it is super early so anything I say, you know I can't tell you that its projected Boe at this level yet.
The integration is is almost done.
A lot of back end things Theres a lot of.
Things yet.
When you put two companies together you don't need anymore, we focus first on on putting the investment in the things that we do want to invest in and.
So the integration should be done before the end of this year whatever's left.
And in terms of.
Recognition. It is just too early I mean, what we know is a recognition is low but what we know is the need and desire for languages.
And so we call it boosted three point O.
I mean, it sounds to me like they had to point out before we bought them.
And and so they're early you know, we're seeing green shoots early but I really I don't want to say more than that because they don't know more than that at this point.
But what we know is the freemium model is very compelling to college kids for all the reasons that you would imagine and that's not what boost you had in the United States and that's what we have now so I would say that checking with us more in the middle of next year. After we've had the first half of the year to really go through it and make it.
The tweaks and see where it's working strong and see where we need to continue to adjust it but.
But it is early but the.
Early signs are positive, which is obviously why we've embarked on this because we believe it's going to be successful.
Okay.
This concludes the question and answer session I would like to turn the conference back over to Dan Rosensweig for any closing remarks.
Well. Thank you everybody for joining us really appreciate the time and attention to the company as you can see that.
Last year has been a very difficult one last year a year ago. This call. It was a very difficult. One this is much more positive.
As its business is returning to a greater level of predictability, we see bigger opportunities ahead.
One of the things that I've learned about the internet since my days in computer magazines and Yahoo is that.
There's always a next level of growth and we think that boosted three point O skills of the investment in bundles.
And more value to more customers in the U S and around the world is a really big opportunity for us and the company is excited about it.
And executing well on it and we just happen to have one of those models that as it grow it gets a lot more profitable and we're proud of that but it also gives us the resources to be able to invest and even bigger opportunity. So.
Thank you everybody for joining I want to thank all of our employees for all of the awards that they have earned because the mission matters and they come here to the mission and we're proud of the work that they do to serve the students. So thanks everybody bye.
Okay.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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