Q1 2024 Chegg Inc Earnings Call

April 29, 2024

Nathan Schultz: Our unique assets, such as our 100 million pieces of education content, our reach with learners around the globe, and our 150,000 subject matter experts, come together to deliver the most effective learning experience possible. Over the next few quarters, we are focused on rolling out enhancements and features that will deliver an even richer personalized learning experience. Whether that means real-time conversational support with our AI tutor, generating flashcards, generating practice problems, or creating a focused study guide, our platform is designed to anticipate, generate, and deliver personalized solutions, which we expect will increase our value to students and expand the audiences we can serve in a cost-efficient way.

Greetings welcome to Chegg, Inc. First quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.

Operator: Greetings. Welcome to Chegg Inc.'s first quarter 2024 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 will now turn the conference over to Tracey Ford, Vice President of Investor Relations and EFG for Chegg. Thank you. You may begin.

<unk> and answer session will follow the format 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 will now turn the conference over to Tracey Ford Vice President of Investor Relations and ESG for Chegg. Thank you you may begin good.

Nathan Schultz: We have been testing pricing and packaging in the U.S. and internationally. In the U.S., we'll continue to test different options throughout 2024. Outside the U.S., where we have tested for almost a year now, our pricing and packaging strategy has solidified. We are focused on seven key markets for education that represent an incredible opportunity for Chegg with an addressable market larger than the U.S. In these priority markets, we've seen an increase in new accounts, which grew 2.3% year-over-year.

Tracey Ford: Good afternoon. Thank you for joining Chegg's first quarter 2024 conference call. On today's call are Dan Rosensweig, co-chairperson and CEO, Nathan Schultz, incoming president and CEO, and David Longo, chief financial officer. A copy of our earnings press release, along with our investor presentation, is available on our investor relations website, investor.chegg.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.com. We encourage you to make use of these resources.

Tracey Ford: Afternoon. Thank you for joining <unk> first quarter 'twenty 'twenty for a conference call on today's call are Dan Rosensweig co chairperson and CEO, Nathan Schulte, incoming president and CEO and David Longo, Chief Financial Officer.

Tracey Ford: A copy of our earnings press release, along with our Investor presentation is available on our Investor Relations website, Investor Chegg Dot com.

Tracey Ford: A replay of this call will also be available on our website.

Tracey Ford: 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.

Nathan Schultz: Internationally, we will continue to roll out pricing and packaging optimizations, as well as strengthen our product and market fit through continued content and product localization. As we look ahead, I could not be more excited for the future and the path Chegg is on. Reimagining and reinventing how we can best serve learners around the world is our mission at Chegg, and the opportunity to deliver a truly personalized learning experience has never been bigger nor more critical.

Tracey Ford: 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 important factors that could cause actual results to differ materially from those in forward-looking statements.

Tracey Ford: 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.

Tracey Ford: 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 statement.

Tracey Ford: 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 and Exchange Commission on February 20th 'twenty 'twenty four.

Tracey Ford: In particular, we refer you to the cautionary language included in today's earnings release and the risk factors described in Chegg's annual report on Form 10-K filed with the Securities and Exchange Commission on February 20, 2024, 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.

Nathan Schultz: And I am grateful to have this opportunity to expand where, when, and how we serve learners because of Dan's leadership. On behalf of our employees, the board, and our leadership team, I want to take a moment again to thank you, Dan, for everything you've done for Chegg over the last 14 years. Your legacy will always be the way you care deeply for the people around you and how you always root for their success.

Tracey Ford: As well as our other filings with the SEC.

Tracey Ford: 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.

Tracey Ford: 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 and the investor slide deck found on our IR website, investor.chegg.com. We also recommend you review the investor data sheet, which is also posted on our IR website. Now, I will turn the call over to Dan.

Tracey Ford: 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, and the Investor Slide deck found on our IR website investor Chegg Dot com.

Nathan Schultz: Whether that is championing an employee to reach their potential or encouraging a student to realize their dreams, you have changed many lives during your tenure at Chegg, including mine, and we are all deeply indebted. And with that, I will turn it over to David.

Tracey Ford: We also recommend you review the Investor data sheet, which is also posted on our IR website now I will turn the call over to Dan.

David Longo: Thank you, Nathan, and congratulations. Dan, I also want to thank you, and I look forward to your continued guidance as you transition to your Executive Chairman role. Today, I will present our financial performance for the first quarter of 2024, as well as our outlook for Q2. As Nathan mentioned, we had a very productive quarter. We were acutely focused on delivering our new AI-driven experience to global learners and making progress on crucial metrics like engagement and retention.

Daniel Lee Rosensweig: Thank you, Tracey, and welcome everyone to Chegg's Q1 2024 earnings call. It's a truly exciting day for Chegg, and I'm thrilled to announce that Nathan Schultz is being promoted to Chegg's president and CEO effective June 1st.

Daniel Lee Rosensweig: Thank you Tracy and welcome everyone to checks Q1, 'twenty 'twenty four earnings call.

Daniel Lee Rosensweig: It's a truly exciting day for Chegg and I'm thrilled to announce that Nathan Scholz is being promoted to chase President and CEO effective June 1st.

Daniel Lee Rosensweig: The board and I have been focused on succession planning for the last several years to put Chegg in the best position to continue to drive the future of education. Nathan has spent the last 16 years helping build Chegg into the leading global online learning platform that it is today. From our earliest days as a textbook rental company to leveraging AI today, Nathan has been at the core of our success. He has always led with a student-first mindset and a passion for innovating how, when, and where people learn. I will be stepping into the role of executive chairman and working with Nathan and the board during the next exciting phase of the company.

Daniel Lee Rosensweig: The board and I have been focused on succession planning for the last several years to put chegg in the best position to continue to drive the future of education.

Daniel Lee Rosensweig: I spent the last 16 years, helping build chegg is the leading global online learning platform than it is today.

Daniel Lee Rosensweig: From our earliest days as a textbook rental company to leveraging AI today Nathan has been at the core of our success.

David Longo: We believe these actions will support both revenue and adjusted EBITDA growth over time. We continue to deliver strong profitability and cash flows in the quarter, and our balance sheet remains very healthy. We are prioritizing creating shareholder value and emphasizing prudent expense management as we navigate the path back to growth. Focusing on our first quarter performance, total revenue was $174 million, down 7% year-over-year, including subscription services revenue of $154 million. We had 4.7 million subscribers in the quarter, with 25% coming from international. Skillz and other revenue was $20 million, an increase of 6% year over year.

As always lead with the students first mindset and a passion for innovating, how when and where people learn.

Unknown Executive: I will be stepping into the role of executive Chairman and working with Nathan and the board during the next exciting phase of the company.

Unknown Executive: Over the last few years Nathan its work to bolster our leadership team by adding a new chief marketing officer, a new SVP of business operations, and a new chief product officer to work alongside Chuck Tiger, Our Chief Technology advisor.

Daniel Lee Rosensweig: Over the last few years, Nathan has worked to bolster our leadership team by adding a new chief marketing officer, a new SVP of business operations, and a new chief product officer to work alongside Chuck Geiger, our chief technology advisor. The board and I are excited about this management team and the future of the business under Nathan's leadership. We see the proliferation of AI and our ability to uniquely harness its potential in education as a transformative moment for Chegg.

The board and I are excited about this management team and the future of the business under <unk> leadership.

Unknown Executive: We see the proliferation of AI and our ability to uniquely harnesses potential in education as a transformative moment for check we've.

Daniel Lee Rosensweig: We've embraced AI and have completely rebuilt our user experience and services, rolling out a multi-year product-led growth plan to emerge from the post-COVID period and return to revenue and profit growth. The transition will take time, but we are already seeing encouraging signs of how our new AI-enabled platform will serve more students in more ways than ever before. This makes this the right time for Nathan to step into this new role and write the next chapter of the Chegg story. So with that, I will turn it over to Nathan. Congratulations, Nathan!

Unknown Executive: We've embraced AI and if completely rebuilt our user experience and services rolling out a multi year product led growth plan to emerge from the post COVID-19 period, and return to revenue and profit growth.

David Longo: First quarter adjusted EBITDA of $46.7 million represented a margin of 27%. We maintained a prudent approach to expense management and offset some of the year over year revenue decline with lower expenses. We are working on aligning our expense base relative to the current revenue trend. We expect to accelerate our efficiency efforts as we progress through the year with the goal of stronger margins in the second half, leading to a 30% or greater adjusted EBITDA margin for 2025.

Unknown Executive: The transition will take time, but we are already seeing encouraging signs of how our new AI enabled platform will serve more students in more ways than ever before this makes this the right time for Nathan to step into this new role and write the next chapter of the Chegg story, so with that I will turn it over 10 days.

Unknown Executive: Congratulations Nathan Thank you Dan I wanted to take a moment to acknowledge the tremendous impact you have had over the last 14 years bolt on Chegg and I'll be personally I am.

Nathan Schultz: Thank you, Dan. I want to take a moment to acknowledge the tremendous impact you have had over the last 14 years, both on Chegg and on me personally. I am grateful for your leadership, your wisdom, and your counsel as we re-founded the company so many years ago. Expanding the vision for how Chegg could serve learners around the world, from print textbooks to our IPO, from homework help to becoming a fully digital learning platform, you have helped steer us through so many critical transitions, and we would not be where we are today without you.

David Longo: Free cash flow was $25.3 million in the first quarter, representing a 54% conversion from adjusted EBITDA. As a reminder, while interest income continues to contribute positively, adding $7 million in the quarter, we are comparing against higher cash balances in 2023. Looking at the balance sheet, we ended the quarter with cash and investments of $612 million and a net cash balance of $12 million. During the quarter, we completed the previously announced $150 million accelerated share repurchase, with approximately 86% of the shares delivered back to us in the fourth quarter of 2023.

Grateful for your leadership your wisdom and your counsel as we rebounded a company so many years ago.

Unknown Executive: Expanding division up for how Chegg could serve learners around the world from print textbooks to our IPO from homework help to becoming a fully digital learning platform. You have helped steer us through so many critical transitions and we would not be where we are today without you.

Nathan Schultz: And where we are today is a company that is truly revolutionizing how we serve students around the world. We have rolled out a new interface for Q&A and developed a proprietary AI platform, including our own 26 large language models uniquely verticalized for education.

Where we are today is a company that's truly revolutionizing how we serve students around the world. We have rolled out a new interface for Q&A developed proprietary AI platform, including our own 26 large language models uniquely vertical is for education. We are only just starting to realize our vision for chegg.

Nathan Schultz: We're only just starting to realize our vision for Chegg as personalized learning assistance and will continue to iterate and develop how we bring a best-in-class learning experience to our customers. We had a productive first quarter, continuing to roll out and improve upon our AI-enabled experiences that will strengthen our product market fit in 24 and beyond. Executing against a multi-year product roadmap is essential to returning to subscriber growth as we continue to cycle through the customer expansion we experienced during the pandemic.

Unknown Executive: As a personalized learning assistance and we'll continue to iterate and develop how we bring best in class learning experience to our customers.

Unknown Executive: We had a productive first quarter continuing to rollout and improve upon our AI enabled experiences that will strengthen our product market fit in 'twenty, four and beyond executing against a multiyear product roadmap is essential to returning to subscriber growth as we continue to cycle through that customer.

David Longo: Our end-of-quarter share count was down 15% year over year, as we have continued to return capital to shareholders. In 2023 alone, we returned over $300 million to investors through equity repurchases and $597 million through convertible debt repurchase.

Unknown Executive: Pension we experienced.

Nick.

Nathan Schultz: We are focused on increasing our relevancy with students and getting Chegg back to consistent, positive growth in total revenue, adjusted EBITDA, and free cash flow. We are already seeing encouraging trends in two important and early indicators.

David Longo: The progress we are making with the product experience and refueling the flywheel, starting with automated solutions and engagement, will take time to build our new account acquisitions and renewal base before we see a positive impact on total subscribers and revenue. As a reminder, our unique subscription business model is reliant on two large customer acquisition periods, Q1 and Q4, as well as student life. Meanwhile, as previously mentioned, we will increase our focus on efficiently managing expenses to maintain strong profitability and cash flow.

We are focused on increasing our relevancy with students and getting choked back to consistent positive growth in total revenue adjusted EBITDA free cash flow.

Unknown Executive: We're already seeing encouraging transit two important and early indicators retention rate, which for Q1 is up over 100 basis points year over year and engagement.

Nathan Schultz: Retention rate, which for Q1 is up over 100 basis points year-over-year, and engagement. We have designed the Chegg platform with students at the center, focusing on providing a learning experience that capitalizes on immediacy, accuracy, and quality. To give you a sense of how quickly this is scaling, in Q1 of this year, we had over 9 million questions asked compared to 3.9 million questions asked at the same time last year, and as more questions are asked, more content is created, which leads to more traffic, which we believe will lead to new customers in future quarters. This is the power of the Chegg Flywheel.

We've designed the Chegg platform with students at the center.

Focusing on providing a learning experience that capitalizes on immediacy accuracy and quality.

Unknown Executive: Do you have a sense of how quickly. This is scaling in Q1 of this year, we had over 9 million questions as compared to $3 9 million questions asked at the same time last year at more questions are out.

David Longo: With respect to Q2 guidance, we expect total revenue between $159 million and $161 million, subscription services revenue between $144 and $146 million, gross margin to be in the range of 70 and 71%, and adjusted EBITDA between $38 million and $40 million. In closing, we are seeing encouraging signs in the business and are excited about the continued development of our personalized and interactive student interface. We believe we are well positioned to meet the current and future needs of learners. The opportunity ahead for Chegg is tremendous, and I am confident in our team and our ability to execute. With that, I'll turn the call over to the operator for your question.

Unknown Executive: More content, which drives more traffic, which we believe will lead to new customers in future quarters. This is the power of the Chegg flywheel.

Nathan Schultz: In fact, the increase in questions asked in Q1 has already driven a return to growth in the U.S. new customer funnel for Chegg studies. There is a growing opportunity to reach more customers with our new and expanded user experience made possible by proprietary AI technology that is responding with students and delivering real value. As we develop an education-focused AI platform, we believe it is essential to own our large language models and quality assurance layer. This allows Chegg to verticalize our AI for education specifically and is essential in our pursuit to control quality and accuracy at a lower cost by leveraging generic AI platforms. Chegg was built for this moment.

In fact, the increasing questions at in Q1 has already driven a return to growth in the U S new customer funnel or Chegg study.

Unknown Executive: There is a growing opportunity to reach more customers with our new and expanded user experience made possible by proprietary AI technology is resonating with students and delivering real value as we develop and education focused platform. We believe it is essential to own our large language bottles and quality assurance layer.

Unknown Executive: It allows checked vertical is our AI for education, specifically and it's essential in our pursuit to control quality and accuracy at a lower cost leveraging generic AI platforms.

Unknown Executive: It was built for this moment are unique assets such as our 100 million pieces of education content, our reach with learners around the globe and our 150000 subject matter experts come together to deliver the most effective learning experience possible.

Unknown Executive: Over the next few quarters, we are focused on rolling out enhancements and features that will deliver an even richer personalized learning experience whether that means real time conversational support with our AI tutor generating flashcards gyrating pack practice problems or creating a focused study guide.

Operator: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, you may need to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question. Our first question is from Bryan Smilek with J.P. Morgan. Please proceed.

Unknown Executive: Our platform is designed to anticipate generate and deliver personalized solutions, which we expect will increase our value to students and expand the audiences. We can serve in a cost efficient way.

Unknown Executive: We have been testing pricing and packaging in the U S and internationally in the U S will continue to test different options throughout 2024 outside.

Bryan Michael Smilek: Great, thanks for taking the question, guys. And congrats, Nathan, as well.

Unknown Executive: Outside the U S, where we have tested for almost a year now our pricing and packaging strategy has solidified.

Nathan Schultz: Can you just talk a bit more about the next steps in your strategy across the application layer for Genitive AI and potentially, you know, across both product and marketing, and how it can translate to subscriber growth? And then, more near-term, too, the 2Q guide was a bit below where we had expected. So can you just help us with some puts and takes around anything that stands out there, especially as you see good momentum on return-to-do sub-growth within the US Chegg Study Pack? Thank you.

Unknown Executive: We are focused on serving key markets for education that represents an incredible opportunity for Chegg, we had at <unk>.

Unknown Executive: <unk> market larger than the United States.

Unknown Executive: In these priority markets, we've seen an increase in new accounts, which grew two 3% year over year internationally, we will continue to roll out pricing and packaging optimizations as well as strengthen our product market fit you continued caused it from product localization.

Unknown Executive: As we look ahead I could not be more excited for the future and the power Chegg is on re imagining and reinventing how we can best serve learners around the world is our mission at Chegg and the opportunity to deliver a truly personalized learning experience has never been bigger nor more critical and I am grateful to have this opportunity to it.

Nathan Schultz: Great, I appreciate the question. I'll take the first part of it and let David follow up near the end.

Unknown Executive: Spanned where when and how we serve learners because of Dan's leadership.

Nathan Schultz: Around the product, we're on a multi-year journey with our products, really a product-led growth strategy that we've been planning for a while, really around expanding the value that we can offer our students by expanding the relevancy of what we're building. We are super excited with the first steps that we've taken in our AI vision, and you can see that in the language models that we've deployed.

Unknown Executive: On behalf of our employees the board and our leadership team I want to take a moment again to thank you Dan for everything you've done for Chegg over the last 14 years. Your legacy will always be the way you care deeply for people around you and how you always rooted for their success.

Whether that is chipping in employees you reach their potential or encouraging students to realize their dreams you have changed many lives during your tenure at Chegg, including mine.

Nathan Schultz: You've seen that in the growth in our Q&A with questions growing almost 150% year over year, just in Q1 alone. That's a strong sign that what we are building is responding to students, they're finding value in it, and they're continuing to engage in our service. We're going to continue to push the pedal on the innovation that Chegg is really getting to grips with. We see a lot more opportunity being created for us.

Unknown Executive: We are all people he indebted.

Unknown Executive: I'll turn it over to Dave.

Dave: Thank you Nathan and congratulations Dan I also want to thank you and I look forward to your continued guidance as you transition to executive chairman role.

Dave: Today, I will present, our financial performance for the first quarter of 2024 as well as our outlook for Q2.

Dave: As Nathan mentioned, we had a very productive quarter, we were acutely focused on delivering our new AI driven experience to global learners and making progress on crucial metrics like engagement and retention.

Nathan Schultz: (Inaudible) First and foremost, you've got to get the product right. You've got to deliver on the promise that our customers are buying. And that is a service that helps save them time, that helps them get smarter, that helps them truly be efficient in their studies. And that's what we're delivering to them. So first, we're going to deliver for our customers, and then we can start to build that drumbeat beyond Chegg. The great news is Chegg gets over 30, in the last couple of months, over 30 million visitors to our site, users to our site, to our platform. And that gives us a huge opportunity to amplify what we're doing for students and amplify the value that we have for students.

Dave: We believe these actions will support both revenue and adjusted EBITDA growth over time.

We continued to deliver strong profitability and cash flow in the quarter and our balance sheet remains very healthy.

Dave: We're prioritizing creating shareholder value and emphasizing prudent expense management as we navigate the path back to growth.

Dave: Focusing on our first quarter performance total revenue was $174 million down 7% year over year, including subscription services revenue of $154 million.

We had $4 7 million subscribers in the quarter was 25% coming from international skills.

Dave: Skills and other revenue was $20 million, an increase of 6% year over year.

Dave: First quarter, adjusted EBITDA of $46 $7 million represented margin at 27%.

David Longo: And hi, Brian, this is David. With respect to the question on the Q2 guidance, a quick reminder, the math on our revenue for any quarter is a component of how many subscribers you have at the beginning of the period plus how many you add in the current period. And we began Q2 with lower subs than we did in the prior year. So, as Nathan mentioned before, we're super excited about the product direction that we're heading in. It's just going to take some time for us to fill up that funnel to get back to sub growth, and over time, we're optimistic that we'll get there as an entire company.

Dave: We maintained a prudent approach to expense management and offset some of the year over year revenue decline with lower expenses.

Dave: We are working on aligning our expense base relative to the current revenue trends.

Dave: Expect to accelerate our efficiency efforts as we progressed through the year with the goal of stronger margins in the second half leading to 30% or greater adjusted EBITDA margin for 2020.

Dave: Free cash flow was $25 $3 million in the first quarter, representing a 54% conversion from adjusted EBITDA. As a reminder, while interest income continues to contribute positively adding $7 million in the quarter, we are comping against higher cash balances in 2023.

Dave: Looking at the balance sheet, we ended the quarter with cash and investments of $612 million and a net cash balance of $12 million during the quarter. We completed the previously announced $150 million accelerated share repurchase was approximately 86% of the shares delivered back to us.

Operator: Our next question is from Eric Sheridan with Goldman Sachs. Please proceed.

Eric James Sheridan: Just following up on those two with a single question about the coming months. You know, when you think about the education cycle going into the fall of this calendar year, what do you guys see as the most critical investments to make and positioning of the product as you think about that education cycle from September through the remainder of the calendar year and into the first part of next year? Thanks so much.

Dave: In the fourth quarter of 2020, it's way or.

Dave: Our end of quarter share count was down 15% year over year as we have continued to return capital to shareholders.

Dave: In 2023 alone, we returned over $300 million to investors through equity repurchases and $597 million in convertible debt repurchases.

Nathan Schultz: I appreciate the question, Eric. I love that you're tracking the cycles. We've got kind of our two big opportunities a year, obviously, in January and the beginning of the semester, and in August and the beginning of the fall semester. We've been working hard on the development of our language models, which is the bedrock of our proprietary AI platform. We're going to continue to roll those out. We're going to continue to make advancements in the accuracy, in the quality, in the completeness of those models, and you'll start to see us roll out some more personalization features, particularly around the conversational ability that we see within the Q&A moment, to really take that moment where the student has a question, expand the value we can deliver for them, and build more content for them.

Dave: The progress we are making with the product experience and refueling the flywheel, starting with automated solutions and engagement will take time to build our new account acquisitions and renewal base before we see a positive impact on total subscribers.

Dave: As a reminder, our unique subscription business model is reliant on two large customer acquisition period, Q1 and Q4.

Dave: As well as the student lifecycle.

Dave: Meanwhile, as previously mentioned, we will increase our focus on efficiently managing expenses to maintain strong profitability and cash flows.

Dave: With respect to Q2 guidance, we expect total revenue between $159 million and $161 million the subscription services revenue between 144 and $146 million.

Dave: This margin to be in the range of 70% and 71% and adjusted EBITDA between $38 million and $40 million in closing we are seeing encouraging signs in the business and are excited about the continued development of our personalized and interactive student interface.

Nathan Schultz: That value of anticipating what the student is really there for and what they need allows us to generate that experience for them and make it highly personalized. We're going to continue to roll it out and make sure we're getting that ready for the rest of this year.

Dave: We believe we are well positioned to meet the current and future needs of learners.

Speaker Change: Opportunity ahead for Chegg is tremendous and I am confident in our team and our ability to execute with that I'll turn the call over to the operator for your questions.

Operator: Our next question is from Ryan MacDonald with Needham and Company. Please proceed.

Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and five participants using speaker equipment.

Ryan Michael MacDonald: Thanks for taking my questions. I really wanted to ask about the pricing strategy, and you talked about sort of already solidifying the plans there internationally in the seven key markets but still testing domestically. Can you give us a sense of sort of the magnitude of the pricing discounts you're testing and then when we should start to see that layer into ARPU assumptions as we go into the remainder of the year? Thanks.

Speaker Change: Need to pick up your handset before pressing the star keys, we ask that you. Please limit to one question.

Speaker Change: Our first question is from Brian Schmidt with J P. Morgan. Please proceed.

Bryan Michael Smilek: Great. Thanks for taking the question guys and congrats Nathan as well can you just talk a bit more about the next steps in your strategy across the application layer regenerative AI and potentially you know across both product and marketing and how it can translate to subscriber growth.

Nathan Schultz: important lever to understand, something that we at Chegg have always taken a strategic stance on, always looking to optimize and understand. As you know, internationally, we tested for a little over a year before we got to a place where we felt the pricing and packaging was solidified. You're starting to really see that in some of our new customer growth numbers there. Domestically, I look at the goal remains: how do we expose our service to the widest number of customers we possibly can?

And then just more near term two are the two key guy was a bit below where we had expected. So can you just help us with some puts and takes around anything that stands out there, especially as you see at the moment in time on that it's hard to do a subgroup within the U S. Take study pack. Thank you.

Speaker Change: Great I appreciate the question I'll take the first part of it and let David follow up near the end around the product.

David Longo: Yeah, well, we're on a multiyear journey with our product is really really a product led growth strategy that we've been planning for awhile.

Speaker Change: Really around the really around expanding the value that we can offer our students by expanding our relevancy of what we're building and we're super excited with the first steps that we've taken and our AI vision, you've seen that and language models that we've deployed I mean, you see that in the growth in our R. R.

Q&A with questions are growing almost 150% year over year, just in Q1 alone. That's a strong sign that the what we are building is resonating with students who are finding value in it and they're continuing to engage in our service. So we're going to continue to kind of push the pedal all the innovation that chegg is really getting stride with <unk>.

Nathan Schultz: We'll continue to use pricing and packaging to do that. Whether that means testing up, testing down, we're going to be testing all around, really. And the goal there is to think of pricing and packaging strategically, when to use them, what the right segments to use them against, at the right times of year to use them. We're going to continue to just optimize and test that throughout 24.

Speaker Change: See a lot more opportunity being created for us.

Speaker Change: Through the use through the thoughtful integration of AI throughout our products and really the ownership of our AI platform is a big part of our cornerstone if you will of that strategy on the marketing side.

Speaker Change: First and foremost you've got to get the product right got to deliver on the promise. The promise that you are that you are that our customers are buying it out.

Speaker Change: As a service that helps save them time that helps them get smarter that helps them truly be efficacious in their studies and that's what we're delivering for them. So first we're going to deliver for our customers and then we can start to build that drumbeat beyond check the great News is shay get some over 30 over the last 12 months or 30.

Operator: Our next question is from Josh Baer with Morgan Stanley. Please proceed.

Joshua Phillip Baer: Great, thanks for the question. And congratulations, Nathan, and Dan, on your new roles. I wanted to follow up on engagement. He has some interesting data points around the number of questions asked. What about the time spent on the platform from an engagement perspective, and also curious about the time that an average student might have the subscription turned on for a given period in the month or quarter?

Speaker Change: Million visitors to our site users to our site to our platform and that gives us a huge opportunity to amplify what we're doing for students and amplify the value that we.

Speaker Change: For students.

Speaker Change: Okay.

Speaker Change: Hi, Brian This is David with respect to the question on the Q2 guidance. A quick reminder, the math on our revenue for any quarter is a component of how many subs you have at the beginning of the period plus how many you add in the current periods and we began Q2 with lower subs than we did in the prior year.

Nathan Schultz: Thanks, Joshua. It's a student question. As you would imagine, the first steps in our path to get back to a place where we've got durable programs around new acquisition, total subscribers, and positive revenue growth start with our engagement on our platform. Just by the fact that we're seeing more questions, it's coming from more students being engaged on the platform and those students asking more questions themselves, which is driving up total time on the platform.

Here, so as Nathan mentioned before we're Super excited about the product direction that we're heading it's just going to take some time for us to fill up that funnel to get back to subs sub growth and overtime, we're optimistic that we'll get there as an entire company.

Speaker Change: Our next question is from Eric Sheridan with Goldman Sachs. Please proceed.

Eric James Sheridan: Maybe just following up on those two with a single question about the how big a month you know what do you think about the education cycle going into the fall of this calendar year, what do you guys see as the most critical investments to make and positioning of the product as you think about that education cycle.

Eric James Sheridan: For September.

Nathan Schultz: So, overall, we think that the next step around the conversational component is the one that really starts to elongate those sessions even more and starts to generate more value for the student. So, today, we're really driving the use of what we are known best for, which is a variety of high-quality learning solutions that are tailored to the student. That's the flywheel we were built off of. That's the flywheel that's spinning faster than ever. That's the flywheel we're very encouraged by, and we're going to continue to see that engagement elongate with students' needs.

Eric James Sheridan: Through the remainder of the calendar year and into the first part of next year. Thanks, So much.

Speaker Change: I appreciate the question Eric.

Speaker Change: I.

Speaker Change: Above that you are tracking the cycles, we've got kind of our two big opportunities a year, obviously in January and being a semester and in August and began the fall semester.

Speaker Change: We've been working hard in the development of our language models, which is which is the bedrock of our proprietary AI platform, we're going to continue to roll those out I'm going to continue to make advancements in our the accuracy and the quality and the completeness of those models and you're going to start to see us rollout.

Speaker Change: Our personalization features particularly around the conversational ability that we that we see within the Q&A moment to really take that moment, where the student housing question expand the value we can deliver for them to build more content for them that that that value or anticipating.

Operator: Our next question is from Brent Thill with Jeffries. Please proceed.

Brent John Thill: Thanks. I guess, Dan, you know, the question of why now? And I guess just as a quick follow-up. Having covered tech for a long time, given the deceleration of revenue growth, few companies, you know, are preserving margins maybe at the same level. Why not choose to make some more investments in, you know, broadening the platform and adding additional modules rather than focus on just margins?

Speaker Change: What the student is really therefore in what they are where they need allows us to generate without got that experience for them and become a highly personalized we're going to continue to roll it out and make sure we're getting that ready for for the rest of this year.

Speaker Change: Our next question is from Ryan Macdonald with Needham and company. Please proceed.

Ryan Michael MacDonald: Hi, Thanks for taking my questions really wanted to ask around the AR the pricing strategy and you've talked about sort of already solidified the plans there internationally and the seven key markets, but still testing domestically can you give us a sense of sort of the magnitude on the pricing discounts for testing and then when we should start to see that layer into our pool.

Nathan Schultz: Great question. This is Nathan. I'll take it.

Nathan Schultz: You know, we're gonna actually, we're continuing to invest in our platform. I wanna make sure that that's all understood. We've built into our financials already the investments that we're making in AI, that's already been built into it, and we're gonna continue to expand those with the traction we're seeing. We're looking to go even faster with the rollout of our personalization platform. So no one's putting the brakes on.

<unk> as we go into the remainder of the year.

Speaker Change: Thanks, Ryan I. Appreciate this question criteria pricing and packaging in general I think about it as an important lever levers to understand.

Ryan Michael MacDonald: And it's something that we have chegg have always taken a strategic stance on and always have looked to optimize and understand as you know in internationally, we tested for little over a year, we got to a place before we got to a place we felt the.

Ryan Michael MacDonald: Pricing and packaging was solidified are you starting to really see that and some of our new customer growth numbers there.

Nathan Schultz: All we're saying in our prepared remarks is that we understand that this is a transition we're going through. We understand that we're on a multi-year path to restructure the company, and that takes time. And during that time, we wanna be prudent in aligning our expenses with our current performance. And Brent, hi Stan.

Ryan Michael MacDonald: Stickley, Yeah, I look at the goal remains how do we expose our service to the widest number of customers as we possibly can and will continue to use pricing and packaging to do that whether that means testing testing down we're gonna be testing all around really and that's.

The goal there is to think of pricing and packaging strategically when do you use it what the right segments to use it against at the right times of your ear to use it so yeah.

Daniel Lee Rosensweig: I just want to, again, congratulate both David and Nathan. The why now is pretty easy. The company's ready. The company's ready for this transition, which is Nathan and I have been working together for a long time with the board on a really well-prepared transition. With David stepping into the role of CFO and with the hiring of all the senior leadership team, now is the right time. In addition to that, the company has gone through a series of transformations since we've been here for the last 14 years, from almost going bankrupt several times to a point where we're profitable and generate free cash flow.

Ryan Michael MacDonald: We're going to continue to execute with just optimize and test out throughout 'twenty four.

Ryan Michael MacDonald: Our next question is from Josh Baer with Morgan Stanley. Please proceed.

Joshua Phillip Baer: Great. Thanks for the question and congratulations Nathan and Dan on your new roles wanted to follow up on an engagement.

Joshua Phillip Baer: Some interesting data points around the the number of questions asked.

What about the time spent on the platform from an engagement perspective, and also curious about the time that like an average student might have the subscription turned on and and are given in the period in the month or quarter.

Oh, Thanks, Joshua Astute question is as you would imagine the first steps in our path to get back to a place where we've got durable programs around new acquisition total subscribers and positive revenue growth starts with our engagement.

Daniel Lee Rosensweig: The AI opportunity is so powerful and has the chance to be so big that having this new team in place to drive it for the next 5-10 years is exactly what we want to have happen because the town should expand, the margin can expand, and so we want this new team to really take this and lead it. And after 14 years, I thought this was the exact right time, so did the board, and I just couldn't be more proud of Nathan. I mean, I'm really excited about the company's future, and I will be remaining involved with Nathan, and so let's go.

Joshua Phillip Baer: Platform.

Joshua: Just in the fact that we're seeing more questions.

Coming from more students being engaged on the platform and those students asking more questions themselves, which is driving up the total time on the platform. So overall.

Joshua: Cards, we think that next step around the conversational component is the one that really starts to elongate those sessions, even more and try to generate more value for the student. So today, we're really driving you.

Joshua: Use of what we are known about for which is providing high quality learning solutions that are tailored to the students that it is that you know that's the flywheel. We were built off of that's the flywheel spinning faster than ever and that's a five year. We're very encouraged by and we're going to continue to see that engagement along with students use it.

Joshua:

Our next question is from Brent Thill with Jefferies. Please proceed.

Brent John Thill: Thanks, I guess, Dan you know the question of why now and I guess, just as a quick follow up.

Operator: Our next question is from Devin Au with KeyBank Capital Markets. Please proceed.

Brent John Thill: Having covered tech for a long time, given the deceleration of revenue growth.

Devin Au: Great, thanks for taking my question. David, for the second quarter, you put out a margin guide implying, I think, 24% at the midpoint. And in your remarks, you kind of talked about the expectations for second half margins to be stronger through accelerating efficiency efforts. Could you just elaborate on what these efforts are? And, you know, without the top line leverage, what's giving you the confidence that you can protect your margins in the second half? Thanks. Sure, thank you.

Brent John Thill: Do your comedies.

Brent John Thill: Where the margins may be at a level why not choose to make some more investments in our boardroom.

Speaker Change: Not for me.

Speaker Change: Adding additional modules on rather than focus on just margins.

Speaker Change: Right. Great question. This is Nathan I'll take it.

Nathan: We're gonna actually where we're where we're continuing to invest in our platform I want to make sure that that's all understood we built into our our.

Nathan: Our financials are already the investments that we're making in AI and that's already been built into it and we're going to continue to expand those with the traction. We're seeing we're looking to go even faster with the rollout of our of our personalization platform. So no. One has taken we don't know what's putting the brakes on what we're all we're saying in our prepared remark.

Nathan: Is that we understand that this is a transition we're going through we understand that we're at a multiyear path to re grow the company and it takes time and during that time, we want to be prudent and and aligning our expenses with our current performance.

David Longo: Sure. Thanks, Devin.

Nathan: And Brian Hi, it's Dan.

David Longo: We believe we've always been efficient with our spend. If you look at our spend in Q1 this year versus last year, we were $10 million better off this year than last year. The full year 2023 was better than the full year 2022. We expect that we're going to look under every rock we can find and keep being efficient so that we keep driving, you know, keeping it up and cash flow to create shareholder value. And, you know, I'll look forward to continuing to reporting on that later this year.

Daniel Lee Rosensweig: Just want to again congratulate both David and Nathan So why now it's pretty easy the Companys readying. The company is ready for this transition, which is Nathan and I have been working together for a long time with the board on a on a really well prepared transition.

Daniel Lee Rosensweig: With David stepping into the role as the CFO and with the hiring of all the senior leadership team now is the right time. In addition to that the company has gone through a series of transformation. So since we've been here for the last 14 years from almost going bankrupt several times to a point, where we're profitable and generate free cash flow.

Daniel Lee Rosensweig: The AI opportunity is so powerful and has the chance to be so big.

Daniel Lee Rosensweig: Theyre.

Daniel Lee Rosensweig: Having this new team in place to drive it for the next 510 years is exactly what we want.

Daniel Lee Rosensweig: To have happened because the Tam should expand.

Daniel Lee Rosensweig: The margin can expand and so we want this new team to really take this in private.

Speaker Change: And after 14 years I thought this was the exact right time, so to the board and I just couldn't be more proud of Nathan I mean, I'm really excited about the company's future and I will be remaining are involved with Nathan.

And so let's go.

Speaker Change: Yeah.

Speaker Change: Our next question is from Devin how with Keybanc capital markets. Please proceed.

Operator: Our next question is from Alex Schuyler with Raymond James. Please proceed.

Devin: Great. Thanks for taking my question, David with the second quarter EBIT margin guide, implying I think 24% at the midpoint and in your remarks, you kind of talked about the expectations of second half margins to be stronger.

Alex Schuyler: Thank you. I want to follow up on Ryan's question around the pricing and packaging test internationally. It sounds like you found the right balance there.

Nathan Schultz: And I was just hoping you could elaborate a little bit more on how that average pricing and conversion rates look now relative to a year ago. And you also talked about seven markets. Any new countries you're investing in or pulling back on relative to a year ago as well? Thank you. I appreciate the question, Alex.

Devin: Through accelerating efficiency efforts could you just elaborate on on what these efforts are and you know without that.

The topline leverage you know, what's giving you the confidence that you can protect your margins in the second half.

David Longo: Sure. Thanks, Devin we believe we've always been efficient with our spend if you look at our spend Q1. This year versus last year, we were $10 million better this year than last year. The full year 2023 was better than the full year of 2022, and we expect that we're going to look under every rock, we can bind and keeping.

David Longo: Fishing, so that we keep driving.

Nathan Schultz: I appreciate the question, Alex. I'll start off on the markets. No, there are no new markets here. You know, the ones that we have identified. We see a lot of similarities between the student experience, experiment, experience, apologize, a lot of leverage between what we need to build for each country as we begin to localize, even though some of them will be in different languages. The actual student's job to be done and why they're coming to the Chegg platform allows us to get a lot of leverage with the technology we're building.

David Longo: EBITDA and cash flow to create shareholder value.

And look.

David Longo: Look forward to continuing to report that later this year.

David Longo: Our next question is from Alex Skylar with Raymond James. Please proceed.

Alex Joseph Fuhrman: Thank you one to follow up on Ryan's question around around the pricing and packaging test internationally. It sounds like you found the right balance there and I was just hoping you could elaborate a little bit more on how that average pricing and conversion rates look like now relative to a year ago and you also talked about seven markets any new countries, you're investing behind are pulling.

Alex Joseph Fuhrman: Back on a relative to the euro as well thank you.

Speaker Change: I appreciate the question Alex I'll start off on the market no there's no new markets here.

Speaker Change: The ones that we have identified we.

Speaker Change: We see a lot of leverage and we see a lot of similarities between the student experience experiment experience apologize.

Nathan Schultz: I don't want to have you walk away and say we are done on the pricing and packaging side. We have found a lot of goodness there, obviously with new customer growth up 2.3% year over year, but we are not done on the pricing and packaging side internationally. We're going to continue to optimize that to make sure we can cast the widest net with customers as possible.

Speaker Change: Leverage between what we need to build for each country as we began to local law, even though some of them will be in Europe.

Languages, the actual students job job to be done and why they are coming to the chegg platform allows us to get a lot of leverage with the technology We're building.

Speaker Change: I don't want to have you walk away and say we are done on the pricing and packaging side.

Speaker Change: Have found a lot of Oh.

Speaker Change: We have some goodness, there, obviously with new customer growth up two 3% year over year, but we are not going on the pricing side internationally, we're going to continue to optimize that to make sure. We can capitalize net with customers as possible.

Speaker Change: Our final question is from Alex Fuhrman with Craig Hallum Capital Group. Please proceed.

Operator: Our final question is from Alex Fuhrman with Craig Hallam Capital Group. Please proceed.

Alex Joseph Fuhrman: How exactly should we expect to get there as we think about potentially pulling back on sales and marketing or G&A or research and development? Is there some level of growth internationally or elsewhere that you would need to hit that target for next year? And then I think you alluded to seeing some cost cuts in the back half of this year that should get the margins going. Are we going to see some kind of path to that 30% by the end of this year? Or is that really something that we'll see when we get farther into next year?

Alex Joseph Fuhrman: Hey, guys. Thanks for taking my question just wanted to kind of drill into the target for 30% EBITDA margins, a little bit more yeah, how how.

Alex Joseph Fuhrman: Exactly you know should we expect to get there you know as we think about potentially pulling back on sales and marketing or G&A or research and development is there some level of growth internationally or elsewhere that that you would need to hit that target for next year, and then I think you alluded to.

Alex Joseph Fuhrman: Seeing some cost cuts in the back half of this year that should get the margins going or are we going to see kind of a path to that 30% by the end of this year or is that really more something that that you know, we'll see when we get farther into next year.

Speaker Change: Sure. Thanks I appreciate the question it.

David Longo: Sure. Thanks, Alex. I appreciate the question.

Speaker Change: It is.

David Longo: It's really going to be a function of us continuing to do what we've always done, which is being prudent in how we manage our expenses. We're optimistic that we can return the company to growth. Growth will certainly be one way to get there, but we've demonstrated consistent cost containment. While I can't give specifics around that now because we're only giving guidance for the next quarter, when I report back in August on how we did in Q2, I think we'll have a better vision of how that materializes for the rest of the year.

Speaker Change: It really it's really going to be a function of us continuing to do what we've always done which is being prudent on how we manage our expenses. We're optimistic that we can return the company to growth growth will certainly be one way to get there, but we have demonstrated consistent cost you know cost containment.

Speaker Change: And you know while I can't give you specifics around that now as we're only giving guidance in the first quarter in the next quarter.

Whenever we put back in August on on how we did in Q2 I think we'll have a kind of a vision on how that materializes through the rest of the year.

Speaker Change: Thanks, Alex.

Operator: We have reached the end of our question and answer session.

Nathan: <unk> reached the end of our question and answer session I will now turn the call over to Nathan shelter in cutting CEO for closing remarks.

Nathan Schultz: Thank you very much for your questions today and warm wishes for the job ahead. I want to thank you all for your time. Questions are great. I am honored that the board has given me the opportunity, and I am incredibly excited about the power of the platform, about the proprietary AI that we're building, and the opportunity that's in front of us. I'm very excited to do it with my partner, David Longo, and I wish you all the best today. Have a great day! Thank you. This will conclude today's conference.

Nathan: Thank you very much for your questions today in our warm wishes on the job ahead I wanted to take you off at a time, but it's a great I'm honored that the board has given me the opportunity and I am incredibly excited about the power of the platform.

Nathan: Proprietary AI.

We're building and the opportunity that's in front of US I'm very excited to do it with my partner, David long ago, and I wish you all the best of day have a great day.

Thank you. This will conclude today's conference you made a direct your lines at this time and thank you for your participation.

[music].

Nathan: Yeah.

Nathan: Okay.

Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Nathan: [music].

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