Q2 2024 Chegg Inc Earnings Call

August 5, 2024

Speaker Change: Greetings and welcome to Chegg, Inc. second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

Operator: 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tracey Ford. Thank you. You may begin.

Speaker Change: If anyone should require operator assistance during the conference,

Speaker Change: Please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to introduce your host, Tracey Ford. Thank you. You may begin.

Tracey Ford: Good afternoon. Thank you for joining Chegg's second quarter 2024 conference call. On today's call are Nathan Schultz, 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 slash media center. We encourage you to make use of these resources.

Speaker Change: Good afternoon. Thank you for joining Chegg's second quarter 2024 conference call. On today's call are Nathan Schultz, President and CEO , and David Longo, Chief Financial Officer.

Speaker Change: A copy of our earnings press release, along with our investor presentation, is available on our investor relations website, investor.chegg.com.

Speaker Change: 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 slash mediacenter. We encourage you to make use of these resources.

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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: We caution you to consider the important factors that could cause actual results to differ materially from those in the forward-looking statements.

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.

Speaker Change: 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.

Speaker Change: 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 Nathan.

Speaker Change: During this call, we will present both GAAP and non-GAAP financial measures.

Speaker Change: Our GAAP results and GAAP to non-GAAP reconciliations can be found on our earnings press release in 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 Nathan.

Nathan Schultz: Thank you, Tracey. Good afternoon, everyone, and thanks for joining Chegg's second quarter earnings call. I'm so very proud of how Chegg shows up for students and our team's endeavor to build an unparalleled learning platform. Since just assuming a CEO role 65 days ago, I've spearheaded a significant restructuring effort to create a leaner, more efficient organization that allows us to move faster, smarter, and make investments for the long term. In 2025, our restructuring program will generate non-GAAP expense savings in the range of $40 to $50 million and has allowed us to remain committed to our goals of 30% plus adjusted EBITDA margin and at least $100 million in free cash.

Nathan Schultz: Just assuming a CEO role 65 days ago, I've spearheaded a significant restructuring effort to create a leaner, more efficient organization which allows us to move faster, smarter, and make investments for the long term.

Nathan Schultz: In 2025, our restructuring program will generate non-GAAP expense savings in the range of $40 to $50 million and has allowed us to remain committed to our goals of 30% plus, adjusted EBITDA margin, and at least $100 million in free cash flow.

Nathan Schultz: Additionally, we have outlined a new product vision to evolve Chegg from a solutions-based study platform to one that supports the whole student with 360 degrees of individualized, academic, and functional support. Our talented teams are hard at work building the products and experiences that bring our new vision to life. However, let's start with Q2. In Q2, we exceeded our guidance, delivering $146.8 million in revenue and $44.1 million in adjusted EBITDA.

Nathan Schultz: Our talented teams are hard at work building the products and experiences that bring our new vision to life. However, let's start with Q2.

Nathan Schultz: For Q2, we exceeded our guidance delivering

Nathan Schultz: $146.8 million in revenue and $44.1 million in adjusted EBITDA.

Nathan Schultz: We continued to integrate AI into Chegg Study, completing several foundational programs, and most importantly, the complete rollout of conversational instructional capability and automated solutions, all in time for the upcoming back-to-school season. As a result, we are seeing positive reception, as demonstrated by an increase in student engagement. I'd like to specifically call out two exciting trends.

Nathan Schultz: We continue to integrate AI into Chegg Study, completing several foundational programs, most importantly, the complete rollout of conversational instructional capability and automated solutions, all in time for the upcoming back-to-school season.

Nathan Schultz: As a result, we are seeing positive reception, as demonstrated by an increase in student engagement. I'd like to specifically call out two exciting trends.

Nathan Schultz: First, 70% of subscribers are engaging in conversational instruction. Second, students are asking more questions. The number of questions asked by students increased 74% year-over-year versus Q2 2023. And in H1-24 alone, students asked a whopping 16.2 million questions, which is a 109% year-over-year increase.

Nathan Schultz: First, 70% of subscribers are engaging in conversational instruction.

Nathan Schultz: Second, students are asking more questions.

Nathan Schultz: The number of questions asked by students increased 74% year-over-year versus Q2 2023. And in H1-24 alone, students asked a whopping 16.2 million questions, which is a 109% year-over-year increase.

Nathan Schultz: While pleased with the product advancements we've implemented in Q2, we are only getting started. Our sights are fixed on innovations that leverage both our key differentiators and the generational technology shift in which we find ourselves. Speaking of which, I would like to spend a few minutes highlighting three key differentiators.

Nathan Schultz: While pleased with the product advancements we've implemented in Q2, we are only getting started. Our sights are fixed on innovations that leverage both our key differentiators and the generational technology shifts in which we find ourselves. Speaking of which, I would like to spend a few minutes highlighting three of them.

Nathan Schultz: First, we are obsessed with studying students. With more than a decade of insights into students' needs, motivations, and behaviors, we consistently work to evolve and align our services to the modern student experience. We apply deep learning science from an in-house team to create a verticalized user experience to reflect how students learn best. For example, we provide step-by-step solutions, jargon-free explanations, and simplified concepts to make learning accessible.

Nathan Schultz: Three key differentiators. First, we are obsessed with studying students.

Nathan Schultz: With more than a decade of insights into students' needs, motivations, and behaviors, we consistently work to evolve and align our services to the modern student experience. We apply deep learning science from an in-house team to create a verticalized user experience that reflects how students learn best.

Nathan Schultz: For example, we provide step-by-step solutions, jargon-free explanations, and simplified concepts to make learning accessible. This deep understanding of students called for millions of learning interactions drives our product innovation.

Nathan Schultz: This deep understanding of students called for through millions of learning interactions drives our product innovation. Second, we have been built from the bottom up to deliver high quality, accurate content at scale. Students care deeply about accuracy and quality of instruction. In our study of more than 11,000 students globally, 47% of those who use generative AI for university studies say receiving incorrect information is a top concern. This lack of trust has led 67% of students to spend additional time verifying the information they receive from AI tools. This is inefficient, and we can do better.

Nathan Schultz: Second, we have been built from the bottom up to deliver high quality, accurate content at scale.

Speaker Change: Students care deeply about accuracy and quality of instruction. In our study of more than 11,000 students globally, 47% of those who use generative AI for university studies say receiving incorrect information is a top concern.

Speaker Change: This lack of trust has led 67% of students to spend additional time verifying the information they receive from AI tools.

Nathan Schultz: To that end, Chegg will launch this fall a student-facing satisfaction guarantee aligned to the quality and accuracy of its content to better support student success and differentiate Chegg. Third and finally, Chegg's brand awareness remains high, with 75% of U.S. college students having heard of it. We plan to build on our strong foundation in Q3, launching our Small Steps, Big Wins marketing campaign this back-to-school season. This will extend our reach into channels where students are congregating, such as TikTok, Instagram, and on-campus, to increase our top-of-funnel. Additionally, we will start to test services delivered on Discord and Chrome extensions.

Speaker Change: This is inefficient and we can do better. To that end, Chegg will launch this fall a student-facing satisfaction guarantee aligned to the quality and accuracy of our content to better support student success and differentiate Chegg.

Speaker Change: Third and finally, Chegg's brand awareness remains high, with 75% of U.S. college students having heard of Chegg. We plan to build on our strong foundation in Q3, launching our Small Steps, Big Wins marketing campaign this back-to-school season.

Speaker Change: This will extend our reach into channels where students are congregating, such as TikTok, Instagram, and on-campus, to increase our top-of-funnel.

Speaker Change: Additionally, we will start to test services delivered on Discord and Chrome extensions with the goal of making sure Chegg is everywhere our current and future students are.

Nathan Schultz: The goal of making sure Chegg is everywhere our current and future students are. The differentiators we have built over the last decade have positioned us for success as we execute our product roadmap and drive headfirst into the generational technology shift ushered in by AI. Our mission is to build from our foundation to support student outcomes, not by delivering AI education but rather education enhanced by AI. With that in mind, I would like to take you through some examples of the AI architecture we have built. First, we have created proprietary technology that allows Chegg to deeply understand students' questions. When a question is asked, we create a full picture of why they asked it, and at what depth the answer should be given.

Speaker Change: The differentiators we have built over the last decade have positioned us for success as we execute our product roadmap and drive headfirst into the generational technology shift ushered in by AI.

Speaker Change: Our mission is to build from our foundation to support student outcomes. Not by delivering AI education, but rather education enhanced by AI. With that in mind, I would like to take you through some examples of the AI architecture we have built.

Speaker Change: First, we have created proprietary technology that allows Chegg to deeply understand students' questions.

Speaker Change: When a question is asked, we create a full picture, why they asked it, at what depth the answer should be given, and most exciting, how can we use this question to develop a series of next best actions that creates an individualized learning pathway driving student engagement and retention.

Nathan Schultz: And most exciting, how can we use this question to develop a series of next best actions that creates an individualized learning pathway, driving student engagement and retention? Second, our evolving architecture takes an innovative, multi-source approach, levering foundational and proprietary language models, our industry-leading symbolic math engine, our deep catalog of learning content, and our subject matter experts to deliver the best learning solutions possible. To fully realize our groundbreaking vision for integrating AI with our proprietary content and computational models, we have built a sophisticated source-agnostic orchestrator that intelligently selects the best approach to assist each student. You can think of the orchestrator as an air traffic controller.

Speaker Change: Second, our evolving architecture takes an innovative, multi-source approach, levering foundational and proprietary language models, our industry-leading symbolic math engine, our deep catalog of learning content, and our subject matter experts to deliver the best learning solutions possible.

Speaker Change: To fully realize our groundbreaking vision for integrating AI with our proprietary content and computational models, we have built a sophisticated, source-agnostic orchestrator that intelligently selects the best approach to assist each student. You can think of the orchestrator as an air traffic controller. Using this approach, accuracy and quality remain paramount.

Nathan Schultz: Using this approach, accuracy and quality remain paramount. As such, we have developed a proprietary quality rubric that assesses all possible content sources and language models. We believe this enables Chegg to take advantage of any future innovations that foundational models will inevitably create while maintaining the quality that has built our brand. As always, we've developed our innovative approach to servicing students with scale and cost in mind. Today we produce solutions at a 75% reduction per unit versus human creation alone.

Speaker Change: As such, we have developed a proprietary quality rubric that assesses all possible content sources and language models. We believe this enables Chegg to take advantage of any future innovations that foundational models will inevitably create while maintaining the quality that has built our brand.

Speaker Change: As always, we've developed our innovative approach to servicing students with scale and cost in mind. Today we produce solutions at a 75% reduction per unit versus human creation alone.

Nathan Schultz: The bottom line is we are now creating more content at higher quality and at lower cost, and as you know, Kosta is the primary driver of our equity. Before I turn it over to David, I want to briefly talk about what you can expect regarding product innovation in Q3, as well as an exciting partnership as we get set for a back-to-school rush. On the global product side, we are well underway in implementing our iterative approach to product development.

Speaker Change: The bottom line is we are now creating more content at higher quality at lower cost.

Speaker Change: And as you know, cost is the primary driver of our acquisition of Flywheel.

Speaker Change: Before I turn it over to David, I want to briefly talk about...

Speaker Change: What you can expect regarding product innovation in Q3, as well as an exciting partnership as we get set for a back-to-school rush.

David Longo: On the global product side, we are well underway in implementing our iterative approach to product development. This fall, we will be testing a variety of innovations. As an example, we have developed a feature internally referred to a starting point, which is meant to address the common issue of students simply not knowing where to start, whether they're studying for a midterm or writing an important paper.

Nathan Schultz: This fall, we will be testing a variety of innovations. As an example, we have developed a feature internally referred to as Starting Point, which is meant to address the common issue of students simply not knowing where to start, whether they're studying for a midterm or writing an important paper. This introduces a whole new way for students to leverage Chegg on their learning journey. In addition to Starting Point, we've developed two new applications, one that keeps students on track and another that organizes students' notes and turns them into study tools.

David Longo: This introduces a whole new way for students to leverage Chegg on their learning journey. In addition to Starting Point, we've developed two new applications, one that keeps students on track and another that organizes students' notes and turns them into study tools.

Nathan Schultz: As we get more products into students' hands through in-development, you are beginning to see the evolution of Chegg from a Q&A platform to one that delivers 360 degrees of support. On the international front, we'll be launching a fully localized experience in Mexico by the end of September. Our end-to-end localization strategy adapts Chegg Study to meet the cultural, linguistic, and user experience requirements of key international markets. As our first fully localized market, Mexico will serve as the playbook for future localization efforts.

David Longo: As we get more products into students' hands through inter-development, you are beginning to see the evolution of Chegg from a Q&A platform to one that delivers 360 degrees of support.

David Longo: On the international front, we'll be launching a fully localized experience in Mexico by the end of September . Our end-to-end localization strategy adapts Chegg Study to meet the cultural, linguistic, and user experience requirements of key international markets.

David Longo: As our first fully localized market, Mexico will serve as the playbook for future localization efforts. We remain excited about the growth opportunities that international expansion provides.

Nathan Schultz: We remain excited about the growth opportunities that international expansion provides. Finally, I'm excited to announce that we're expanding our Chegg Perks program through a partnership with Max, one of the leading global streaming services. Max delivers exclusive original series and blockbuster movies, as well as a library of beloved TV shows that our U.S. subscribers will now be able to access with ads. Max joins our other perks partners, including Tinder, DoorDash, KOM, and others to enrich the value of a Chegg membership.

David Longo: Finally, I'm excited to announce that we're expanding our Chegg Perks program through a partnership with Max, one of the leading global streaming services.

David Longo: Max delivers exclusive original series and blockbuster movies, as well as a library of beloved TV that our U.S. subscribers will now be able to access with ads. Max joins our other perks partners, including Tinder, DoorDash, Com, and others to enrich the value of a Chegg subscription.

Nathan Schultz: In closing, we continue to execute the plan that we believe will return our company to growth. The way back will take time and will be accomplished through steady execution of our vision to serve the whole student, thoughtful implementation of our unique AI strategy, and building off our durable differentiators, which include a deep knowledge of students, a content foundation built for quality and scale, and a brand that students know and love. With that, I will turn it over to you.

David Longo: In closing, we continue to execute the plan that we believe will return our company to growth.

David Longo: The way back will take time, and will be accomplished through steady execution of our vision to serve the whole student, thoughtful implementation of our unique AI strategy, and building off our durable differentiators, which include a deep knowledge of students,

David Longo: A content foundation built for quality and scale, and a brand that students know and love. With that, I will turn it over to David.

David Longo: Thank you, Nathan. Today, I will present our financial performance for the second quarter of 2024 and our outlook for Q3. Q2 was a solid quarter. We remained focused on delivering our new AI-driven experiences to students around the world, made progress on key metrics, which we believe will support both revenue and adjusted EBITDA growth over time, and continued to execute prudent expense management to maintain strong profitability. We exceeded our Q2 guidance on both revenue and adjusted EBITDA, and our balance sheet remains healthy.

David Longo: Thank you, Nathan. Today I will present our financial performance for the second quarter of 2024 and our outlook for Q3.

David Longo: Q2 was a solid quarter. We remained focused on delivering our new AI-driven experiences to students around the world, made progress on key metrics which we believe will support both revenue and adjusted EBITDA growth over time, and continued to execute prudent expense management to maintain strong profitability.

David Longo: We exceeded our Q2 guidance on both revenue and adjusted EBITDA, and our balance sheet remains healthy.

David Longo: Before I jump into the results of the quarter, in the shareholder letter related to the restructuring, we committed to sharing key metrics that would assist investors to understand and model our company. Our earnings presentation on our investor relations website includes these key metrics for Q2. These are the metrics we review to understand the trends in the health of our business.

David Longo: Our earnings presentation on our investor relations website includes these key metrics for Q2. These are the metrics we review to understand the trends and health of our business.

David Longo: Moving on to our second quarter performance, we had 4.4 million subscribers in the quarter, with 25% coming from the internet. Total revenue was $163 million, down 11% year-over-year, including subscription services revenue of $147 million. Subscription services ARPU was down 3% year-over-year, which was primarily driven by the international promotional pricing we introduced last year to bolster conversion and retention. Overall, monthly retention for Chegg Study and StudyPak remained strong and was up 23 basis points year over year.

David Longo: Moving on to our second quarter performance, we had 4.4 million subscribers in the quarter, with 25% coming from international.

David Longo: Total revenue was $163 million, down 11% year-over-year, including subscription services revenue of $147 million.

David Longo: Subscription services ARPU was down 3% year over year, which was primarily driven by the international promotional pricing we introduced last year to bolster conversion and retention.

David Longo: Overall, monthly retention for Chegg Study and Study Pack remained strong and was up 23 basis points year over year.

David Longo: Skills and other revenue was $16 million, a decrease of 4% year over year. Second quarter adjusted EBITDA of $44 million represented a margin of 27%. This is above our guidance due to better than anticipated revenue, as well as ongoing expense management to preserve profitability and cash flows as we navigate the path back to growth. As planned, the restructuring had a minimal impact on our Q2 adjusted EBITDA, and the full financial savings will not be realized until 2025.

David Longo: Skills and other revenue was $16 million, a decrease of 4% year-over-year.

David Longo: Second quarter adjusted EBITDA of $44 million dollars represented a margin of 27%.

David Longo: This is above our guidance due to the better than anticipated revenue as well as ongoing expense management to preserve profitability and cash flows as we navigate the path back to growth.

David Longo: As planned, the restructuring had a minimal impact on our Q2 adjusted EBITDA, and the full financial savings will not be realized until 2025.

David Longo: We had a few notable gap items this quarter, specifically an impairment charge and a large discrete item in our income tax provision. As a result of continued industry pressure and declines in our market capitalization, and as required by accounting rules, we completed an impairment test on our goodwill, intangible assets, and property and equipment. The test resulted in $481.5 million of non-cash impairment charges that were excluded from our Q2 adjusted even. In addition, the goodwill impairment impacted our Q2 income tax provision as we are now in three years of cumulative pre-tax losses in the U.S. This triggered the necessity for a $141.6 million non-cash valuation allowance recorded on all U.S. federal and state deferred tax assets, which is included in the Q2 income tax provision.

David Longo: We had a few notable gap items this quarter, specifically an impairment charge and a large discrete item in our income tax provision.

David Longo: As a result of continued industry pressure and declines in our market capitalization and as required by accounting rules, we completed an impairment test on our goodwill, intangible assets, and property and equipment.

David Longo: The test resulted in $481.5 million of non-cash impairment charges that were excluded from our Q2 adjusted EBITDA.

David Longo: In addition, the goodwill impairment impacted our Q2 income tax provision as we are now in three years of cumulative pre-tax losses in the U.S.

David Longo: This triggered the necessity of a $141.6 million non-cash valuation allowance recorded on all U.S. federal and state deferred tax assets, which is included in the Q2 income tax provision.

David Longo: Free cash flow was negative $3.6 million in the second quarter, which was driven by severance payments related to our restructuring and an increase in net working capital largely related to the timing of accounts payable items. Capital expenditures were $17.8 million in the quarter, of which $13 million were content costs. Content costs were down 7% year over year, even with an increase of 74% in the number of questions asked.

David Longo: Capital expenditures were $17.8 million in the quarter, of which $13 million were content costs.

David Longo: Content costs were down 7% year over year, even with an increase of 74% in the number of questions asked.

David Longo: Looking at the balance sheet, we ended the quarter with cash and investments of $605 million and a net cash balance of $4.5 million. With respect to Q3 guidance, we expect total revenue between $133 million and $135 million, with subscription services revenue between $116 million and $118 million. Gross Margin to be in the range of 67 to 68% and Adjusted EBITDA between $19 and $21 million. In closing, while these numbers are not where we want them to be, like many companies in the ed tech space, we are dealing with the challenges of the changing landscape.

David Longo: Looking at the balance sheet, we ended the quarter with cash and investments of $605 million and a net cash balance of $4.5 million.

David Longo: With respect to Q3 guidance, we expect total revenue between $133 and $135 million, with subscription services revenue between $116 and $118 million.

David Longo: Gross Margin to be in the range of 67 to 68% and Adjusted EBITDA between $19 and $21 million.

David Longo: In closing, while these numbers are not where we want them to be, like many companies in the edtech space, we are dealing with the challenges of the changing landscape.

David Longo: As Nathan detailed earlier, we are working to implement the vision to get us back to growth, but it will take some time before we see the benefits. I am committed to delivering our financial goals, we believe there is a significant opportunity ahead for Chegg, and I am confident in our team and our ability to succeed. With that, I will turn the call over to the operator for your questions. Thanks.

David Longo: As Nathan detailed earlier, we are working to implement the vision to get us back to growth, but it will take some time before we see the benefits. I am committed to delivering our financial goals. We believe there is a significant opportunity ahead for Chegg, and I am confident in our team and our ability to succeed.

Speaker Change: With that, I will turn the call over to the operator for your questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on the 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Thank you. We will now be conducting a question and answer session.

Operator: One moment, please, while we poll for questions. The first question comes from Jeffrey Silber with BMO Capital Markets. Please go ahead.

Speaker Change: If you would like to ask a question, please press star 1 on the telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

Speaker Change: You may press star 2 if you would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: One moment please while we poll for questions.

Speaker Change: and many more.

Speaker Change: The first question comes from Jeffrey Silber with BMO Capital Markets. Please go ahead.

Ryan (on behalf of Jeffrey Silber): Hey, thanks so much. This is Ryan on behalf of Jeff.

Ryan: Hey, thanks so much. This is Ryan on for Jeff. Just a question, was wondering how you're feeling about the fall enrollment cycle as we progress through the summer and then what initiatives Boys Chegg to recapture some of that student base. Thank you.

Nathan Schultz: Just a question. I was wondering how you're feeling about the fall enrollment cycle as we progress through the summer and then what initiatives Boys Chegg will take to recapture some of that student base. Thank you.

Ryan: Thanks, Ryan, Nathan. Thanks for the question. Obviously, like everyone else, we use a number of external resources to look at the fall cycle. The unfortunate thing is a lot of that data is kind of in the rear and

Nathan Schultz: Thanks, Ryan, and Nathan. Thanks for the question.

Nathan Schultz: We're going to need September and October to kind of roll through for us to really understand how the data comes out. Expectations overall, if I look at enrollment on a broader scale, really kind of, I think, about out through 27 and 28. Enrollment's pretty much flat. So where I think about enrollment

Nathan Schultz: Obviously, like everyone else, we use a number of external resources to look at the fall cycle. The unfortunate thing is that a lot of that data is kind of in the rear view mirror, and we're going to need September and October to kind of roll through for us to really understand how that data comes out. Overall, if I look at enrollment on a broader scale, really kind of think about out through 27 and 28.

Nathan Schultz: Enrollment is pretty much flat. So where I think about enrollment and change opportunity is not are we putting more freshmen into the cycle, but really how do we extend the reach of our brand, of our value proposition, to the current students that are in the cycle? We still have a lot of headroom domestically, and a lot of headroom internationally, and that's where we're really focused on how do we get those people to recognize us.

Nathan Schultz: And Chegg's opportunity is not, are we putting more freshmen into the cycle?

Nathan Schultz: But really, how do we extend...

Nathan Schultz: The Reach.

Nathan Schultz: of our brands, of our value prop, and to the current students that are in the cycle.

Nathan Schultz: We still have a lot of headroom domestically, a lot of headroom internationally, and that's where we're really focused on. How do we get those people to recognize us? So if you think about the marketing campaign that I talked about in our prepared remarks,

Nathan Schultz: So if you think about the marketing campaign that I talked about in our prepared remarks, probably a small statue of big wins, and getting ourselves onto the platforms where students are congregating, whether that's TikTok, Instagram, On Campus, or getting Chegg to be on platforms where students can use it directly, like Discord, our goal is that they

Nathan Schultz: We're on the small steps and big wins and getting ourselves onto the platforms where students are congregating.

Nathan Schultz: or that's TikTok, Instagram on campus or getting Chegg to be on platforms where students can use us directly like Discord. Our goal is to think about that top of funnel and making sure we're as relevant as possible to as many students as we can get on the platform.

Ryan (on behalf of Jeffrey Silber): Great, that's very helpful. And then, just for my...

Speaker Change: Great, that's very helpful. And then just for my follow-up, I was curious on the top line 3Q guide, just in light of the new metrics that you started disclosing, can you give any color on what assumptions you're embedding in there in terms of the guidance?

Ryan (on behalf of Jeffrey Silber): Can you be a bit more specific on that?

Speaker Change: Can you be a bit more specific on that?

David Longo: Yes, I apologize. I just meant in terms of retention and subscriber growth, which is kind of embedded in the 3Q top line guidance.

Speaker Change: Yes, I apologize. I just meant in terms of retention and subscriber growth, what is kind of embedded in the 3Q top line guidance. Thank you.

David Longo: Thank you. Okay, understood. Thank you for the question.

Speaker Change: Okay, understood. Thank you for the question.

David Longo: of a blind spot. It's our toughest quarter for us to predict. But what we've done is we've taken the trajectory of the business over the last, you know, the first half of the year and extended it. So, the business that we're seeing and the retention rates, we've baked that into the model. And then we, you know, continued with subscriber enrollments, you know, new customer acquisitions, at the rates that we've seen relative to last year. And that's why you've seen the guide down year over year where we are. So, I've got some more work to do, but, you know, it's really based on the visibility we've had year to date.

Speaker Change: When we were building Q3...

Speaker Change: It is a bit of a blind spot, it's our toughest quarter for us to predict, but what we've done is we've taken the trajectory of the business over the first half of the year and extended so the goodness that we're seeing in the retention rates.

Speaker Change: We've baked that into the model, and then we've, you know, continued with subscriber enrollment.

Speaker Change: New Customer Acquisitions, being at the rates that we've seen relative to last year. And that's why you've seen the guide down year over year where we are. So we've got some more work to do, but it's really based on the visibility we've had year to date.

Speaker Change: Thank you.

Operator: The next question comes from Bryan Smilek with J.P. Morgan. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question comes from Bryan Smilek with J.P. Morgan. Please go ahead.

Bryan Smilek: Great, thanks for taking the questions. I guess just to start with conversational features now rolled out and you know 70% of subs engaging with them, have you seen any improvements in the top of funnel more recently? And I guess, as we think about the 3Q guide, can you just elaborate on your comments about industry pressure and then perhaps any softness that you've seen on the consumer more recently? Thanks.

Bryan Smilek: Great. Thanks for taking the questions. I guess just to start with conversational features now rolled out and, you know, 70% of subs engaging with them, have you seen any improvements in the top of funnel more recently? And I guess, you know, as we think about the 3Q guide, can you just elaborate about your comments around industry presser and then perhaps any softness that you've seen on the consumer more recently?

Nathan Schultz: Okay, around the conversational instruction that we've got rolled out now for right in time for the back-to-school season, that's a subscriber feature, so it's going to be less of a top-of-the-funnel driver. That's why you see us kind of dovetailing ourselves with a kind of renewed spirit in marketing around that Small Set Stage Wins program. That's going to continue to build on itself over the quarter and as we really get into 25, as we push harder on marketing.

Bryan Smilek: Thanks.

Speaker Change: Okay, around the conversational instruction that we've got rolled out now right in time for the back-to-school season, that's a subscriber feature, so it's going to be less of a top-of-the-funnel driver. That's why it's kind of dovetailing ourselves with a kind of renewed spirit in marketing around that Small Set Stage Wins program. That's going to continue to build on itself over the quarter, and as we really get into 2025, as we push harder on marketing. You are seeing us also launch more product experiments, which we look to get into our subscribers and potentially our members' hands as we look to create accounts.

Nathan Schultz: You are seeing us also launch more product experiments, which we look to get into our subscribers' and potentially our members' hands as people do create accounts that do not convert. We're coming out with more and new and innovative ways for us to get students into an engaged relationship with Chegg, so I hope that helps on the conversational side.

Speaker Change: We're coming out with more and new and innovative ways for us to get students into an engaged relationship with Chegg. So I hope that helps on the conversational side.

David Longo: Yeah, and this is David. So on revenue, I think the comment on the interesting pressures was specific to the goodwill impairment. And so we didn't necessarily draw a straight line necessarily from the revenue top line to the goodwill impairment.

Speaker Change: Yeah, and this is David. So on the revenue, I think the comment on the industry pressures was specific to the goodwill impairment, and so we didn't draw a straight line necessarily on from the revenue top line to the goodwill impairment.

Bryan Smilek: Got it. Thank you. That's super helpful.

Speaker Change: Got it. Thank you. That's super helpful.

Operator: The next question is from Eric Sheridan with Goldman Sachs. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question is from Eric Sheridan with Goldman Sachs. Please go ahead.

Eric Sheridan: Thanks so much for taking the question. You talk a lot in the slide deck about what you're trying to build from a flow technology standpoint and then how it interacts with sort of a proprietary AI stack. I guess what I'm trying to get at is, when you think about some of the product and platform evolution that you want to put in place 24 going into 25, how should we think about the countervailing factors of the investments that have to be made and then the eventual potential for operating margin leverage on the other side of those investments, as well as as you start to get some yield or output from the restructuring efforts deeper into 25.

Eric Sheridan: Thanks so much for taking the question. You know, you talk a lot in the slide deck about what you're trying to build from a flow technology standpoint and then how it interacts with sort of a proprietary AI stack. I guess what I'm trying to get at, when you think about some of the product and platform evolution that you want to put in place 24 going into 25, how should we think about the countervailing factors of the investments that have to be made and then the eventual potential for operating margin leverage on the other side of those investments, as well as as you start to get some yield or output from the restructuring efforts deeper into 25? Thanks so much.

David Longo: Thanks so much. Yeah, hi, thanks. This is David.

Eric Sheridan: Yeah, hi, thanks. This is David.

David Longo: As we kicked off the restructuring,

David Longo: Going towards that guiding light of a 30% adjusted even margin and 100% of free cash flow. Those expenses that we refer to that we've taken out of the P&L, the $40 to $50 million of next year's non-GAAP savings, those are taking into consideration the programs that we need to get done in order to build the product experience as Nathan had outlined in his vision. And, you know, we're certainly not going to shortchange the business for the investments that we need to make.

Speaker Change: During June , it was really going towards that guiding light of a 30% adjusted even margin and 100% of free cash flow.

Speaker Change: The expenses that we refer to, that we've taken out of the P&L, the $40,000...

Speaker Change: to $50 million of next year non-GAAP savings. Those are taking into consideration the programs that we need to get done in order to build the product experience as Nathan had outlined in his vision, and we're certainly not going to shortchange the business for the investments that we need to make.

David Longo: Some of the stuff that we're doing is re-platforming some of our back office functions. So we've baked in the expenses that we'll need this year to get us ready for next year, so we can start realizing those. And then as the enrollment season comes through and the back half of the year plays out, we'll have a bunch of different scenarios for how we will, you know, fully operationalize that goal. So we have a range of outcomes that could happen, but none of which we would foresee ourselves needing to shortchange the investments we need to make to get there.

Speaker Change: Some of the stuff that we're doing is re-platforming some of our back office functions. So we've baked in the expenses that we'll need this year to get us ready for next year so we can start realizing those.

Speaker Change: And then as the enrollment season comes through and the back half of the year.

Speaker Change: We'll have a bunch of different scenarios for how we will, you know, fully operationalize towards that goal. So we have a range of outcomes that could happen, but, you know, none of which we would foresee ourselves needing to shortchange the investments we need to make to get there.

David Longo: Hopefully, that helped.

Speaker Change: Hopefully that helps.

Operator: Thank you. The next question is from Josh Baer with Morgan Stanley. Please go ahead.

Speaker Change: Thank you very much.

Speaker Change: Thank you. The next question is from Josh Baer with Morgan Stanley . Please go ahead.

Josh Baer: Great, thanks for the question. I was hoping you could provide a little bit of extra color on the Q3 EBITDA margin guide. I know seasonally it's a low point as far as quarters in the year, but I think the guide implies 15%, which is a pretty big step down. Just wondering if there's anything else to highlight there.

David Longo: Yeah, hi Josh. It's definitely the roughest quarter for us, and we have a pretty fixed cost base that runs throughout the entirety of the year. And the restructuring efforts have really not fully kicked in, and we'll really fully utilize those through the P&L next year. When we initially talked about the restructuring, we thought it would materialize a little bit quicker, but some of the stuff that we're doing, some of the big pull items, closing offices, replatforming technology, those just take a while for us to work their way through our P&L, so the office closures, one It gives us some time to transition and wean ourselves through that. But it really comes down to that, the fixed costs that take a while for us to restructure out and align ourselves for next year.

Speaker Change: Yeah, Josh

Speaker Change: It's definitely the roughest quarter for us.

Speaker Change: We have a pretty fixed cost base that plays through, you know, throughout the entirety of the year, and the restructuring efforts have really not fully kicked in, and those will, you know, will really...

Speaker Change: We will be doing a lot of work on the P&L next year. When we initially talked about the destruction, we thought it would materialize a little bit quicker. But some of the stuff that we're doing, some of the big pull items,

Speaker Change: Closing offices, replatforming technology, those just take a while for us to work their way through our P&L, so the office closures, one of the big ones, won't happen until the end of the year. It gives us some time to transition and wean us.

Speaker Change: It really comes down to that, the fixed costs that take a while for us to restructure out and align us for next year.

Josh Baer: Okay, got it. And then just a follow-up, kind of considering the fixed cost base and some of those comments, when you look out to some of the targets for 2025, around 30% EBITDA margin, and $100 million, at least in free cash flow, if the top line comes in lighter than your expectations, does that mean that you'll take further action in order to defend the 30% EBITDA and $100 million in free cash flow?

Speaker Change: Okay, got it. And then just to follow up, kind of considering the fixed cost base and some of those comments, when you look out to some of the targets for 2025, around 30% EBITDA margin and $100 million,

Speaker Change: at least in free cash flow. If the top line comes in lighter than your expectations, does that mean that you'll take further action in order to defend the 30% EBITDA and 100 million in free cash flow? Thanks.

David Longo: Sure. That's right. So.

David Longo: That's right. So, the, uh...

David Longo: The target is static, but the steps that we would take to get there, we can certainly make some adjustments as we go. We gave ourselves some, you know, some headroom to get to those numbers in case, you know, the top line doesn't materialize as things run. As I mentioned in the prior question, there are a bunch of scenarios for how the top line and the business shakes out into 2025. And, you know, by the time we get to the beginning of 2025, we'll have a lot more visibility into how many subscribers we enter the year with and then, you know, can recalibrate from there. But we, you know, it's not just sort of one model that we've set and forgotten; we'll actively manage toward that and, you know, leading into 2025 and then throughout 2025.

Speaker Change: That's right. So, the...

Speaker Change: The target is static, but the steps that we would take to get there, we can certainly make some adjustments as we go. We gave ourselves some...

Speaker Change: some headroom to get those numbers in case, you know, the top line doesn't materialize as things run, as I mentioned in the prior question, there's a bunch of scenarios for how

Speaker Change: How the top line, how the business shakes out into 2025. And, you know, we'll, by the time we get to the beginning of 2025, we'll have a lot more visibility into how many subscribers we're entering the year with.

Speaker Change: And then, you know, can recalibrate from there. But we, you know, it's not just sort of one model that we've set and forget. You know, we'll actively manage towards that and, you know, leading into 25 and then throughout 25.

Speaker Change: Okay, thanks.

Operator: The next question is from Ryan MacDonald with Needham and Company. Please go ahead. Hi, thanks for taking the time.

Speaker Change: Thank you. The next question is from Ryan MacDonald with Needham and Company. Please go ahead.

Ryan Macdonald: Hi, thanks for taking my questions. I was wondering if you could expand a bit upon the subscriber count for the second quarter and sort of the step down we saw from Q1 to Q2. It seems like a bit of a larger step down seasonally relative to years past when we look at Q1 to Q2. Can you just talk about whether there were any sort of changes in user behavior or subscriber behaviors this year relative to years past and how that's sort of guiding your thoughts about the second half of this year?

Ryan Macdonald: Hi, thanks for taking my questions. I was wondering if you could expand a bit upon the subscriber count in second quarter and sort of the step down we saw from Q1 to Q2. It seems like a bit of a larger step down seasonally relative to years past when we look at Q1 to Q2.

Speaker Change: Can you just talk about if there were any sort of changes in user behavior or subscriber behaviors this year relative to years past and how that's sort of guiding your thoughts about the second half of this year?

David Longo: Yeah, hi, this is David. I think it's the functionality of the subscription map that we talked about before entering each period with a certain number of subscribers. And then as you add to those, when subscribers turn out, It's just you got to refill that funnel and refill that base.

David Longo: Hi, this is David.

Speaker Change: I think it's that the functionality of the subscription map that we've talked about before is entering each period with a certain number of subscribers and then as you add to those when subscribers turn out.

Nathan Schultz: All I'll add to that is we fully recognize that over the last couple of quarters, as David mentioned in the description map, that the conversion rate for what we're shooting for is not what we have today. We have a very well-researched product vision. We're building towards that product vision right now. We're starting with that marketing program that we've outlined a couple times now on the call to rebuild that top of the funnel. And as we get kids on top of the funnel, provide them with stronger value props to acquire.

Speaker Change: It's just, you've got to refill that funnel and refill that base.

Speaker Change: All I'll add to that is we fully recognize that over the last couple of quarters, as David mentioned on the description map, that the conversion rate for what we're shooting for is not what we have today. We have a very well-researched product vision. We're building towards that product vision right now.

Speaker Change: We're starting with that marketing program that we've outlined a couple of times now in the call to rebuild that top of funnel, and as we get kids in the top of funnel, provide them with stronger value props.

Nathan Schultz: It's just going to take some time to get us back on that right path. And we're excited about the upcoming new semester, but it's a tough one, as we talked about, to predict. But we're excited for the future. We've got the plan, and we've got the team. And we've got the investment necessary, we believe, to get it done.

Speaker Change: , and David . We are excited about the upcoming semester, but it is a tough one as we talked about to predict. But we are excited for the future. We have the plan and we have the team and we have the investment necessary to get it done.

Ryan Macdonald: Helpful, Cole, thanks. Maybe as a follow-up on the international rollout; great to see the fully localized app in Mexico being rolled out by the end of September. How should we think about the pace of the additional localizations or full localizations, as we think about and move into 2025? Now that you're going to have this sort of this first one out at the end of September? A great, great question. Good to remind all of us of that.

Cora: Helpful, Cora, thanks. Maybe as a follow-up, on the international rollout, great to see it fully localized.

Speaker Change: How should we think about the pace of the additional localizations or full localizations as we think about and move into 2025 now that you're going to have sort of this first one out at the end of September here?

Nathan Schultz: Great question. It's good to remind all of us that we're really hunkering down on six key markets, which we've talked about a couple of times. Canada, Australia, the United Kingdom, Turkey, South Korea, and Mexico. Mexico is the first one. Just to be clear, we're fully localizing on the web first, and then we'll continue to push stuff natively as well. So both experiences will be fully done. That's all happening this year, this September.

Speaker Change: Great, great question. Good to remind all of us that we're really hunkering down on six key markets.

Speaker Change: which we've talked about a couple times, Canada, Australia, United Kingdom, Turkey, South Korea, Mexico. Mexico is the first one. Just to be clear, we're fully localizing on the web first, and then we'll continue to push stuff.

Speaker Change: Natively as well. So both experiences will be fully done. That's all happening this year, this September . Localization for us, the cultural linguistic stuff is

Nathan Schultz: Localization, for us, the cultural and linguistic stuff is first, and then obviously, we continue with that user experience as we continue to build more functions. You're going to see Mexico in this second half. Based on performance, we'll continue to figure out at what speed we want to either add countries or continue to localize on the other experiences. We have already done stuff in Turkey and South Korea on the marketing funnels, and on the conversion funnels in the past. Mexico is a step up in terms of its full localization capabilities. We really want to take an approach where we can get a defined playbook and then, with certainty, know how to roll it out.

Speaker Change: [inaudible]

Speaker Change: Smack Second Half.

Speaker Change: Based on performance, we'll continue to figure out at what speed we want to either add countries or continue to localize on the other experiences. We have already done stuff in Turkey and South Korea on the marketing funnels, on the conversion funnels in the past, so Mexico is a step up in terms of its full localization capabilities.

Speaker Change: And we really want to take an approach where we can get a defined playbook and then with certainty know how to roll it out.

Speaker Change: Unknown Executive, Kunal Madhukar, David Longo, Nathan Schultz, Chegg

Operator: Ryan, does that answer your question? Yes, thank you. Thank you. The next question is from Brian Peterson with Raymond James. Please go ahead.

Speaker Change: Ryan, does that answer your question?

Ryan: Yes, thank you.

Ryan: Thank you.

Speaker Change: The next question is from Brian Peterson with Raymond James. Please go ahead.

Jessica Ong (on behalf of Bryan Peterson): Hi, this is Jessica Ong for Bryan. I'm sort of following up on an earlier question. I just want to know a little bit about how exactly the restructuring plan is affecting your workforce and how that influences your international strategy and marketing aspects.

Jessica Ong: Hi, this is Jessica Ong for Bryan. Sort of following up on our earlier question, I just want to know a little bit about how exactly is the restructuring plan, do you see that influencing like your workforce and how that influences your international strategy and marketing aspect you have there?

Jessica Ong (on behalf of Bryan Peterson): A little choppy, but I think I heard a restructuring plan and the workforce. Unknown Speaker 1. Yes. Unknown Speaker 2.

Speaker Change: A little choppy, but I think I heard a restructuring plan in workforce.

Jessica Ong (on behalf of Bryan Peterson): I just want to double-click a little bit on how executive restructuring has influenced the workforce you have for your international outreach and strategy there.

Speaker Change: I just want to double click a little bit on how exactly the restructuring has influenced the workforce you have for your international outreach and strategy there.

Nathan Schultz: I mean, let me speak first about the domestic workforce. I think it's important after restructuring and, you know, one of our key initiatives is to make sure we continue to retain top talent at Chegg. Obviously, the mission here is something that drives a ton of people and the reason why we're so indebted to what we're doing. Chegg, both domestically and internationally, sits at this pretty amazing intersection between education and technology and honestly presents, you know, one of our employees with one of the largest platforms in the world to demonstrate the innovations that can be gained by putting the student first and applying technology, high-level, high-value Whether that's domestic or international, we plan on just continuing to apply that methodology and continue to see that we believe our results will continue to get better.

Speaker Change: Let me speak first domestically on workforce. I think it's important after restructuring.

Speaker Change: One of our key initiatives is to make sure we continue to retain top talent at Chegg. Obviously, the mission here is something that drives a ton of people and the reason why we're so indebted to what we're doing.

Speaker Change: Both domestically and internationally, it sits at this pretty amazing intersection between education and technology and honestly presents one of our employees with one of the largest platforms in the world to demonstrate the innovations that can be gained by

Speaker Change: Putting the student first and applying technology, high-level, high-value curriculum, efficacious instruction into a single platform.

Speaker Change: Whether that's domestic or international, we plan on just continuing to apply that methodology and continue to see that we believe our results will continue to get better.

Jessica Ong (on behalf of Bryan Peterson): And also, a follow-up question is, as you continue to develop and roll out your AI platform, how has this influenced your competitive position in the market? Are you seeing evolution in the kind of players you're competing against? Thanks.

Speaker Change: Great. And also, a follow-up question is, as you continue to develop and roll out your AI platform, how has this influenced your competitive position in the market? Are you seeing evolution in the kind of players you're competing against? Thanks.

Nathan Schultz: What's really important that we think about is how do we support students the best we possibly can? I said this in my prepared remarks, that we're not just trying to apply, you know, AI to education, or really, we're really, we're really trying to make AI the

Speaker Change: What's really important that we think about is how do we support students the best we possibly can. I said this in my prepared remarks.

Speaker Change: The link is in the discussion section of what. The know-how that we've noticed that we're not just trying to apply A.I. to education. We're really trying to make A.I. that will apply A.I. in a way that makes education better for students. No, it's not expanding in my competitive set, but in what we're really pushing is how do we

Nathan Schultz: that will apply AI in a way that makes education better for students. And so, no, it's not expanding on my competitive set, but what we're really pushing is how do we sit at a point where we can leverage all of the innovations that are coming out from AI, whether it's from our own proprietary models, it's from other foundational models, or if the combination of the both is really what we're focused on, is how do we apply AI in a way that enhances education and the value it Once we have that, it's really about getting that value proposition out into the hands of students and really clearing out what the value is that can be derived from it.

Speaker Change: Sit at a point where we can leverage all of the innovations that are coming out from AI, whether it's from our own proprietary models.

Speaker Change: and some other foundational models, or it's a combination of the both.

Speaker Change: It's really what we're focused on is how do we apply AI in a way that enhances education and the value it can drive to students. Once we have that, it's really about getting that value prop out into the hands of students and really clearing out what the value is that can be derived from it.

Speaker Change: Got it. Thanks.

Operator: The next question is from Devin Au with KeyBank Capital Markets. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question is from Devin Au with KeyBank Capital Markets. Please go ahead.

Devin Au: Hey, thanks for taking my questions here. I really appreciate the added disclosures.

Devin Au: Hey, thanks for taking my questions here. I really appreciate the added disclosures. I wanted to ask about subscription services ARPU in the US and international.

Devin Au: I wanted to ask about subscription services ARPU in the US and international. Seems like the price differential between U.S. and international is around 50 percent. I know it's only one quarter of beta, but I also acknowledge that you guys are rolling out more localization efforts in Mexico and you're doing some price testing in the U.S., but just curious if that 50 percent level of price gap between the two is a sustainable level in the near term? Just how should we think about that?

Speaker Change: It seems like the price differential between U.S. and international is around 50%.

Speaker Change: I know it's only one quarter of data, but I also acknowledge that you guys are rolling out more localization efforts in Mexico, and you're doing some price testing in the U.S., but just curious if that 50% level of price gap between the two, is that a sustainable level in the near term? Just how should we think about that?

David Longo: Yeah. Hi Devin. It's David.

David Longo: Yeah. Hi, Devin. It's David.

David Longo: Yeah, I think the international versus US, we'll definitely see international ARPU at lower levels, even as we...

David Longo: And yeah, I think international versus US ARPU will definitely see international ARPU at lower levels, even as we get better product market fit in the six years that we're going after. As we did our promotional pricing last year, we found that we absolutely gained better traction and conversion at lower price points because of the purchasing power parity compared to the US dollar. And thankfully, with our automated solutions rollout and our further integration of AI, we can serve those customers still profitably, bringing in a lower ARPU.

David Longo: Get better product market fit in the six geos that we're going after. As we did our promotional pricing last year, we found that we absolutely gained better traction and conversion at lower price points because of the purchasing power parity compared to the US dollar.

David Longo: Thankfully, with our automated solutions rollout and our further integration of AI, we can serve those customers still profitably.

David Longo: Also, in the US, we do historically have better ARPU, excuse me, better retention in the US. So it's like a double whammy there where you get customers staying longer and paying a higher price point than what we have historically seen in international markets.

David Longo: Bringing in a lower...

David Longo: Also in the U.S. we do historically have better ARPU, excuse me, better retention in the U.S. So it's like a double whammy there where you get customers staying longer paying a higher price point than what we have historically seen in international.

Devin Au: Got it. That's helpful. That's all I have. Thank you.

Speaker Change: Guys, that's helpful. That's all I have. Thank you.

Operator: Thank you. There are no further questions at this time. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: Yeah, sure.

Speaker Change: Thank you. There are no further questions at this time. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: [inaudible] Marching band

unknown: Joshua Baer, Daniel Rosensweig, Brian Peterson, Andrew Brown, Douglas Anmuth, Daniel Rosensweig, Brian Peterson, Nathan Schultz, Chegg Ford, David Longo, Nathan Schultz, Chegg Ford

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