Q4 2024 Chegg Inc Earnings Call
Yeah.
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Thank you.
Greetings, and welcome to the Chegg Incorporated 4th 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, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded.
Any forward looking statements that we make today are based on assumptions that we believe to be reasonable as of this date, we undertake no obligation to update these statements as a result of do information or future events.
During 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. We also recommend you review the Investor data sheet, which is also posted on our IR website.
Nathan: Now I will turn the call over to Nathan.
Nathan: Thank you Tracy Hello, everyone and thank you for joining checks fourth quarter earnings call.
Nathan: Before I cover our twice daily for our accomplishments in 2025 focus I wanted to make sure. The two announcements we are making are clear first we announced we are undertaking a strategic review process exploring a range of alternatives to maximize shareholder value.
Nathan: <unk> being acquired undertaking a go private transaction or remaining as a public Standalone company.
Nathan: Second we announced the filing of a complaint against Google LLC and alphabet, Inc. These two accidents are conducted as we would not need to review strategic alternatives, if Google hadn't launched AI overviews or retraining retaining traffic that historically has come to chegg materially impacting our acquisitions revenue and employees.
Nathan: Chegg has a superior product for education as evident by our brand awareness engagement and retention. Unfortunately traffic is being blocked from ever coming to check because of Google's AI al.
Okay.
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Nathan: And their use of checks content to keep visitors on their own platform, we retained Goldman Sachs.
Nathan: The adviser in connection with the Chi Jerk review is suffering Godfrey with respect to our complaint against Google.
Nathan: As he educates education industry at large continues to transform chegg has strengthened its commitment to serving students with a clear focus on those seeking to build knowledge achieved success of longer academic journey.
Nathan: Through focused investment over the past year and the integration of cutting edge technologies, we have advanced the chegg product offerings to deliver a comprehensive personalized and vertical is learning experience for higher education.
Nathan: Today provides precisely what learners need ensures that chegg mean maintained a strong reputation for quality.
On technology in 'twenty 'twenty, four we integrated AI and machine learning into our product stack, we blended third party models with our proprietary student focused data and high quality content delivering more value to alert.
Nathan: We are AI model agnostic seamlessly incorporating new frontier models like Lama Anthropic mixed roll G. P T and new models as they become available.
Nathan: We use techniques like a b testing multishot, prompting and retrieval augmented generation to improve how our AI learns retrieves information in real time and delivers consistent results with this work complete we are now building vertical applications for.
Nathan: Our education at a fraction of the time and cost while also increasing our level of personalization.
Nathan: I mentioned before our implementation of machine learning and multiple AI models have significantly reduced the cost of creating concept by more than 70%, while keeping our quality high standards. James expect we standby our quality of our content. So much that in Q3, we implemented satisfaction guarantee.
Nathan: Branded marketing last fall, we launched an innovative brand marketing campaign and activation program that reinvigorated top of funnel traffic, bringing strong consideration, bringing in new users and ultimately driving conversion as a result of a full funnel program, we've seen year over year improvements in click through and conversion rates leading.
Nathan: Got to double down on this commitment in 2025 with regard to tick tock, specifically, we were able to able to capture a 16% increase in awareness among underclassman.
Nathan: On the product we are significantly advanced and differentiated AI powered questioner asked her experience at the front end, we have simplified the question submission process allowed for more natural inputs and interaction learners now instantly receive step by step explanation and reinforcement adaptive and personalized based on their individual strengths and weaknesses.
Nathan: Only a conclusion check proactively offer students a variety of unique recommendations called next next best actions to reinforce and further their learning. These product upgrades resulted in 66% more questions being asked in 'twenty 'twenty four versus 2023.
Nathan: Adding nearly 26 billion of additional solutions to our archive it contributing to a 15 basis point increase in subscriber retention over the course of the year.
Nathan: Finally, I want to touch on our language learning service, which has done a tremendous job transitioning to a freemium business model and integrating AI as a key product feature with the introduction of that speaking practice the strategic refocus increased the first 30 day conversion rate to paying customers by 31% and led to a nine.
Nathan: The year over year revenue growth for 'twenty 'twenty four a trend we expect to continue in 2025.
Nathan: The enterprise part of this business is performing very well with revenue up 46% in 'twenty 'twenty four as we added an impressive set of enterprise customers, including total energy and care for the enterprise business will continue to expand with additional organizations reseller relationships and our successful partnership with Guild, specifically within their English language.
Nathan: Category.
Nathan: While we have made significant headway on our technology product and marketing programs 'twenty 'twenty four came with a series of challenges, including the rapid evolution of the content landscape, particularly the rise of goodbye.
Nathan: Which as I previously mentioned.
Profound impact on checks traffic revenue and workforce.
Nathan: I already mentioned, we are filing a complaint against Google and alphabet, Inc. In the U S District Court for the district of Columbia, making three main arguments.
Nathan: First is reciprocal deal it meaning that Google forces companies like Chegg to supply our proprietary caused that in order to include Google search function second as monopoly maintenance or that Google unfairly exercises its monopoly power within search and other anti competitive conduct to muscle out companies like check and third.
Nathan: Just in Richmond, meaning Google is reaping the financial benefits of Chegg content without having to spend it on.
Nathan: That'd be allowed to our complaint Google's aio is transformed Google from a search engine into an answer engine displaying AI generated content sourced from third party sites like check Google's expansion of a O forces traffic to remain on Google eliminating the need to go to third party content source sites the impact on check.
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Nathan: This is clear our non subscriber traffic plummeted to negative 49% in January 2025 down significantly from the modest 8% decline we reported in Q2 of 'twenty 'twenty four.
Nathan: We believe this isn't just about check it's about students, losing access to quality step by step learning in favor of low quality unverified AI summaries, it's about the digital publishing industry, it's about the future of Internet search.
Nathan: In summary, our complaint challenge is google's unfair competition, which is unjust harmful and unsustainable. While these proceedings are just starting we believe bringing this lawsuit is both necessary and well founded.
Nathan: Well the challenges we outlined what persists we are focused on the clear goal of stabilizing the business through the course of 2025.
Speaker Change: We are driven by the core belief that the relevancy and need for comprehensive student success platforms offering an adaptive personalized the experience support learning will only increase over the coming years administrators and faculty are acknowledging the need to change their teaching and teaching models assessments to better reflect the normalized environment. We're now in.
Speaker Change: The dramatic disruption that came with the largest generative AI plot force has started to stabilize as schools now understand the significant risk.
Speaker Change: An impact of students G P T their way through their educational journey.
Speaker Change: As he was widely supported by some recent studies first a study from the American Association of colleges and universities and you know what I'm University explore the impact of Jared.
Speaker Change: An academic integrity with 92% of faculty worried about AI undermining deep learning by overreliance on AI schools, and 95% of these leaders, saying the teaching models after school will be affected significantly or to some degree by generally they are.
Speaker Change: The latest edition of checks global students survey measured the insides of nearly 12000 undergraduate students in 15 countries 53 per cent of undergraduate students who have used here at AI voice concerns about receiving incorrect or inaccurate information.
Speaker Change: Third we conducted proprietary research.
Speaker Change: Pursuing it and learned that at least 82% of the U S College students once more than what G. P. T offers these students needs to develop knowledge not just get grab and go answers. So as 2025 gets underway, here's where we're leaning it in 2025 on brand and marketing we are continuing to raise brand.
Speaker Change: Awareness and improved conversion rates in January we debuted our get a grip brand campaign, featuring our new amazing mascot AC octopus physical representation of Chegg allows us.
Speaker Change: To connect with our audience in a fun way clearly conveying how we are on in bytes inside throughout the semester. In addition, we are continuing our expansion into new media channels, including streaming platforms like Hulu and Youtube social channels like discordant Twitch. We also launched live office hours on social media channels to provide.
Speaker Change: Students with instant live horse specific construction, we aim to provide an interactive community based learning opportunity, while introducing our brand and value to new users. Our goal is to have more than 1.5 million students a tender of live programming. This year diversification is key to foundries, Nancy and taking full final approach is necessary to make.
Speaker Change: <unk> sure we bring in the right traffic and re grow our customer acquisitions.
Speaker Change: In 2025 on products, we are building experience experiences worthy of morality in acquisition growth and retention and making these experiences as university of available as possible.
Speaker Change: Firstly solutions Scout, our new products, we launched earlier this month as I mentioned earlier students lack trust in January with AI, and <unk> and they've told us that they they're spending too much time, triangulating compare comparing and verifying solutions across multiple platforms.
Speaker Change: This resulted this results in an incredible amount of wasted time that could be spent learning solutions scout allows students to see side by side answers of multiple L. L. M. Along chegg solution, but what's most important is that chegg through our proprietary technology can compare and contrast, the solutions, providing students and massive time saved and valley.
Speaker Change: And our early indications are very positive.
Speaker Change: We're also excited to launch an updated feature set for practice and exam preparation personalized to each student 71% of students report that they do not have adequate practice resources when preparing for exams and shaken help coach each student to confidence monthly our platform collects more than 3 billion Dana interaction points.
Speaker Change: Which enables us to customize and personalize that experience along with our personalization students can change the difficulty in format of questions. What do they want to learn via flashcards multiple choice of word problems. She didn't see the gain competency in their studies and practice tailored specifically to their individual strengths or weaknesses is how they will do it.
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Speaker Change: This is a check that exist right now are older platform is simple we want students to thrive we want students to have a wild moment with Chet while chegg is not just the grab and go answer about Chegg is not just generally about January they are.
Speaker Change: Wow moment is when a student realizes chegg understands me and my specific needs and as a platform I can use every day to succeed in my education educational journey.
Speaker Change: Just one moment is what will unlock our ability to stabilize our business.
Speaker Change: Finally on the expansion of our business model in 2025, and I want to touch on our enterprise strategy, which enables us to diversify and generate recurring revenue streams.
Speaker Change: We're continuing to expand our business institution pilot program, which began in late 2024.
Speaker Change: Five pilot programs active we hope to work with approximately 35 institutions by the end of the year.
Speaker Change: There is a tremendous opportunity to support a broader range of students in achieving their academic goals and increased persistence and graduation rates, which is a major issue in higher education today.
Yeah.
Speaker Change: Greetings and welcome to the Chegg incorporated fourth quarter 2024 earnings Conference call. At this time, all participants are in a listen only mode.
Speaker Change: Early receptivity and positive feedback back on how these pilots are already helping students and hope to move a number of them into full campus wide implementation by the end of the year.
Speaker Change: A question and answer session will follow the formal presentation. If any much require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference call is being recorded.
Speaker Change: Before I hand, it over to David I want to summarize what's most important from today's call. We announced that we are undertaking a process to review strategic alternatives and we filed a complaint against Google. In addition to this here are the keys to our 2025 strategy to stabilize our business.
My pleasure to introduce Tracey Ford with Investor Relations. Thank you you may begin.
Speaker Change: Number one build brand awareness drive more qualified traffic and increased conversion rates he'd ever to expand our product set to offer unique solutions for students that increases the frequency of use and create a clear and differentiated value for check he'd ever three diversify our revenue streams with business to institutional programs.
Speaker Change: Good afternoon. Thank you for joining Chegg fourth quarter 2024 conference call on.
Speaker Change: On today's call are Nathan Scholtes, 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 Dot com.
Speaker Change: Other enterprise offerings.
Speaker Change: We continue to have a strong and trusted brand customer base of millions of global subscribers, a large market opportunity and an amazing employees to get the job done. We believe 2025 will mark a turning point for check with that I'll turn it over to David.
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 Dot Com Slash Media Center, we encourage you to make use of these resources.
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.
David: Thank you Nathan and good afternoon.
David: I will be presenting our financial performance for the fourth quarter of 2024, along with the company's outlook for the first quarter of 2025.
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.
David: We delivered a solid fourth quarter, surpassing our Q4 guidance for both revenue and adjusted EBITDA.
While navigating industry challenges, we remain laser focused on executing our strategic plan enhancing our product market fit and continuing to prudently manage our expenses well.
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 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 for the year ended December 31st.
David: We remain on track to achieve 2025, non-GAAP savings of $100 million to $120 million from our previously announced restructuring activities. Additionally, we strengthened our balance sheet by repurchasing $117 million of our 2026 convertible notes at a significant discount.
Speaker Change: 2024 to be filed with the Securities Exchange Commission as well as our other filings with the U S. T C L.
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 do information or future events.
David: In the fourth quarter total revenue was $143 $5 million, a decrease of 24% year over year.
David: This includes subscription services revenue of $128 $5 million down 23% year over year.
Speaker Change: 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 Doc Chegg Dot Com. We also recommend you review the Investor data sheet, which is also posted on our IR website.
We had $3 6 million subscribers during the quarter, representing a decline of 21%.
David: Subscription services are to decrease by 3% year over year, primarily driven by a temporary dip in our monthly retention rate in November and December which has since returned to historical norms.
Nathan Scholtes: Now I will turn the call over to Nathan.
Nathan Scholtes: Thank you Tracy Hello, everyone and thank you for joining checks fourth quarter earnings call.
David: Skills and other revenue was $14 $9 million down 31% year over year.
Nathan Scholtes: Before I cover our 2024 accomplishments in 2025 focus I want to make sure. The two announcements we are making are clear first we announced we are undertaking a strategic review process exploring a range of alternatives to maximize shareholder value, including being acquired undertaking a go private transaction or remaining as a public standalone.
David: Due to the market shift away from traditional boot camps to lower cost short form programs and a decline in advertising revenue from reduced traffic concessions across our platform.
David: We delivered adjusted EBITDA of $37 million, representing a margin of 25%.
Nathan Scholtes: Yeah.
Nathan Scholtes: Second we announced the filing of a complaint against Google LLC and alphabet, Inc.
David: As mentioned earlier in the fourth quarter, we opportunistically repurchased $116 $6 million in aggregate principal amount of our 2026 convertible notes and a $20 million discount to par.
Nathan Scholtes: To access are conducted as we would not need to review strategic alternatives, if Google hadn't launched AI overviews or retraining retaining traffic that historically had come to chegg materially impacting our acquisitions revenue employees.
David: Free cash flow for the fourth quarter was $4 8 million, despite incurring approximately $25 million in cash outlays related to employee severance from our T restructuring in which we laid off more than 700 employees as well as the Pearson legal settlement.
Nathan Scholtes: <unk> has a superior product for education as evident by our brand awareness engagement and retention. Unfortunately traffic is being blocked from ever coming to check because of Google's AI al.
Nathan Scholtes: And their use of chegg content to keep visitors on their own platform, we retained Goldman Sachs.
David: As anticipated, we expect another $11 million in cash restructuring payments with a significant portion to be incurred in Q1.
Speaker Change: The adviser in connection with Cedric review, Southern Godfrey with respect to our complaint against Google.
David: Capital expenditures for the quarter were $13 million down, 52% year over year of which $8 $7 million or content costs.
Speaker Change: As he educates education industry at large continues to transform chegg has strengthened its commitment to serving students with a clear focus on those seeking to build knowledge achieved success of longer academic journey.
David: Leveraging the power of AI capex content costs have decreased 56% year over year, while the number of questions asked increased 2%.
Speaker Change: Through focused investment over the past year and the integration of cutting edge technologies, we have advanced the chegg product offerings to deliver a comprehensive personalized and vertical wise learning experience for higher education.
David: Looking at the balance sheet, we concluded the quarter with cash and investments of $528 million and a net cash balance of $42 million.
Speaker Change: Today provides precisely what learners need ensures that checkmate <unk> maintained a strong reputation for quality.
Looking ahead as Nathan detailed earlier, we have an exciting and ambitious agenda for our product and marketing in 2025. However.
Speaker Change: On technology in 'twenty 'twenty, four we integrated AI and machine learning into our product stack, we blended third party models with our proprietary student focused data and high quality content delivering more value to alert.
David: However, as we work towards realizing the benefits of these initiatives and just see challenges are causing a notable decline from traffic and subscriber acquisitions.
Speaker Change: We are AI model Ignostic seamlessly incorporating new frontier models like Lama Anthropic mixed roll G. P T and new models as they become available.
David: These factors are putting pressure on our business and impacting our financial outlook.
David: For Q1 guidance, we expect total revenue between 114 and $116 million with subscription services revenue between 104 and $106 million.
Speaker Change: We use techniques like a b testing multishot, prompting and retrieval augmented generation to improve how our AI learns retrieves information in real time and delivers consistent results with this work complete we are now building vertical applications for education at a fraction of the time and cost while also increasing our level.
David: Gross margin to be in the range of 66% to 67% and adjusted EBITDA between 13 and $14 million.
Speaker Change: Conversation.
David: In closing despite the ongoing industry challenges that are putting pressure on our financial performance. We made significant progress in 2024 by building technology, integrating AI and enhancing products all while prudently managing expenses.
Speaker Change: I mentioned before our implementation of machine learning and multiple AI models have significantly reduced the cost of creating concept by more than 70%, while keeping our quality high standards. James expect we stand by our quality of our content. So much that in Q3, we implemented a satisfaction guarantee.
David: We enter 2025 with a solid foundation and are focused on stabilizing business trend.
Speaker Change: Unbranded marketing last fall, we launched an innovative brand marketing campaign and activation program that reinvigorated top of funnel traffic, bringing strong consideration, bringing in new users and ultimately driving conversion as a result of our full funnel program, we've seen year over year improvement in click through and conversion rates leading.
David: With that I will turn the call over to the operator for your questions. We respectfully advise that we will not be taking questions related to the Companys strategic review process.
David: Thank you we will now be conducting a question and answer session. She would like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is in the question queue. You May press star to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star cheese.
Speaker Change: A double down on this commitment in 2025 with regard to tick tock, specifically, we were able to able to capture a 16% increase in awareness among underclassman.
Speaker Change: On the product, we are significantly advanced and differentiated.
Speaker Change: AI powered question or your answer experience at the front end, we have simplified the question submission process and allowed for more natural inputs and interactions learner is now instantly receive step by step explanation and reinforcement adaptive and personalized based on their individual strengths and weaknesses.
David: In a moment leupold for questions.
Speaker Change: And our first question comes from Eric Sheridan with Goldman Sachs. Please proceed with your question.
Eric Sheridan: Thanks, so much for taking the question maybe I'll just ask one with respect to the Q1 2025 guidance.
Speaker Change: That conclusion check proactively offer students a variety of unique recommendations called NEC next best actions to reinforce and further their learning. These product upgrades resulted in 66% more questions being asked in 'twenty 'twenty four versus 2023.
Eric Sheridan: I understand if you can unpack a little bit the incremental operating leverage in the business and how we should be thinking about dollar revenue growth and what it can translate into in terms of incremental adjusted EBITDA. When you measure against fixed versus variable costs in the business and or some of the key investment initiatives either brand traffic or product.
Speaker Change: Adding nearly $26 million additional solutions to our archive and contributing to a 15 basis point increase in subscriber retention over the course of the year.
Speaker Change: Finally, I wanted to touch on PC, our language learning service, which has done a tremendous job transitioning to a freemium business model and integrating AI as a key product feature with the introduction of speaking practice the strategic refocus increased the first 30 day conversion rate to paying customers by 31% and led to a nine.
Eric Sheridan: Did you see is pretty critical to make in 2025. Thanks so much.
David: Yeah. Thanks. So this is David Thanks for your question.
Speaker Change: Yeah are you know our model ends up being super efficient in terms of the gross margin falling directly to the bottom line so far.
Speaker Change: The year over year revenue growth for 2020 for a trend we expect to continue in 'twenty three the enterprise part of this business is performing very well with revenue up 46% in 'twenty 'twenty four as we added an impressive set of enterprise customers, including total energy and care for the enterprise business will continue to expand with additional.
David: Overall.
David: Excuse me.
David: Uh huh.
David: If we added an incremental million worth of sales I think we're dropping 900 carrier that is to the bottom line.
David: It's super efficient.
David: And in that sense.
Speaker Change: Organisations reseller relationships and our successful partnership with skilled specifically within their English language learning category.
David: And then on the.
On the investment side for the all the product initiatives that we have.
Speaker Change: While we have made significant headway on our technology product and marketing programs 'twenty 'twenty four came with a series of challenges, including the rapid evolution of the content landscape, particularly the rise of goodbye.
David: And in the first half of the year, we're rolling out the.
David: The comparison tool and also the.
David: Excuse me the next best Ashland's tests in practice.
David: What we're.
Speaker Change: Which as I previously mentioned.
You know, we're optimistic that that's going to drive.
Speaker Change: Profound impact on checks traffic revenue and workforce.
David: More more engagement more.
David: Higher retention marketing, where we're increasing our funnels.
Speaker Change: I already mentioned, we are filing a complaint against Google and alphabet, Inc. In the U S District Court for the district of Columbia, making three main arguments.
David: To bring traffic back to the site.
David: Which relate to acquisitions in Belgium.
Speaker Change: First is reciprocal deal it meaning that Google forces companies like Chegg to supply our proprietary content in order to be included in Google search function second as monopoly maintenance or that Google unfairly exercises its monopoly power within search and other anti competitive conduct to muscle out companies like check and third is unjust enrichment.
David: Thank you.
Speaker Change: And our next question comes from Ryan Macdonald with Needham <unk> Company. Please proceed with your question.
Ryan Macdonald: Alright, Thanks for taking my questions, maybe just start.
Ryan Macdonald: Curious to hear a bit more about this sort of shift into new revenue streams and sort of the enterprise offerings and business to institution programs. Maybe it was just with the pilot programs you have with the institutions right. Now can you talk about how what the pricing model looks like that is it sort of.
Speaker Change: And Google is reaping the financial benefits of Chegg content without having to spend a dime.
Speaker Change: As the alleged our complaint Google's aio is transformed Google from a search engine into an answer Andrew displaying AI generated content sourced from third party sites like check Google's expansion of a O forces traffic to remain on Google eliminating the need to go to third party content source sites the impact on check.
Ryan Macdonald: The institution sort of paying for access to Chegg, and then sort of like including it a rolling it into tuition or how should we think about how.
These pilot programs kind of great monetization opportunities. Thanks.
Speaker Change: This is clear our non subscriber traffic plummeted to negative 49% in January 2025 down significantly from the modest 8% decline we reported in Q2 of 'twenty 'twenty four.
Nathan: I appreciate the question Nathan.
Nathan: We start back up a bit on the business institution side, just remind everyone. That's program we started last year.
Speaker Change: Oh really for some inbound interest from schools the key solution.
Speaker Change: We believe this isn't just about check it's about students, losing access to quality step by step learning in favor of low quality unverified AI assemblies, it's about the digital publishing industry, it's about the future of Internet search in.
Speaker Change: Solution. They are looking for is around the areas of persistence and graduation, because we all understand the demographics in the U S. We're going to have around 19 by students in the system. The freshman class is going to be about equal size coming in Europe to year, we're dealing with graduation rates that are only in the 60% range.
Speaker Change: In summary, our complaint challenges google's unfair competition, which is unjust harmful and unsustainable volume.
Speaker Change: The proceedings are just starting we believe bringing this lawsuit is both necessary and well founded.
Speaker Change: So you've got students that are falling out of the system.
Speaker Change: Well the challenges we outlined will persist we are focused on the clear goal of stabilizing the business through the course of 2025.
Speaker Change: And that's really.
Speaker Change: Significant issue.
Speaker Change: Particularly when you look at some of the government policy that we're looking at particularly around the college reduction college cost reduction accuracy CRA.
Speaker Change: We are driven by the core belief that the relevancy and need for comprehensive student success platforms offering an adaptive personalized the experience support learning will only increase over the coming years administrators and faculty are acknowledging the need to change their teaching and teaching models assessments to better reflect the normalized environment. We are now.
Speaker Change: We're watching so schools or schools are very interested in how do we serve students as a customer how do we provide them with the right tools and the right services to help them.
Speaker Change: Not only are conquer their academic journey, but also start to acquire skills that theyre going to need.
Speaker Change: The dramatic disruption that came with the largest generative AI platform has started to stabilize as schools now understand the significant risk.
Speaker Change: Leave college together to get a job so very excited about the program. We've got a number of pilots under our belt right now looking to have essentially 35 more pilots throughout the course of this year and more interesting looking to then take those pilots in default campus wide implementation.
Speaker Change: An impact of students GPT in their way through their educational journey with.
Speaker Change: This view is widely supported by some recent studies first a study from the American Association of colleges and universities and you know on the University explore the impact of generative AI on academic integrity with 92% of faculty worried about AI undermining deep learning by overreliance on AI tools and 95% of that.
Speaker Change: The pricing model, it's pretty simple, it's a seat based pricing program.
Speaker Change: We're trying to make sure that we can get every student into the platform and provide fuel for every student. So excited about the early traction we've got they're excited about some of the early early partnerships. We've got going on and we will look to tell you more in future course.
Speaker Change: These leaders, saying the teaching models after school will be affected significantly or to some degree by generally a day at <unk>.
The latest edition of Chegg Global students survey measured the insides of nearly 12000 undergraduate students in 15 countries 53 per cent of undergraduate students who have used hearing with AI voice concerns about receiving incorrect or inaccurate information.
Speaker Change: And our next question comes from Brian <unk> with.
Speaker Change: With J P. Morgan. Please proceed with your question.
Brian: Great. Thanks for taking the questions I guess just to start can you talk about churn throughout the quarter I think you had mentioned.
Brian: Slight dip in in <unk> as well too in November and December. So just curious between RP trends and retention trends and how that may differ versus a subscriber that perhaps could be engaging with the gen AI feature versus the non Jenny I user. Thanks.
Speaker Change: Third we conducted proprietary research our student pursuing it and learn that at least 82% of the U S College students once more than what GPT offers these students needs to develop knowledge not just get grab and go answers. So is 2025 gets underway, here's where we are leaning in.
Brian: Yeah sure. Thanks, Bryan this is David.
Brian: I guess I'll start with the retention, we had a lot going on in this quarter as we rolled out our pricing satisfaction guarantee and.
Speaker Change: In 2025 on branded marketing, we are continuing to raise brand awareness and improve conversion rates and in January we debuted our get a grip brand campaign, featuring our new amazing mascot AC octopus physical representation of Chegg allows us.
Brian: And we were dealing with the traffic.
Brian: Traffic issues that we talked about earlier on the call.
Brian: We did see retention dip in November and early December.
Speaker Change: It connects with our audience in a fun way clearly conveying how we are on and by students side throughout the semester. In addition, we are continuing our expansion into new media channels, including streaming platforms like Hulu and Youtube social channels like discordant Twitch. We also launched live office hours on social media channels to provide.
Brian: We still dissecting a bit on what happened.
Brian: It did return to its historical levels in the back half of December and it has flattened out in January and February.
Brian: So far so we're happy that it's kind of level that it has leveled off to our historical levels.
Speaker Change: Students with instant live core specific construction, we aim to provide an interactive community based learning opportunity, while introducing our brand and value to new users. Our goal is to have more than $1 5 million students a tender a live programming. This year diversification is key to foundries AMC and taking full final approach is necessary to make.
Brian: It was a funky time, yeah. We we were looking at it really closely we never got an exact.
Brian: The answer on it but it could've been.
Speaker Change: Thank you were suggesting there is as users.
Speaker Change: We're playing with other tools and types of things that could have popped in for a shorter period of time or last but it was only four five or six week period. There was some lumpiness with the calendar for when when the final rules came in versus.
Speaker Change: Sure we bring in the right traffic and re grow our customer acquisitions.
Speaker Change: In 2025 on products, we are building experience experiences worthy of morality in acquisition growth and retention and making these experiences as university of available as possible.
Speaker Change: The prior year, because Thanksgiving fell trying to remember now is too much facts that Thanksgiving was later this year than it had been in the year before.
Speaker Change: Firstly solutions Scout, our new products, we launched earlier this month as I mentioned earlier seems to lack of trust in January with AI, and <unk> and they've told us that they are spending too much time, triangulating compare comparing and verifying solutions across multiple platforms.
Speaker Change: So.
Speaker Change: There's a lot going on and we're trying to learn as we go but we're happy that.
Speaker Change: It's back to the levels, we were looking for this year. So thanks, Brian.
Speaker Change: Yeah.
Speaker Change: This resulted this results in an incredible amount of wasted time that can be spent learning solutions scout allows students to see side by side answers of multiple L. L.
Speaker Change: Thank you. Our next question comes from Josh Baer with Morgan Stanley. Please proceed with your question.
Great. Thank you I have a couple on the solution scout.
Speaker Change: Long Chegg solution, but what's most important is that chegg through our proprietary technology can compare and contrast, the solutions, providing students and massive time state and value and our early indications are very positive.
Speaker Change: Wondering if that is the strategy behind that to sort of showcase that chegg solutions are superior from the other L. L EMS or is it more about giving students.
Speaker Change: We're also excited to launch an updated feature set for practice and exam preparation personalized for each student 71% of students report that they do not have adequate practice resources when preparing for exams and shaken help coach each student to confidence monthly our platform collects more than 3 billion Dana interaction points.
Speaker Change: You know choice and a bunch of different options.
Josh Baer: Hey, Josh.
Josh Baer: Yes Nathan.
Nathan: If you ask me, if a little bit of both.
Speaker Change: Part of it one is we wanted to make sure we've always been kind of around this making sure we save students' time.
Nathan: Let me give them tremendous amount of value when we talk to students we see that they are triangulating a much a bunch.
Speaker Change: Which enables us to customize and personalize that experience along with our personalization students can change the difficulty in format of questions why do they want to learn via flashcards multiple choice of word problems. She didn't see the gain competency in their studies and practice tailored specifically to their individual strengths and weaknesses is how they will do it.
Nathan: Trying to think through a number of different sources trying to figure out what the answers are with solutions, our western what youre trying to learn from that.
Nathan: It's a terrible time waste and on top of that as you heard from your prepared remarks about 53% of the cost shifts that we have survey through our global students survey, which covers about 12000 students in 15 countries.
Speaker Change: This is a check that exist right now are older platform is simple we want students to thrive we want students to have a wild moment with Chet while chegg is not just the grab and go answer while Chegg is not just generally about January they are.
Nathan: The overwhelming majority of them are questioning the accuracy.
Nathan: And so we wanted to one saved students time and bring these are as we talked a little bit about our 'twenty to 'twenty four.
Speaker Change: Wow moment is when a student realizes chegg understands me and my specific needs and as a platform I can use every day to succeed in my education educational journey.
Nathan: Allergy investments, we've built a really unique.
Nathan: AI infrastructure that is kind of using multiple multiple language models were.
Speaker Change: This wild moment is what will unlock our ability to stabilize our business.
Nathan: Model agnostic, so we're able to take a question understanding against how chegg answers it understand it against the other frontier models that are out there. So we think that's a really valuable tool for students, but what's most important is that we're able to kind of do some extrapolation on top of that.
Speaker Change: Finally on the expansion of our business model in 2025, I wanted to touch on our enterprise strategy, which enables us to diversify and generate recurring revenue streams.
Speaker Change: We're continuing to expand our business institution pilot program, which began in late 2024.
Nathan: Our results versus someone else results and start to pinpoint for students what the differences or similarities are and really what should what could you be doing next with that question and that's where our like our next best action starts to come into play when we start to drive more and more engagement through that so we're trying to mirror, what we're see college students doing already and naturally.
Speaker Change: With five pilot programs active we hope to work with approximately 35 additional institutions by the end of the year.
There is a tremendous opportunity to support a broader range of students in achieving their academic goals and increased persistence and graduation rates, which is a major issue in higher education today, we've seen early receptivity and positive feedback back on how these pilots are already helping students and hope to move a number of them into full campus wide implementation by the end of the year.
Nathan: Saving them time being a value for them, but also showcasing some of that really proprietary and cool tech that we have and learning science we have.
Speaker Change: Yeah.
Speaker Change: Before I hand, it over to David I want to summarize what's most important from today's call. We announced that we are undertaking a process to review strategic alternatives and we filed a complaint against Google. In addition to this here are the keys to our 2025 strategy to stabilize our business.
Nathan: Yes.
Nathan: Thank you.
Speaker Change: Next question comes from Brian Peterson with Raymond James. Please proceed with your question.
Speaker Change: Hey, this is Jessica onshore Brian I, just wanted to follow up on the prior call. Nick a question about the institutional initiative you have when the schools are coming to you and balance what are some of the key factors that are also considering for our partnership with Chegg and I'm also kind of curious are these institutions, helping you build student awareness of textbook.
Speaker Change: Number one build brand awareness drive more qualified traffic and increased conversion rates he'd ever to expand our product set to offer unique solutions for students that increases the frequency of use and create a clear and differentiated value for check.
Speaker Change: And number three diversify our revenue streams with business to institutional programs and other enterprise offerings.
Speaker Change: Your proposition so it's not just about personalized homework help is also about your partnerships do you have that address the full student life. Thanks.
Speaker Change: We continue to have a strong and trusted brand customer base of millions of global subscribers, a large market opportunity.
Speaker Change: Yes, absolutely I mean, so the primary reason I say that I think I heard the question correctly and I apologize if I didn't.
David Longo: And amazing employees to get the job done we believe 2025 will mark a turning point for check with that I'll turn it over to David.
Speaker Change: These organizations are coming is around the area of persistence and also congratulation right schools need students to persist in order for it seems to continue on and hopefully capture that Gratulation point. So schools are recognizing that students are already using our hosted services.
David Longo: Thank you Nathan and good afternoon.
David Longo: I will be presenting our financial performance for the fourth quarter of 2024, along with the company's outlook for the first quarter of 2025.
Speaker Change: And we could be doing a lot more to go.
David Longo: We delivered a solid fourth quarter, surpassing our Q4 guidance for both revenue and adjusted EBITDA.
Speaker Change: A lot more a lot better of a job to service as soon as if we bring us those services closer to the course and so what I mean, there has been changes in the school are partnering together working together to make sure that our services are kind of tuned for that that institution and for the courses. They are teaching them for their for the student body that is engaging with.
David Longo: They have a gating industry challenges, we remained laser focused on executing our strategic plan enhancing our product market fit and continuing to prudently manage our expenses.
David Longo: We remain on track to achieve 2025, non-GAAP savings of $100 million to $120 million from our previously announced restructuring activities. Additionally, we strengthened our balance sheet by repurchasing $117 million of our 2020 convertible notes at a significant discount.
Speaker Change: So yes, there is a partnership in there that the school is going.
Speaker Change: It is making sure that students are aware of the service and making sure that our services are aligned with it and we're also working very hard to make sure that we're all upholding the academic standards and honor codes of those schools, which is so important to.
David Longo: Yes.
David Longo: In the fourth quarter total revenue was $143 5 million.
Speaker Change: The pathway I think.
Speaker Change: Making sure the assessments in America are authentic and students are really learning the content versus just passing off a grab and go answer that didn't get off the internet.
David Longo: A decrease of 24% year over year.
David Longo: This includes subscription services revenue of $128 $5 million down 23% year over year.
Brent Thill: And our next question comes from Brent Thill with Jefferies. Please proceed with your question.
David Longo: We had $3 6 million subscribers during the quarter, representing a decline of 21%.
Speaker Change: Sure.
David Longo: Subscription services are to decrease by 3% year over year, primarily driven by a temporary dip in our monthly retention rate in November and December.
Brent Thill: Hi, Thanks for Q1 on the guidance.
Brent Thill: Embedding further deceleration in the business and I'm just curious if you can help us understand what I mean.
David Longo: Return to historical norms.
Brent Thill: What are the assumptions underneath the guide for Q1.
David Longo: And other revenue was $14 $9 million down 31% year over year due to the market shift away from traditional boot camps to lower cost short form programs and a decline in advertising revenue from reduced traffic concessions across our platform.
Brent Thill: Yes, Hi, Brian it's David so.
Brent Thill: Excuse me.
Brent Thill: Yes.
Speaker Change: It's basically the continuation of the trends that we saw.
Brent Thill: In.
David Longo: We delivered adjusted EBITDA of $37 million, representing a margin of 25%.
Brent Thill: The end of December the retention flattening.
Brent Thill: Obviously, we want it and then baking in.
Brent Thill: The traffic and the acquisitions that we've been able to achieve through basically two thirds of the way through the quarter already.
David Longo: As mentioned earlier in the fourth quarter, we opportunistically repurchased $116 $6 million in aggregate principal amount of our 2026 convertible notes and a $20 million discount to par.
Brent Thill: Thank you.
Brent Thill: We have good visibility into the students right now that are in.
Brent Thill: Semester, how they've been retaining historically and in the current environment. It really goes back to the to the overall decline in the traffic that we saw which is continuing to eat into our acquisitions, Hence the guide down.
David Longo: Free cash flow for the fourth quarter was $4 8 million, despite incurring approximately $25 million in cash outlays related to employee severance from ITV stretching and which we laid out more than 700 employees as well as the Pearson legal settlement.
Brent Thill: Even more in Q1.
Brent Thill: Versus the Q4 on a year over year.
David Longo: As anticipated, we expect another $11 million in cash restructuring payments with a significant portion to be incurred in Q1.
Brent Thill: Those numbers are pretty well baked at this at this period of time.
Brent Thill: So we're just.
Brent Thill: Plugging away in pushing the new product initiatives pushing new marketing.
David Longo: Capital expenditures for the quarter were $13 million down, 52% year over year of which $8 $7 million or content costs.
Brent Thill: The initiatives that we have.
Brent Thill: So that we can essentially call the bottom here and see improvements in the back half of the year.
David Longo: Leveraging the power of AI capex content costs have decreased 56% year over year, while the number of questions asked increased 2%.
Speaker Change: Thank you and our final question comes from Doug <unk> with Keybanc capital markets. Please proceed.
David Longo: Looking at the balance sheet, we concluded the quarter with cash and investments of $528 million and a net cash balance of $42 million.
Speaker Change: Great. Thank you too.
Doug: Two quick questions. If I may 1st one just follow up on the temporary retention impact that you called out any numbers you can share on how material that impact was to fourth quarter results and secondly, just curious if you can talk about more about the promotional pricing.
David Longo: Looking ahead as Nathan detailed earlier, we have an exciting and ambitious agenda for our product and marketing in 2025.
David Longo: However, as we work towards realizing the benefits of these initiatives industry challenges are causing a notable decline from traffic and subscriber acquisitions.
Speaker Change: Strategy there in international.
Speaker Change: We could see any sort of moderation in headwinds to argue there in the near term. Thank you.
David Longo: These factors are putting pressure on our business and impacting our financial outlook.
Speaker Change: Yes, Hi, Devin it's David again.
Speaker Change: So on the.
David Longo: For Q1 guidance, we expect total revenue between 114 and $116 million with subscription services revenue between 104 and $106 million.
Speaker Change: On that temporary dip.
Speaker Change: I don't have a number to pinpoint here.
Speaker Change: In a moment, but we're talking a couple of percentage points of retention.
Speaker Change: So if you kind of extrapolate that over.
David Longo: Gross margin to be in the range of 66% to 67% and adjusted EBITDA between 13 and $14 million.
Speaker Change: The revenue in the quarter.
Speaker Change: Putting myself on the spot here, we're probably talking a couple of $3 million.
David Longo: In closing despite the ongoing industry challenges that are putting pressure on our financial performance. We made significant progress in 2024 by building technology, integrating AI and enhancing products all while prudently managing expenses.
Speaker Change: Worth of impact in the bigger worry there isn't if that continued over time. In addition to customer acquisition, we get year over year.
Speaker Change: It would be a double whammy for us, whereas we've been very consistent I'm pleased with our retention rates historically, and we believe that thats because of the students who do eventually get to us in China and painful as they they find the value in that and we'll keep paying.
David Longo: We enter 2025 with a solid foundation and are focused on stabilizing business trends.
David Longo: With that I will turn the call over to the operator for your questions. We respectfully advise that we will not be taking questions related to the Companys strategic review process.
Speaker Change: But we're very happy that it's gone.
I'll come back to those historical levels.
Speaker Change: The promotion promotional pricing on international Yes, we a.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is in the question queue. You May press star to remove yourself from the queue.
Speaker Change: Promotional pricing pricing leverage pricing points wherever we want to call it.
Speaker Change: Those are the things that frankly were playing with playing around with all the time.
Speaker Change: At this time last year, we had been doing a ton of promotional pricing.
Speaker Change: <unk> using speaker equipment may be necessary to pick up the handset before pressing the star keys, one moment, while we poll for questions.
Speaker Change: Recognizing that internationally you could bring in more folks keep them for a.
Speaker Change: The longer periods of time.
Speaker Change: And then we will soon have started walking back from that a little bit early and middle of last year, just because we were seeing that that totality.
And our first question comes from Eric Sheridan with Goldman Sachs. Please proceed with your question.
Eric Sheridan: Thanks, so much for taking the question maybe I'll just ask one with respect to the Q1 2025 guidance just wanted to understand if you can unpack a little bit the incremental operating leverage in the business and how we should we thinking about dollar revenue growth and what it can translate into in terms of incremental adjusted EBITDA when you measure again.
Speaker Change: Of the total Ltvs just wasn't there too.
Speaker Change: To make up for that lower prices. So we have rolled back a lot of that promotional pricing.
Speaker Change: It was the back half of last year.
But that said like we're now because we're always experimenting we did kick back some of that.
Eric Sheridan: Fixed versus variable costs in the business and or some of the key investment initiatives either brand traffic or product did you see is pretty critical to make in 2025. Thanks. So much.
Promotional pricing in early February.
Speaker Change: And as we were looking to jumpstart the total international sub numbers so.
Speaker Change: Long way of saying were constant.
David Longo: Yes. Thanks. So this is David Thanks for your question.
Speaker Change: Constantly playing with it we haven't.
Speaker Change: Isn't that we've landed on one.
Eric Sheridan: Yes.
Speaker Change: Our model ends up being super efficient in terms of the gross margin falling directly to the bottom line.
Speaker Change: Lower prices all the time strategy.
Speaker Change: We are adjusting as we go in terms of where we sit in the calendar year the student.
Speaker Change: Calendar year is especially so.
Eric Sheridan: Overall.
Speaker Change: Excuse me.
Speaker Change: Now that makes it hard to model.
Eric Sheridan: So.
Speaker Change: I apologize for that.
Eric Sheridan: If we added an incremental $1 billion worth of sales I think were dropping 900 carrier that is to the bottom line.
Speaker Change: Just trying to the best we can to optimize that LTV.
For each student.
Eric Sheridan: It's just it's super efficient.
Eric Sheridan: And in that sense.
Speaker Change: This does conclude today's teleconference.
Speaker Change: And our question and answer session. We thank you for your participation you may disconnect your lines at this time.
Eric Sheridan: And then on the.
Eric Sheridan: On the investment side for the all the product initiatives that we have.
Eric Sheridan: And in the first half of the year, we're rolling out the.
Speaker Change: Goodbye.
Eric Sheridan: The comparison tool and also the.
Eric Sheridan: Excuse me the next best actions on test in practice.
Eric Sheridan: We're.
Eric Sheridan: We're optimistic that that's going to drive.
Eric Sheridan: More more engagement more.
Higher retention marketing, where we're increasing our funnels.
Eric Sheridan: Brand traffic back to the site.
Eric Sheridan: As much related to acquisitions and growth.
Speaker Change: Thank you.
Eric Sheridan: Yeah.
Speaker Change: And our next question comes from Ryan Macdonald with Needham <unk> Company. Please proceed with your question.
Ryan Macdonald: Alright, Thanks for taking my questions, maybe just start.
Ryan Macdonald: Curious to hear a bit more about this sort of shift into new revenue streams and sort of the enterprise offerings and business to institution programs, maybe with just with the pilot programs you have with the institutions right. Now can you talk about how what the pricing model looks like that is it sort of.
Ryan Macdonald: The institution sort of paying for access to Chegg, and then sort of like including it a rolling it into tuition or how should we think about how the.
Ryan Macdonald: These pilot programs kind of great monetization opportunities. Thanks.
Ryan Macdonald: Yeah.
Nathan Scholtes: I appreciate the question Nathan let.
Speaker Change: Let me start back up a bit on the business institution side, just remind everyone. That's program we started last year.
Speaker Change: But really for some inbound interest from schools the key.
Speaker Change: Solution, they're looking for is around the areas of persistence and graduation, I think as we all understand the demographics in the U S. We're going to have around 19 by students in the system. The freshman class is going to be about equal size coming in Europe to year, we're dealing with graduation rates that are only in the 60% range.
Speaker Change: So you got students that are falling out of the system.
Speaker Change: And that's really.
Speaker Change: Significant issue.
Speaker Change: Particularly when you look at some of the government policy that we're looking at particularly around the college reduction callers cost reduction accuracy CRA.
Speaker Change: We're watching so schools or schools are very interested in how do we serve students as a customer how do we provide them with the right tools and the right services to help them.
Speaker Change: Not only are conquer their academic journey, but also start to acquire skills that theyre going to need.
Speaker Change: College together to get a job so very excited about the program. We've got a number of pilots under belt right now looking to have essentially 35 more pilots throughout the course of this year and more interesting looking to then take those pilots in default campus wide implementation. The goal of the pricing model, it's pretty simple, it's a seat based pricing program.
Speaker Change: We're trying to make sure that we can get every student to the platform and provide tools for every student so excited about the early traction we've got they're excited about some of the early early partnerships, we've got going on.
Speaker Change: I'll tell you more in future quarters.
Speaker Change: And our next question comes from Brian <unk> with.
Speaker Change: J P. Morgan. Please proceed with your question.
Brian: Great. Thanks for taking my questions I guess just to start can you talk about churn throughout the quarter I think you had mentioned.
Brian: <unk> dip in <unk> as well too in November and December So just curious.
Brian: Between RP trends and retention trends and how that may differ versus a subscriber that perhaps could be engaging with the gen AI feature versus the non Jenny I user. Thanks.
Yeah sure. Thanks, Bryan this is David.
Brian: I guess I'll start with the retention, we had a lot going on in this quarter as we rolled out our pricing.
Brian: Satisfaction guarantee.
Brian: And we were dealing with the traffic.
Brian: The traffic issues that we talked about earlier on the call.
Brian: We did see retention dip in November and early December.
Brian: We still dissecting a bit on what happened.
Brian: It did return to its historical levels in the back half of December and it has flattened out in January and February.
Brian: So far so we're happy that it's kind of level that it has leveled off to our historical levels.
Brian: So as a funky time we.
Brian: We were looking at it really closely we never got an exact.
Brian: The answer on it but it could have been I think you were suggesting there is and as users.
Brian: We're playing with other tools and types of things that could have popped in for a shorter period of time or last but it was only four five or six week period. There was some lumpiness with the calendar for when when the final rules came in versus.
Brian: The prior year, because Thanksgiving fell trying to remember now is too much tax Thanksgiving wasn't later this year than it had been in the year before.
Brian: So there's a lot going on and we're trying to learn as we go but we're happy that.
Brian: It's back to the levels, we were looking for this year. So thanks, Brian.
Brian: Yeah.
Speaker Change: Thank you. Our next question comes from Josh Baer with Morgan Stanley. Please proceed with your question.
Josh Baer: Great. Thank you I have a couple on the solution scout.
Josh Baer: Wondering if that is the strategy behind that to sort of showcase that chegg solutions are superior from the other llm's or is it more about giving students.
Josh Baer: Choice and a bunch of different options.
Josh Baer: Hey, Josh.
Josh Baer: You hear me, yes Nathan.
Josh Baer: So we honestly, it's a little bit of both.
Josh Baer: Part of it one is we wanted to make sure we've always been kind of around this making sure we save students' time.
Josh Baer: Let me give them tremendous amount of value when we talk to students we see that they are triangulating, how much a bunch.
Josh Baer: Trying to think through a number of different sources trying to figure out what the answers are with solutions, our western what youre trying to learn from that.
Josh Baer: It's a terrible time waste and on top of that as you heard from your prepared remarks about 53% of the cost saves that we had survey through our global students survey, which covers about 12000 students in 15 countries.
Josh Baer: The overwhelming majority of them are questioning the accuracy.
Josh Baer: And so we wanted to one state students time and bring these are as we talked a little bit about our 2020 for technology investments, we've built a really unique.
Josh Baer: AI infrastructure that is kind of using multiple multiple language models.
Josh Baer: Now I'll fix or are able to take a question understand it against our chegg answers it understand it against the other frontier models that are out there. So we think that's a really valuable tool for students, but what's most important is that we're able to kind of do some extrapolation on top of that.
Josh Baer: Our results versus someone else results and start to pinpoint for students, what's the differences or similarities are and really what should what could you be doing next with that question and that's where our like our next best actions start to come into play when we start to drive more and more engagement through that so we're trying to mirror, what we're see college students doing already and naturally.
Josh Baer: Saving them time being a value for them, but also showcasing some of the really proprietary and cool tech that we have been learning science, we have.
Josh Baer: Okay.
Josh Baer: Thank you.
Speaker Change: Next question comes from Brian Peterson with Raymond James. Please proceed with your question.
Speaker Change: Hi, This is Jessica on for Brian I, just wanted to follow up on a prior comment or question about the institutional initiative you have when the schools are coming to you and balance what are the key factors that are also considering for our partnership with Chegg and also kind of curious are these institutions, helping you build student awareness of textbook.
Speaker Change: Your proposition so it's not just about personalized homework help is also about your partnerships you have to address the full student life. Thanks.
Speaker Change: Yes, absolutely I mean, so the primary reason I said I think I heard the question correctly and I apologize if I didn't.
Speaker Change: They soon.
Or is this just are coming is around the area of persistence and also congratulation right schools need students to persist in order for it seems to continue on the healthy capture that Gratulation point. So schools are recognizing that students are already using our hosted services.
Speaker Change: And we could be doing a lot more to go.
Speaker Change: A lot more in a lot better of a job to service as soon as if we bring us.
Speaker Change: Services closer to the course, so what I mean, there has been changes in the school are partnering together working together to make sure that our services are kind of tuned for that that institution and for the courses they are teaching or for their for the student body that is engaging with it. So yes. There is a partnership in there that the school is going is making.
Speaker Change: Sure that students are aware of the service and making sure that our services are aligned with it and we're also working very hard to make sure that we're upholding the academic standards and honor codes of those schools, which is so important to.
Speaker Change: The pathway I think.
Speaker Change: Sure. The assessments in America are authentic and students are really learning the content versus just passing off our grab and go answer that didn't get off the internet.
Speaker Change: Okay.
Speaker Change: And our next question comes from Brian <unk> with Jefferies. Please proceed with your question.
Brian Peterson: Hi, Thanks.
Speaker Change: For Q1 on the guidance.
Speaker Change: Embedding further deceleration in the business and I'm just curious if you can.
Speaker Change: Help us understand what I mean.
Speaker Change: What are the assumptions underneath the guidance for Q1.
David Longo: Yes, Hi, Brian it's David so.
Speaker Change: Excuse me.
David Longo: Yes.
David Longo: It's basically the continuation of the trends that we saw.
David Longo: In the end of December.
David Longo: Retention flattening.
David Longo: We want it and then baking in.
David Longo: The traffic in acquisitions that we've been able to achieve through basically two thirds of the way through the quarter already.
David Longo: So we have good visibility into the students right now that are in kind of semester, how they've been retaining the historically and in the current environment.
David Longo: Really it goes back to that.
David Longo: The overall decline in the traffic that we saw which is continuing to eat into our acquisition, hence the guide down.
David Longo: Even more in Q1 over Ikea versus the Q4 on a year over year.
David Longo: Those numbers are pretty well baked at this at this period of time.
David Longo: So we're just.
David Longo: Plugging away in pushing the new product initiatives pushing new marketing.
David Longo: Initiatives that we have.
David Longo: So that we can.
David Longo: Eventually call the bottom here and see improvements in the back half of the year.
David Longo: Thank you and our final question comes from Doug <unk> with Keybanc capital markets. Please proceed.
Speaker Change: Great. Thank you.
Doug <unk>: Two quick questions. If I may 1st one just follow up on the temporary retention impact that you called out any numbers you can share on how material that impact was to fourth quarter results and secondly, just curious if you can talk about more about your promotional pricing strategy there in international.
Doug <unk>: We could see any sort of moderation in headwinds and <unk> in the near term. Thank you.
Doug <unk>: Yeah.
Doug <unk>: Yes, Hi, Devin it's David again.
Doug <unk>: So on the.
Doug <unk>: On that temporary dip.
Doug <unk>: I don't have a number to pinpoint here.
Doug <unk>: In a moment ago, we're talking a couple of percentage points of retention.
Doug <unk>: So if you kind of extrapolate that over.
Doug <unk>: Revenue in the quarter Youre.
Doug <unk>: Putting myself on the spot here, we're probably talking a couple of $3 million.
Doug <unk>: Worth of impact.
Doug <unk>: Worry there isn't if that continued over time in addition to customer acquisition, which is year over year.
Doug <unk>: It would be.
Doug <unk>: A double whammy for us, whereas we've been very consistent I'm pleased with our retention rates historically, and we believe that thats because of the students who do eventually get to us in China and painful they find the value in that and we'll keep paying.
Doug <unk>: We're very happy that it's gone.
Doug <unk>: I'll come back to its historical levels.
Doug <unk>: The promotion promotional pricing on international Yes, we are.
Doug <unk>: Promotional pricing pricing leverage pricing points wherever we wanted to call it.
Doug <unk>: Those are the things that.
Frankly.
Doug <unk>: With playing around with all the time.
Doug <unk>: At this time last year, we had been doing a ton of promotional pricing.
Doug <unk>: Recognizing that internationally you can bring in more folks keep them for longer.
Doug <unk>: The longer periods of time.
Doug <unk>: And then we.
Doug <unk>: Soon I started walking back from that a little bit early and middle of last year, just because we were seeing that that totality.
Doug <unk>: Of the total Ltvs is just wasn't there too.
Doug <unk>: To make up for that lower prices. So we have rolled back a lot of that promotional pricing.
Doug <unk>: It was the back half of last year.
Doug <unk>: But that said like we're now because we're always experimenting we did kick back some of that.
Doug <unk>: Promotional pricing in early February.
Doug <unk>: And as we were looking to jumpstart the toe.
<unk> International sub numbers so.
Doug <unk>: Long way of saying, we're constantly playing with it we haven't.
Doug <unk>: It isn't that we've landed on one.
Doug <unk>: Lower prices all the time strategy.
Doug <unk>: We are adjusting as we go in terms of where we sit in the calendar year the student.
Doug <unk>: Calendar year is especially so.
Doug <unk>: No that makes it hard to model.
Doug <unk>: I apologize for that.
Doug <unk>: The best we can to optimize that LTV.
Doug <unk>: For each data.
Doug <unk>: Yeah.
Doug <unk>: This does conclude today's teleconference.
Doug <unk>: And our question and answer session. We thank you for your participation you may disconnect your lines at this time.
Doug <unk>: Okay.
Doug <unk>: Yeah.
Doug <unk>: Goodbye.
Doug <unk>: [noise] [music].