Chegg(CHGG) - 2025 Q2 - Quarterly Report

Note About Forward-Looking Statements This section provides a standard disclaimer for forward-looking statements, noting actual results may differ due to risks and uncertainties - The report contains forward-looking statements identified by words like 'believe,' 'may,' 'will,' 'expect,' and 'plan to,' which are based on current expectations and projections about future events and trends[10] - These statements are subject to risks, uncertainties, and assumptions, including those detailed in the Annual Report on Form 10-K and this Quarterly Report, meaning actual results could differ materially and adversely[10] - The company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law[11] PART I - FINANCIAL INFORMATION This part presents Chegg, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (unaudited) This section presents Chegg, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, operations, comprehensive loss, equity, and cash flows Condensed Consolidated Balance Sheets This section presents condensed consolidated balance sheets for June 30, 2025, and December 31, 2024, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change ($) | Change (%) | | :------------------------------------------ | :--------------------------- | :----------------------------- | :--------- | :--------- | | Cash and cash equivalents | $36,825 | $161,475 | $(124,650) | (77)% | | Short-term investments | $48,815 | $154,249 | $(105,434) | (68)% | | Total current assets | $203,926 | $437,559 | $(233,633) | (53)% | | Total assets | $404,453 | $868,951 | $(464,498) | (53)% | | Current portion of convertible senior notes, net | $62,516 | $358,605 | $(296,089) | (83)% | | Total current liabilities | $226,969 | $528,341 | $(301,372) | (57)% | | Total liabilities | $246,597 | $675,970 | $(429,373) | (64)% | | Total stockholders' equity | $157,856 | $192,981 | $(35,125) | (18)% | | Accumulated deficit | $(942,588) | $(889,441) | $(53,147) | 6% | - The significant decrease in cash, cash equivalents, and investments, along with a substantial reduction in convertible senior notes, primarily reflects debt repayment activities[14][131] Condensed Consolidated Statements of Operations This section presents condensed consolidated statements of operations for the three and six months ended June 30, 2025 and 2024, detailing revenues, expenses, and net loss Three Months Ended June 30 (in thousands, except per share) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :------------------------------------------ | :------- | :-------- | :--------- | :--------- | | Net revenues | $105,120 | $163,147 | $(58,027) | (36)% | | Gross profit | $69,642 | $117,736 | $(48,094) | (41)% | | Total operating expenses | $106,100 | $602,743 | $(496,643) | (82)% | | Loss from operations | $(36,458) | $(485,007) | $448,549 | (92)% | | Net loss | $(35,663) | $(616,884) | $581,221 | (94)% | | Net loss per share, basic and diluted | $(0.33) | $(6.01) | $5.68 | (95)% | Six Months Ended June 30 (in thousands, except per share) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :------------------------------------------ | :------- | :-------- | :--------- | :--------- | | Net revenues | $226,507 | $337,497 | $(110,990) | (33)% | | Gross profit | $137,056 | $245,589 | $(108,533) | (44)% | | Total operating expenses | $202,516 | $733,087 | $(530,571) | (72)% | | Loss from operations | $(65,460) | $(487,498) | $422,038 | (87)% | | Net loss | $(53,147) | $(618,304) | $565,157 | (91)% | | Net loss per share, basic and diluted | $(0.50) | $(6.03) | $5.53 | (92)% | - Net revenues decreased significantly for both periods, but net loss improved dramatically year-over-year, primarily due to the absence of a large impairment expense recognized in 2024[16][108][116] Condensed Consolidated Statements of Comprehensive Loss This section presents condensed consolidated statements of comprehensive loss for the three and six months ended June 30, 2025 and 2024 Comprehensive Loss (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss | $(35,663) | $(616,884) | $(53,147) | $(618,304) | | Other comprehensive (loss) income | $(103) | $757 | $(1,117) | $(5,176) | | Total comprehensive loss | $(35,766) | $(616,127) | $(54,264) | $(623,480) | - Total comprehensive loss significantly decreased in 2025 compared to 2024, mirroring the improvement in net loss, while other comprehensive income/loss remained relatively small[17] Condensed Consolidated Statements of Stockholders' Equity This section presents condensed consolidated statements of stockholders' equity for the three and six months ended June 30, 2025 and 2024 Stockholders' Equity Changes (Six Months Ended June 30, 2025, in thousands) | Metric | Balance at Dec 31, 2024 | Issuance of ESPP | Net share settlement of equity awards | Share-based compensation expense | Other comprehensive loss | Net loss | Balance at Jun 30, 2025 | | :-------------------------------- | :---------------------- | :--------------- | :---------------------------------- | :------------------------------ | :----------------------- | :------- | :---------------------- | | Common Stock (Par Value) | $105 | $1 | $2 | $0 | $0 | $0 | $108 | | Additional Paid In Capital | $1,114,550 | $388 | $(1,037) | $19,785 | $0 | $0 | $1,133,686 | | Accumulated Other Comprehensive Loss | $(32,233) | $0 | $0 | $0 | $(1,117) | $0 | $(33,350) | | Accumulated Deficit | $(889,441) | $0 | $0 | $0 | $0 | $(53,147) | $(942,588) | | Total Stockholders' Equity | $192,981 | $389 | $(1,035) | $19,785 | $(1,117) | $(53,147) | $157,856 | - Total stockholders' equity decreased by $35.1 million during the first six months of 2025, primarily due to the net loss, partially offset by share-based compensation[19] Condensed Consolidated Statements of Cash Flows This section presents condensed consolidated statements of cash flows for the three and six months ended June 30, 2025 and 2024 Cash Flow Summary (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :------------------------------------------ | :------- | :-------- | :--------- | :--------- | | Net cash provided by operating activities | $19,686 | $67,545 | $(47,859) | (71)% | | Net cash provided by (used in) investing activities | $272,180 | $(64,096) | $336,276 | n/m | | Net cash used in financing activities | $(417,138) | $(5,635) | $(411,503) | n/m | | Net decrease in cash, cash equivalents and restricted cash | $(124,781) | $(2,491) | $(122,290) | n/m | | Cash, cash equivalents and restricted cash, end of period | $39,578 | $135,485 | $(95,907) | (71)% | - Operating cash flow decreased significantly. Investing activities turned positive due to proceeds from sales and maturities of investments. Financing activities saw a large outflow primarily due to the repayment of convertible senior notes[22][137][138][139] Notes to Condensed Consolidated Financial Statements This section provides detailed notes to the condensed consolidated financial statements, explaining accounting policies, significant events, and financial performance Note 1. Background and Basis of Presentation This note describes Chegg's AI-powered learning support business, financial statement basis, accounting policies, impairments, and recent pronouncements - Chegg provides 24/7 AI-powered academic support and access to subject matter experts for students globally, aiming to help them build essential academic, life, and job skills[26] - The unaudited condensed consolidated financial statements are prepared under GAAP and SEC rules, with results for the six months ended June 30, 2025, not necessarily indicative of the full year[27] - A $439.7 million goodwill impairment was recorded in Q2 2024 due to a sustained decline in stock price, industry developments, and financial performance[33] - A $3.0 million impairment of lease-related assets (ROU assets and leasehold improvements) was recorded in Q2 2025 due to the closure of the Portland office as part of a May 2025 restructuring action[35] - The company is currently evaluating the impact of several recently issued FASB Accounting Standards Updates (ASUs) including 2025-05, 2024-04, 2024-03, 2024-02, and 2023-09[36][37][38][39][40][41] Note 2. Revenues This note details revenue recognition policies and disaggregates net revenues by product line, showing significant declines in both categories Net Revenues by Product Line (in thousands) | Product Line | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :------------------ | :------------------------------- | :------------------------------- | :--------- | :--------- | | Subscription Services | $89,727 | $146,813 | $(57,086) | (39)% | | Skills and Other | $15,393 | $16,334 | $(941) | (6)% | | Total Net Revenues | $105,120 | $163,147 | $(58,027) | (36)% | | | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | Subscription Services | $197,293 | $300,864 | $(103,571) | (34)% | | Skills and Other | $29,214 | $36,633 | $(7,419) | (20)% | | Total Net Revenues | $226,507 | $337,497 | $(110,990) | (33)% | - The decrease in Subscription Services revenues was primarily due to a 40% and 31% decrease in subscribers for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024[109] - The decline in Skills and Other revenues was mainly due to lower enrollments in Chegg Skills and decreased advertising services revenue, partially offset by new content licensing revenue[110] Contract Balances (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :---------------------- | :------------ | :---------------- | :--------- | :--------- | | Accounts receivable, net | $18,055 | $23,641 | $(5,586) | (24)% | | Contract assets | $6,428 | $7,027 | $(599) | (9)% | | Deferred revenue | $34,759 | $39,217 | $(4,458) | (11)% | Note 3. Net Loss Per Share This note presents the computation of basic and diluted net loss per share, which were identical due to anti-dilutive potential common shares Net Loss Per Share (basic and diluted) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $(0.33) | $(6.01) | | Six Months Ended June 30 | $(0.50) | $(6.03) | - Basic and diluted net loss per share were the same for all periods presented, as the inclusion of all potential common shares outstanding would have been anti-dilutive[45] Anti-Dilutive Shares Excluded (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Shares related to stock plan activity | 9,420 | 7,421 | 9,737 | 7,286 | | Shares related to convertible senior notes | 583 | 9,234 | 3,585 | 9,234 | | Total common stock equivalents | 10,003 | 16,655 | 13,322 | 16,520 | Note 4. Cash and Cash Equivalents, Investments and Fair Value Measurements This note details fair value classification and balances of cash, cash equivalents, and investments, highlighting a significant decrease and an impairment Cash, Cash Equivalents, and Investments (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $36,825 | $161,475 | | Short-term investments | $48,815 | $154,249 | | Long-term investments | $28,474 | $212,650 | | Total | $114,114 | $528,374 | - Total cash, cash equivalents, and investments decreased by $414.26 million (78%) from December 31, 2024, to June 30, 2025[131] - A $6.0 million impairment charge was recorded on the strategic equity investment in Knack Technologies, Inc. during the three months ended June 30, 2025, due to changes in investor rights and uncertainty around Knack's future operations[50] - The estimated fair value of the 2026 convertible senior notes decreased to $49.5 million as of June 30, 2025, from $105.8 million at December 31, 2024[51] Note 5. Property and Equipment, Net This note breaks down property and equipment, net, and depreciation expense, noting significant charges for accelerated depreciation and impairment Property and Equipment, Net (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Content | $344,533 | $381,629 | | Software | $44,109 | $67,612 | | Property and equipment, net | $135,491 | $170,648 | - Property and equipment, net, decreased by $35.157 million (21%) from December 31, 2024, to June 30, 2025[52] Depreciation Expense (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Three Months Ended June 30 | $15,200 | $16,200 | | Six Months Ended June 30 | $46,200 | $31,900 | - During the six months ended June 30, 2025, the company recorded $18.2 million in charges due to streamlining product experiences, including $16.2 million of accelerated depreciation and $2.0 million impairment of in-progress internal-use software assets[53] Note 6. Balance Sheet Details This note provides detailed breakdowns of 'Other Current Assets' and 'Accrued Liabilities' on the condensed consolidated balance sheets Other Current Assets (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Insurance loss recovery | $55,000 | $55,000 | | Restricted cash | $1,014 | $956 | | Other | $20,534 | $25,138 | | Total | $76,548 | $81,094 | Accrued Liabilities (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Loss contingency | $69,500 | $62,000 | | Restructuring liability | $8,479 | $7,310 | | Total Accrued Liabilities | $121,373 | $115,360 | - Accrued liabilities increased by $6.013 million (5%) from December 31, 2024, to June 30, 2025, primarily due to an increase in loss contingency and restructuring liability[55] Note 7. Convertible Senior Notes This note details the maturity and repayment of 2025 convertible senior notes, early extinguishment of 2026 notes, and associated capped call transactions - The $800 million aggregate principal amount of 0.125% convertible senior notes due 2025 matured on March 15, 2025, and were repaid for $358.9 million[56] - The 0% convertible senior notes due 2026 were classified as a current liability as of June 30, 2025, because they become convertible at the option of holders on or after June 1, 2026[58] - In March 2025, $65.2 million aggregate principal amount of the 2026 notes were extinguished for $57.4 million cash, resulting in a $7.4 million gain on early extinguishment of debt[59] Net Carrying Amount of Convertible Senior Notes (in thousands) | Notes | June 30, 2025 | December 31, 2024 | | :---------- | :------------ | :---------------- | | 2026 Notes | $62,516 | $127,344 | | 2025 Notes | $0 | $358,605 | - Capped call transactions, costing $103.4 million, were entered into concurrently with the 2026 notes offering to effectively increase the conversion price from $107.55 to $156.44 per share, reducing potential dilution[61][62] Note 8. Commitments and Contingencies This note outlines various legal proceedings, including class action lawsuits, derivative complaints, and government investigations, detailing contingent liabilities - The company reached a settlement in principle for $55.0 million in a securities fraud class action (Leventhal v. Chegg), with final court approval in May 2025, and recorded a corresponding contingent liability and expected insurance loss recovery[69][70] - A $7.5 million contingent liability was recorded during Q2 2025 in connection with a settlement agreement with the FTC related to compliance with the Restore Online Shoppers' Confidence Act (ROSCA CID)[73] - As of June 30, 2025, the net impact of contingent liabilities less the related insurance loss recovery for all legal matters is $14.5 million[74] - Other ongoing legal matters include a privacy lawsuit (Alicia Freeman), shareholder derivative complaints (Shiva Stein, Joseph Robinson, Rak Joon Choi), a demand for repayment from JPMorgan Chase Bank, and a settled copyright infringement lawsuit with Pearson Education[64][65][66][67][68][71][72] Note 9. Guarantees and Indemnifications This note states the company indemnifies its directors, officers, and vendors, with the fair value of these agreements believed immaterial - The company indemnifies its directors and officers for certain events, with coverage from a directors' and officers' insurance policy[75] - Other indemnification agreements exist with various vendors against claims, liabilities, losses, and damages, with an unlimited maximum potential future indemnification amount[75] - The fair value of these indemnification agreements is believed to be immaterial, and no liabilities have been recorded as of June 30, 2025[76] Note 10. Common Stock This note details authorized and reserved common stock shares and outlines the company's equity incentive plans - The company is authorized to issue 400 million shares of common stock[77] Common Shares Reserved for Future Issuance (June 30, 2025) | Category | Shares | | :---------------------------------------------------------- | :--------- | | Shares available for grant under the 2023 Equity Incentive Plan | 11,141,440 | | Outstanding RSUs and PSUs | 8,664,787 | | Shares available for issuance under the Amended and Restated 2013 Employee Stock Purchase Plan | 2,448,986 | | Shares available for grant under the 2023 Equity Inducement Plan | 1,466,489 | | Outstanding stock options | 159,795 | | Total common shares reserved for future issuance | 23,881,497 | - The 2023 Equity Incentive Plan was amended in June 2025 to increase reserved common stock for issuance by 5,000,000 shares[78] Note 11. Stockholders' Equity This note discusses share repurchase activities and share-based compensation expense, including RSU and PSU activity, for the reported periods - No cash repurchases of common stock occurred during the six months ended June 30, 2025[81] - As of June 30, 2025, $150.1 million remained under the $300.0 million securities repurchase program approved in November 2024, with no expiration date[82] Total Share-based Compensation Expense (in thousands) | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Cost of revenues | $131 | $466 | $369 | $979 | | Research and development | $1,584 | $7,123 | $4,796 | $16,332 | | Sales and marketing | $413 | $1,726 | $1,474 | $3,866 | | General and administrative | $5,784 | $8,732 | $12,530 | $26,159 | | Total | $7,912 | $18,047 | $19,169 | $47,336 | - Total unrecognized share-based compensation expense was approximately $23.7 million as of June 30, 2025, expected to be recognized over a weighted-average vesting period of approximately 1.4 years[83] Note 12. Restructuring Charges This note details restructuring plans initiated in May 2025, November 2024, and June 2024, including workforce reductions and office closures - The May 2025 restructuring plan, involving a workforce reduction and office closure, resulted in $19.1 million of cumulative restructuring charges as of June 30, 2025, with an estimated $11 million to $13 million in additional charges expected[85] - The November 2024 restructuring plan, involving a workforce reduction, resulted in $17.1 million of cumulative restructuring charges as of June 30, 2025, and is expected to be substantially completed by the end of Q3 2025[87] - The June 2024 restructuring plan, also involving a workforce reduction, resulted in $10.3 million of cumulative restructuring charges as of June 30, 2025, and is now completed[89] Restructuring Liability Reconciliation (Six Months Ended June 30, 2025, in thousands) | Plan | Beginning Balance | Restructuring Charges | Restructuring Payments | Ending Balance | | :------------------ | :---------------- | :-------------------- | :--------------------- | :------------- | | May 2025 | $0 | $19,056 | $(10,809) | $8,247 | | November 2024 | $3,915 | $2,458 | $(6,141) | $232 | | June 2024 | $3,395 | $328 | $(3,723) | $0 | Note 13. Segment Information This note confirms Chegg operates as a single segment, with the CEO as chief operating decision maker, and provides disaggregated revenue data - Chegg operates as a single operating and reportable segment, with the Chief Executive Officer serving as the chief operating decision maker[91] Net Revenues by Product Line (in thousands) | Product Line | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Subscription Services | $89,727 | $146,813 | $197,293 | $300,864 | | Skills and Other | $15,393 | $16,334 | $29,214 | $36,633 | | Total Net Revenues | $105,120 | $163,147 | $226,507 | $337,497 | Net Revenues by Geographic Area (in thousands) | Geographic Area | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | United States | $90,145 | $141,653 | $195,642 | $293,785 | | International | $14,975 | $21,494 | $30,865 | $43,712 | | Total Net Revenues | $105,120 | $163,147 | $226,507 | $337,497 | Long-Lived Assets by Geographic Area (in thousands) | Geographic Area | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | United States | $132,311 | $172,483 | | International | $22,598 | $20,421 | | Total Long-Lived Assets | $154,909 | $192,904 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Chegg's financial condition and results, covering strategy, business updates, AI impact, restructuring, and financial analysis Overview Chegg provides AI-powered learning support, with a long-term strategy to expand offerings and integrate AI for student engagement and revenue growth - Chegg offers 24/7 individualized learning support to students, powered by AI and a network of subject matter experts, to help them build essential academic, life, and job skills[98] - The long-term strategy focuses on utilizing Subscription Services to increase student engagement, expanding offerings, and integrating AI to provide a more compelling and personalized solution, with the goal of returning to revenue growth over time[99] Exploration of Strategic Alternatives In February 2025, Chegg announced a strategic review to maximize shareholder value, considering acquisition, go-private, or standalone options - A strategic review process was announced on February 24, 2025, to explore alternatives for maximizing shareholder value, including acquisition, a go-private transaction, or remaining a standalone public company[100] - The review is ongoing, with no set timetable for completion, and there is no assurance that it will result in any specific transaction or outcome[100] Business Updates and Developments This section discusses the negative impact of Google's AI Overviews and generative AI on Chegg's traffic and subscriber growth, and the May 2025 restructuring plan - Recent technological shifts, including Google's AI Overviews (AIO) and increased adoption of free and paid generative AI services by students, are creating headwinds for Chegg, leading to reduced website traffic and fewer new subscribers[101][102] - In May 2025, an additional restructuring plan was announced, including a workforce reduction and office closure, to manage costs and align with market conditions. The company expects to incur $11 million to $13 million in additional restructuring charges[103][104] - Chegg's product lines include Subscription Services (Chegg Study Pack, Chegg Study, Chegg Writing, Chegg Math, Busuu) and Skills and Other (Chegg Skills, advertising, content licensing, print textbooks, and eTextbooks)[105][106] Seasonality of Our Business Subscription Services revenues are recognized ratably, leading to highest revenues and profitability in Q4, while marketing expenses peak in Q1 and Q3 - Revenues from Subscription Services are primarily recognized ratably over the subscription term, generally resulting in the highest revenues and profitability in the fourth quarter[107] - Certain variable expenses, such as marketing expenses, remain highest in the first and third quarters, meaning the most concentrated periods for revenues and expenses do not necessarily coincide[107] - As a result of these factors, comparisons of historical quarterly results of operations on a sequential basis may not provide meaningful insight into overall financial performance[107] Results of Operations This section provides a detailed analysis of Chegg's financial performance for the three and six months ended June 30, 2025, compared to 2024 Net Revenues Net revenues decreased significantly for both Subscription Services and Skills and Other due to subscriber declines, lower enrollments, and reduced advertising Net Revenues by Product Line (in thousands) | Product Line | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :------------------ | :------------------------------- | :------------------------------- | :--------- | :--------- | | Subscription Services | $89,727 | $146,813 | $(57,086) | (39)% | | Skills and Other | $15,393 | $16,334 | $(941) | (6)% | | Total Net Revenues | $105,120 | $163,147 | $(58,027) | (36)% | | | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | Subscription Services | $197,293 | $300,864 | $(103,571) | (34)% | | Skills and Other | $29,214 | $36,633 | $(7,419) | (20)% | | Total Net Revenues | $226,507 | $337,497 | $(110,990) | (33)% | - Subscription Services revenues decreased primarily due to a 40% and 31% decrease in subscribers for the three and six months ended June 30, 2025, respectively[109] - Skills and Other revenues decreased due to lower enrollments in Chegg Skills and reduced advertising services revenue, partially offset by $6.6 million (3 months) and $10.6 million (6 months) in content licensing revenue[110] Cost of Revenues Cost of revenues decreased due to lower payment processing fees and employee-related expenses, though gross margins declined due to revenue decrease Cost of Revenues (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :------- | :-------- | :--------- | :--------- | | Three Months Ended June 30 | $35,478 | $45,411 | $(9,933) | (22)% | | Six Months Ended June 30 | $89,451 | $91,908 | $(2,457) | (3)% | - The decrease in cost of revenues for the three months was primarily due to lower payment processing and other order fees ($4.8 million) and lower employee-related expenses ($1.2 million)[111] - For the six months, the decrease was due to lower contractor spend ($1.5 million), employee-related expenses ($2.2 million), and payment processing fees ($8.5 million), partially offset by higher depreciation and amortization ($10.5 million) from accelerated depreciation[112] - Gross margins decreased to 66% (3 months) and 61% (6 months) in 2025, from 72% and 73% in 2024, respectively[111][112] Operating Expenses Total operating expenses decreased substantially year-over-year, primarily due to the absence of the significant impairment expense recognized in 2024 Total Operating Expenses (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :------- | :-------- | :--------- | :--------- | | Three Months Ended June 30 | $106,100 | $602,743 | $(496,643) | (82)% | | Six Months Ended June 30 | $202,516 | $733,087 | $(530,571) | (72)% | - The primary driver for the significant decrease in operating expenses was the absence of the $481.5 million impairment expense recognized in fiscal year 2024[116] - The remaining decrease was related to lower employee-related expenses and contractor spend, a result of restructuring actions[116] Research and Development Research and development expenses decreased due to lower employee-related expenses and contractor spend, partially offset by higher restructuring charges Research and Development Expenses (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :------- | :-------- | :--------- | :--------- | | Three Months Ended June 30 | $28,717 | $43,651 | $(14,934) | (34)% | | Six Months Ended June 30 | $58,145 | $88,086 | $(29,941) | (34)% | - Decreases were primarily due to lower employee-related expenses (including share-based compensation) and contractor spend, partially offset by higher restructuring charges[117][118] - Research and development expenses as a percentage of net revenues remained flat at 27% for the three months and 26% for the six months ended June 30, 2025 and 2024[117][118] Sales and Marketing Sales and marketing expenses decreased due to lower employee-related expenses, paid marketing, and indirect marketing, partially offset by increased restructuring charges Sales and Marketing Expenses (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :------- | :-------- | :--------- | :--------- | | Three Months Ended June 30 | $17,417 | $23,545 | $(6,128) | (26)% | | Six Months Ended June 30 | $43,031 | $53,920 | $(10,889) | (20)% | - Decreases were primarily attributable to lower employee-related expenses (including share-based compensation), paid marketing expenses, and indirect marketing expenses[119][121] - These decreases were partially offset by higher restructuring charges[119][121] - Sales and marketing expenses as a percentage of net revenues increased to 17% (3 months) and 19% (6 months) in 2025, from 14% and 16% in 2024, respectively[119][121] General and Administrative General and administrative expenses increased for three months due to impairment and loss contingency, but decreased for six months due to lower employee-related and professional fees General and Administrative Expenses (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :------- | :-------- | :--------- | :--------- | | Three Months Ended June 30 | $59,966 | $54,016 | $5,950 | 11% | | Six Months Ended June 30 | $99,340 | $109,550 | $(10,210) | (9)% | - The three-month increase was due to higher restructuring charges ($5.8 million), a $6.0 million impairment loss on a strategic equity investment, and a $7.5 million loss contingency accrual, partially offset by lower employee-related expenses and professional fees[122] - The six-month decrease was due to lower employee-related expenses (primarily share-based compensation) and professional fees, partially offset by higher restructuring charges, the $6.0 million impairment loss, and the $7.5 million loss contingency accrual[123] - General and administrative expenses as a percentage of net revenues increased to 57% (3 months) and 44% (6 months) in 2025, from 33% and 32% in 2024, respectively[122][123] Impairment Expense Impairment expense for the six months ended June 30, 2025, was $2.0 million, a significant reduction from the $481.5 million recognized in 2024 Impairment Expense (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :------- | :-------- | :--------- | :--------- | | Three Months Ended June 30 | $0 | $481,531 | $(481,531) | n/m | | Six Months Ended June 30 | $2,000 | $481,531 | $(479,531) | n/m | - The significant decrease in impairment expense in 2025 is primarily due to the absence of the $481.5 million impairment of goodwill, intangible assets, and other long-lived assets recognized in 2024[124] - The $2.0 million impairment expense in 2025 consisted of impairment of property and equipment[124] Interest Expense, net and Other Income, Net Interest expense, net, decreased due to debt maturity and extinguishment, while other income, net, decreased due to lower interest income Interest Expense, net (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :------- | :-------- | :--------- | :--------- | | Three Months Ended June 30 | $(41) | $(651) | $610 | (94)% | | Six Months Ended June 30 | $(508) | $(1,301) | $793 | (61)% | - Interest expense, net, decreased primarily due to the maturity of the 2025 notes and the early extinguishment of a portion of the 2026 notes[125] Other Income, net (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :------- | :-------- | :--------- | :--------- | | Three Months Ended June 30 | $2,059 | $7,119 | $(5,060) | (71)% | | Six Months Ended June 30 | $15,056 | $17,899 | $(2,843) | (16)% | - The decrease in other income, net, for the three months was primarily due to a $5.7 million decrease in interest income from lower investment balances[126] - The decrease for the six months was due to lower interest income ($7.8 million) and the absence of a $3.8 million gain on sale of a strategic equity investment in 2024, partially offset by a $7.4 million gain on early extinguishment of 2026 notes[128] Provision for Income Taxes Provision for income taxes decreased substantially year-over-year, primarily due to the valuation allowance established against U.S. federal and state deferred tax assets in fiscal year 2024 Provision for Income Taxes (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :------- | :-------- | :--------- | :--------- | | Three Months Ended June 30 | $(1,223) | $(138,345) | $137,122 | n/m | | Six Months Ended June 30 | $(2,235) | $(147,404) | $145,169 | n/m | - The significant decrease in the provision for income taxes was primarily due to the valuation allowance established in fiscal year 2024 against the company's U.S. federal and state deferred tax assets[130] Liquidity and Capital Resources This section discusses Chegg's cash position, debt obligations, and cash flow activities, highlighting a significant decrease in liquidity due to debt repayment Cash, Cash Equivalents, Investments and Convertible Senior Notes (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------------------------------ | :------------ | :---------------- | :--------- | :--------- | | Cash, cash equivalents and investments | $114,114 | $528,374 | $(414,260) | (78)% | | Convertible senior notes, net | $62,516 | $485,949 | $(423,433) | (87)% | - Cash, cash equivalents, and investments decreased by $414.3 million (78%), and convertible senior notes, net, decreased by $423.4 million (87%) during the six months ended June 30, 2025, primarily due to the repayment of the 2025 notes and early extinguishment of 2026 notes[131] - The company believes its existing liquidity and net cash flows from operations will be sufficient to fund operations and debt service obligations for at least the next 12 months[132] Condensed Consolidated Statements of Cash Flows Data (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :------------------------------------------ | :------- | :-------- | :--------- | :--------- | | Net cash flows from operating activities | $19,686 | $67,545 | $(47,859) | (71)% | | Net cash flows from investing activities | $272,180 | $(64,096) | $336,276 | n/m | | Net cash flows from financing activities | $(417,138) | $(5,635) | $(411,503) | n/m | - Net cash flows from operating activities decreased by $47.9 million (71%), while investing activities increased by $336.3 million due to higher proceeds from investment sales. Financing activities saw a $411.5 million decrease due to convertible debt repayment[137][138][139] Critical Accounting Policies, Significant Judgments and Estimates This section reaffirms no material changes to critical accounting policies and estimates previously disclosed in the Annual Report on Form 10-K for the six months ended June 30, 2025 - There have been no material changes in critical accounting policies and estimates during the six months ended June 30, 2025, compared to those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[141] Recent Accounting Pronouncements This section refers readers to Note 1, 'Background and Basis of Presentation,' for information on recently issued accounting pronouncements - For relevant recent accounting pronouncements, refer to Note 1, 'Background and Basis of Presentation,' in the accompanying Notes to Condensed Consolidated Financial Statements[142] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states no material changes in the company's market risk during the six months ended June 30, 2025, compared to disclosures in its previous Annual Report on Form 10-K - There have been no material changes in the company's market risk during the six months ended June 30, 2025, compared to the disclosures in Part II, Item 7A of the Annual Report on Form 10-K for the year ended December 31, 2024[144] Item 4. Controls and Procedures Management concluded Chegg's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting identified - Management, including the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance of timely and accurate reporting[147] - No changes in internal control over financial reporting were identified during the three months ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[148] PART II - OTHER INFORMATION This part provides additional information including legal proceedings, risk factors, equity sales, other disclosures, and a list of exhibits Item 1. Legal Proceedings This section refers to Note 8 for general legal proceedings and discloses a new antitrust lawsuit filed against Google in February 2025 regarding its AI Overviews search experience - For more information on legal proceedings, refer to Note 8, 'Commitments and Contingencies,' in the accompanying Notes to Condensed Consolidated Financial Statements[149] - On February 24, 2025, Chegg filed a federal antitrust and common-law unjust enrichment complaint against Google LLC and Alphabet Inc. in connection with Google's expansion of its AI Overviews (AIO) search experience[150] - Google moved to dismiss the amended complaint on July 25, 2025, and the ultimate outcome of the case is currently unpredictable due to its early stages[150] Item 1A. Risk Factors This section states no material changes to risk factors from the Annual Report on Form 10-K, except for a new disclosure regarding potential non-compliance with NYSE listing standards - There have been no material changes in risk factors from the Annual Report on Form 10-K, except as described in this section[151] - The company was notified by NYSE on April 1, 2025, of non-compliance with the minimum share price requirement ($1.00 over a consecutive 30 trading-day period) but regained compliance on July 1, 2025[152] - There is no assurance of continued compliance with NYSE's minimum share price requirement, and any future failure could result in delisting, adversely impacting trading, liquidity, market price, and investor confidence[152] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities or purchases of common stock by the registrant during the three months ended June 30, 2025 - The company had no unregistered sales of its securities during the three months ended June 30, 2025[153] - The registrant did not purchase any of its common stock during the three months ended June 30, 2025[154] Item 5. Other Information This section states that none of the company's Section 16 officers or directors adopted or terminated Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - None of the company's Section 16 officers or directors adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended June 30, 2025[155] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, equity plan amendments, certifications, and XBRL data - The exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, Amendment No. 1 to the 2023 Equity Incentive Plan, and certifications from the CEO and CFO (31.01, 31.02, 32.01)[156] - Inline XBRL documents (Instance, Taxonomy Extension Schema, Calculation, Labels, Presentation, Definition) and the Cover Page Interactive Data File are also included as exhibits[156] Signatures This section contains the formal signatures, certifying that the report has been duly signed on behalf of Chegg, Inc. by its Chief Financial Officer - The report was signed on behalf of Chegg, Inc. by David Longo, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer), on August 8, 2025[162]