Chegg(CHGG) - 2021 Q1 - Quarterly Report

PART I Item 1. Financial Statements (unaudited) Chegg reported $198.4 million net revenues (up 51%) but a $65.2 million net loss, primarily from a $78.2 million debt extinguishment loss Condensed Consolidated Balance Sheets The balance sheet shows increased total assets to $3.19 billion, liabilities to $1.95 billion, and stockholders' equity to $1.24 billion Balance Sheet Items (in thousands) | Balance Sheet Items (in thousands) | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $1,935,626 | $1,182,955 | | Total assets | $3,193,561 | $2,251,258 | | Total current liabilities | $251,093 | $109,732 | | Total liabilities | $1,950,218 | $1,641,623 | | Total stockholders' equity | $1,243,343 | $609,635 | Condensed Consolidated Statements of Operations Net revenues grew 51% to $198.4 million, but a $65.2 million net loss resulted, primarily from a $77.2 million debt extinguishment loss Income Statement (in thousands, except per share) | Income Statement (in thousands, except per share) | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net revenues | $198,378 | $131,590 | | Gross profit | $126,994 | $89,200 | | Income from operations | $16,779 | $3,276 | | Net loss | $(65,179) | $(5,713) | | Net loss per share, basic and diluted | $(0.49) | $(0.05) | Condensed Consolidated Statements of Cash Flows Operating cash flow was $73.6 million, investing used $765.0 million, and financing provided $867.6 million, driven by a $1.09 billion equity offering Cash Flow Activities (in thousands) | Cash Flow Activities (in thousands) | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $73,573 | $62,967 | | Net cash used in investing activities | $(764,952) | $(47,262) | | Net cash provided by (used in) financing activities | $867,600 | $(44,169) | - Financing activities were primarily driven by proceeds from an equity offering of $1,091.5 million, partially offset by the repayment of convertible senior notes totaling $189.8 million[32] Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue disaggregation, a small acquisition, convertible note activities, legal proceedings, and a major equity offering - The company adopted ASU 2020-06 on January 1, 2021, which simplified the accounting for convertible instruments, resulting in an increase to convertible senior notes of $378.1 million and a decrease to additional paid-in capital of $465.0 million[54] Revenue by Product Line (in thousands) | Revenue by Product Line (in thousands) | Q1 2021 | Q1 2020 | YoY Change | | :--- | :--- | :--- | :--- | | Chegg Services | $162,351 | $100,359 | +62% | | Required Materials | $36,027 | $31,231 | +15% | | Total net revenues | $198,378 | $131,590 | +51% | - In February 2021, the company completed an acquisition of a technology company for a purchase consideration of $8.0 million in cash to strengthen content creation abilities[76] - The company is subject to a Civil Investigative Demand (CID) from the Federal Trade Commission (FTC) regarding data security and privacy practices, and is facing over 16,000 arbitration demands related to a 2018 data incident[100][102][103] - In February 2021, the company issued and sold 10,974,600 shares of common stock, generating net proceeds of $1,091.5 million[108] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 51% revenue growth to Chegg Services, with net loss widening due to a $78.2 million debt extinguishment loss, maintaining strong liquidity - The COVID-19 pandemic had a positive impact on the business in Q1 2021, leading to an acceleration in subscriber growth and engagement with the learning platform[127] - Chegg Services revenue increased to 82% of net revenues in Q1 2021, up from 76% in Q1 2020, highlighting the strategic shift towards subscription services[131] - The decrease in gross margin to 64% in Q1 2021 from 68% in Q1 2020 was primarily due to higher order fulfillment fees, increased textbook write-downs, and higher amortization of content and intangible assets[140] - The significant increase in 'Other (expense) income, net' was primarily driven by a $78.2 million loss on the early extinguishment of the 2025 convertible notes and a $7.1 million net loss on the change in fair value of derivative instruments[149] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposures were reported compared to the prior Annual Report on Form 10-K - There were no material changes in the company's market risk during the three months ended March 31, 2021[178] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[180] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[181] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various legal proceedings and claims, with details provided in Note 8 of the financial statements - The company is involved in various legal proceedings and investigations related to intellectual property, employment, and other matters, with specific details provided in Note 8 of the financial statements[183] Item 1A. Risk Factors No material changes to the company's risk factors were reported since the prior Annual Report on Form 10-K - No material changes to the company's risk factors were reported since the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2020[184] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Chegg repurchased $100.0 million of 2025 convertible notes for $184.9 million, with $165.5 million remaining under the repurchase program - During Q1 2021, the company repurchased $100.0 million of its 2025 convertible notes for an aggregate consideration of $184.9 million, with $165.5 million remaining under the repurchase program, which expires on December 31, 2021[185] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and Inline XBRL financial data files - The report includes required exhibits such as CEO and CFO certifications (Exhibits 31.01, 31.02, 32.01) and Inline XBRL financial data files (Exhibit 101 series)[188]