Chegg(CHGG) - 2022 Q1 - Quarterly Report

PART I Item 1. Financial Statements (unaudited) Chegg reported Q1 2022 net revenues of $202.2 million, a net income of $5.7 million, and total assets of $2.66 billion, with the Busuu acquisition impacting goodwill Condensed Consolidated Balance Sheets Total assets decreased to $2.66 billion by Q1 2022, driven by reduced cash but offset by increased goodwill from the Busuu acquisition Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $267,731 | $854,078 | | Total current assets | $1,246,633 | $1,622,648 | | Goodwill | $641,284 | $289,763 | | Total assets | $2,662,470 | $2,919,246 | | Liabilities & Equity | | | | Total current liabilities | $155,431 | $114,344 | | Convertible senior notes, net | $1,679,534 | $1,678,155 | | Total liabilities | $1,853,949 | $1,812,329 | | Total stockholders' equity | $808,521 | $1,106,917 | Condensed Consolidated Statements of Operations Q1 2022 net revenues increased 2% to $202.2 million, resulting in a net income of $5.7 million, a turnaround from a prior-year net loss Q1 Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net revenues | $202,244 | $198,378 | | Gross profit | $147,159 | $126,994 | | Income from operations | $5,376 | $16,779 | | Net income (loss) | $5,742 | $(65,179) | | Diluted net income (loss) per share | $0.04 | $(0.49) | Condensed Consolidated Statements of Cash Flows Q1 2022 saw $80.0 million in operating cash, but significant cash usage for the Busuu acquisition and share repurchases led to a $585.9 million net cash decrease Q1 Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $80,035 | $73,573 | | Net cash used in investing activities | $(363,072) | $(764,952) | | Net cash (used in) provided by financing activities | $(307,461) | $867,600 | | Net (decrease) increase in cash | $(585,870) | $176,221 | | Cash, cash equivalents and restricted cash, end of period | $270,023 | $657,936 | - The primary uses of cash in Q1 2022 were the acquisition of Busuu for $401.1 million (net of cash acquired) and the repurchase of common stock for $300.5 million[28][146] Notes to Condensed Consolidated Financial Statements Notes detail the Busuu acquisition, legal proceedings, a $300 million share repurchase, and the post-quarter sale of the print textbook library - On January 13, 2022, Chegg acquired 100% of Busuu for $421.7 million, resulting in $367.4 million goodwill and $71.6 million intangible assets[55][56] - The company is involved in several legal proceedings, including a securities fraud class action, shareholder derivative complaints, and a copyright infringement lawsuit from Pearson Education, Inc[79][81][82][83] - In February 2022, the company initiated a $300 million accelerated share repurchase (ASR) program, with an initial delivery of 8.6 million shares[90] - Subsequent to quarter-end, Chegg sold its print textbook library to BBA for $14 million and entered a revenue-share partnership for Required Materials[95][96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 2% revenue growth driven by Chegg Services and Busuu, offset by Required Materials decline, alongside improved gross margin and increased operating expenses Results of Operations Q1 2022 net revenues rose 2% to $202.2 million, with Chegg Services growing 14% and Required Materials declining 52%, impacting operating income Revenue by Product Line (in thousands) | Product Line | Q1 2022 | Q1 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Chegg Services | $184,812 | $162,351 | $22,461 | 14% | | Required Materials | $17,432 | $36,027 | $(18,595) | (52)% | | Total net revenues | $202,244 | $198,378 | $3,866 | 2% | - The decrease in Required Materials revenue was attributed to print textbook logistics challenges and lower unit volumes from decreased college enrollments[118] - Sales and marketing expenses increased by $16.3 million (62%), primarily due to increased international marketing spend, including from the newly acquired Busuu[125] - The company is experiencing a slowdown in the education industry due to the COVID-19 pandemic and macroeconomic conditions like inflation, resulting in fewer enrollments and less student engagement[104] Liquidity and Capital Resources Chegg maintained $1.6 billion in liquidity as of March 31, 2022, and executed a $300 million accelerated share repurchase program during Q1 - The company's principal sources of liquidity as of March 31, 2022, were cash, cash equivalents, and investments totaling $1.6 billion[133] - A securities repurchase program authorizes up to $1.0 billion in repurchases; during Q1 2022, a $300.0 million accelerated share repurchase was initiated, with $65.5 million remaining available[134] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk were reported for the quarter compared to the 2021 Annual Report on Form 10-K - No material changes in market risk were reported for the quarter compared to the 2021 Annual Report on Form 10-K[153] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to 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 as of the end of the period[156] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[157] PART II Item 1. Legal Proceedings The company is subject to various legal proceedings, including shareholder derivative suits and a copyright infringement case, as detailed in Note 8 - The company is subject to various legal proceedings and claims, with detailed information cross-referenced to Note 8, "Commitments and Contingencies," in the financial statements[159] Item 1A. Risk Factors No material changes to the company's risk factors were reported compared to the 2021 Annual Report on Form 10-K - There have been no material changes in the company's risk factors from its Annual Report on Form 10-K for the fiscal year ended December 31, 2021[160] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales occurred in Q1 2022, while the company completed a 2021 ASR and initiated a new $300 million ASR, repurchasing 10.7 million shares - The company had no unregistered sales of securities during the three months ended March 31, 2022[161] Share Repurchase Activity (Q1 2022) | Period | Total Securities Repurchased | Notes | | :--- | :--- | :--- | | Jan 1 - Jan 31 | 2,163,219 | Final settlement of 2021 ASR agreement | | Feb 1 - Feb 28 | 8,562,255 | Initial delivery from new 2022 ASR agreement for $300M | | Total | 10,725,474 | | Item 6. Exhibits The exhibits filed include CEO and CFO certifications required by Sarbanes-Oxley and Inline XBRL Instance Documents - The exhibits filed with the report include certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL data files[168]