Chegg(US:CHGG)2022-05-03 00:36Financial Data and Key Metrics Changes - Total revenue for Q1 2022 grew to $202 million, driven by Chegg Services growth of 14% to $185 million, with subscribers increasing to 5.4 million [18][6] - Adjusted EBITDA margin was 31%, or $62 million, exceeding initial estimates despite significant investments for future growth [18][19] - The company ended the quarter with $1.6 billion in cash and investments, having used $422 million to purchase Busuu and $300 million for an accelerated share repurchase [19][20] Business Line Data and Key Metrics Changes - Chegg Services experienced a 14% year-over-year growth, with a notable increase in subscribers, including approximately 600,000 from the newly acquired Busuu service [6][18] - The gross margin came in slightly higher than expected, benefiting from scaling [18] - The transition to a partnership for textbook offerings is expected to contribute approximately $7 million to $10 million in annual revenue starting in 2023 [20] Market Data and Key Metrics Changes - Approximately 1 million students in the U.S. have postponed or forgo higher education over the last two years, impacting traffic to higher education support services [7][8] - The company is experiencing strong engagement and retention rates, particularly with the Chegg Study Pack, which has seen an increase in average revenue per user (ARPU) [10][15] Company Strategy and Development Direction - The company is focused on international expansion, language learning, skills training, and supplemental support services, aiming to gain greater market share [9][11] - The launch of Uversity is expected to deepen relationships with academic institutions and expand the student base [12] - Chegg is building new B2B channels for skills and language services, with early success noted in partnerships with Guild and Busuu [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges due to enrollment issues, economic conditions, and inflation impacting the industry, leading to a reduction in guidance [7][8] - Despite current challenges, management remains optimistic about future growth, particularly in international markets and through the skills business [9][29] - The company expects to return to higher and more predictable growth over time, emphasizing the importance of supporting students beyond academics [15][23] Other Important Information - The company is transitioning to a model where it will offer textbooks through a partner, which is expected to improve margins [20] - Management noted that the competitive landscape remains favorable, with Chegg gaining market share despite industry headwinds [42][43] Q&A Session Summary Question: How does Chegg plan to recover from current challenges? - Management indicated that gaining market share and investing in international growth and skills business are key strategies for recovery [26][29] Question: What has changed regarding student enrollment and rigor? - Management attributed the volatility to inflation and wage increases, which have led students to prioritize earning over learning [32][34] Question: How are subscriber numbers trending domestically versus internationally? - Management confirmed that while U.S. subscriber growth has faced headwinds, international markets continue to grow [36][49] Question: What is the competitive environment like? - Management stated that Chegg remains profitable and is gaining market share, with no significant traction lost to competitors [42][43] Question: How is inflation impacting student budgets and price sensitivity? - Management noted that despite inflation, students are increasingly opting for the Chegg Study Pack, indicating strong demand for academic support [80][82] Question: What progress has been made with Uversity? - Management reported strong interest from professors in contributing content, with a full rollout to students expected later in the year [85] Question: How does the company view its free cash flow guidance? - Management maintained that free cash flow guidance remains in the 50% to 60% range, despite current challenges [92]