Chegg, Inc. (NYSE:CHGG), the leading student-first connected learning platform, today reported financial results for the three months ended March 31, 2025. “In Q1, we exceeded our revenue and adjus...
Makes progress on strategic alternatives process and initiates additional restructuring of the business
SANTA CLARA, Calif.: Chegg, Inc. (NYSE:CHGG), the leading student-first connected learning platform, today reported financial results for the three months ended March 31, 2025.
“In Q1, we exceeded our revenue and adjusted EBITDA expectations, delivered $16 million of free cash flow and continued to diversify our revenue streams. We are encouraged by the conversations in our strategic alternatives process and the value these organizations see in our business,” said Nathan Schultz, Chief Executive Officer & President of Chegg, Inc. “Despite these promising developments, we believe the trends impacting our business will worsen before they get better. We are taking steps to further align costs with our outlook, including an additional restructuring of our business.”
First Quarter 2025 Highlights
Total net revenues include revenues from Subscription Services and Skills and Other. Subscription Services includes revenues from our Chegg Study Pack, Chegg Study, Chegg Writing, Chegg Math, and Busuu offerings. Skills and Other includes revenues from Chegg Skills, advertising services, content licensing, print textbooks and eTextbooks.
For more information about non-GAAP net (loss) income, non-GAAP gross margin and adjusted EBITDA, and a reconciliation of non-GAAP net (loss) income to net loss, gross margin to non-GAAP gross margin and adjusted EBITDA to net loss, see the sections of this press release titled, “Use of Non-GAAP Measures,” “Reconciliation of Net Loss to EBITDA and Adjusted EBITDA,” and “Reconciliation of GAAP to Non-GAAP Financial Measures.”
Business Outlook
Second Quarter 2025
For more information about the use of forward-looking non-GAAP measures, a reconciliation of forward-looking net loss to EBITDA and adjusted EBITDA for the second quarter 2025, see the below sections of the press release titled “Use of Non-GAAP Measures,” and “Reconciliation of Forward-Looking Net Loss to EBITDA and Adjusted EBITDA.”
An updated investor presentation and an investor data sheet can be found on Chegg’s Investor Relations website https://investor.chegg.com.
Prepared Remarks - Nathan Schultz, CEO & President Chegg, Inc.
Thank you, Tracey. Hello everyone and thank you for joining Chegg’s first-quarter 2025 earnings call.
Q1 was a good quarter for Chegg. We surpassed our revenue and adjusted EBITDA guidance, generated approximately $16 million in free cash flow, and diversified our revenue in two key ways.
Concerning our strategic review process, we’ve made significant progress. As a reminder, we undertook this effort last quarter with Goldman Sachs, to explore a range of outcomes to maximize shareholder value, including being acquired, undertaking a go-private transaction, or remaining as a public standalone company, and continue to believe this is the right step to maximize shareholder value. To date, we’ve had dozens of meetings with interested parties, ranging from strategic tech and education companies to private equity firms. Early indications are positive, and we are encouraged by the conversations and the value these organizations see in our business.
Here’s what’s capturing potential acquirers' attention:
While we exceeded expectations in Q1 and see great value in the areas of the business I just went through, we believe the macroeconomic trends will continue to put pressure on our company and business trends will worsen before they get better. Google and their expansion of AI Overviews continues to keep web traffic captive in the Google search experience and migrate search to Gemini. Additionally, language model companies are turning to academia for validation, with OpenAI recently giving college students free access to Chat GPT Plus, and Anthropic launching a free education offering.
As a result, we are once again taking proactive measures to align costs with our business outlook. We executed two restructurings in 2024, and today we are announcing further cost reduction plans. This restructuring will include expense reductions across our business, including closing physical offices in the US and Canada by the end of the year, limiting our upper funnel marketing, reducing new product development efforts, and finally cutting our general and administrative expenses. Chegg Skills and Busuu are not affected as we are encouraged by the progress these businesses have made and we are investing in their growth. As part of this, we regrettably will be parting ways with approximately 22% or 248 of our talented team members, which is a challenging decision and one I’m saddened by. The impact is concentrated in the US and Canada, and predominantly affects Chegg Study and corporate services, which will result in a 66% reduction in these areas of our business. The actions taken today will drive $45-$55 million of savings in 2025, with full year savings of $100-$110 million in 2026. This is on top of the $120 million of 2025 savings we are on track to fully realize from our two 2024 restructuring initiatives. These decisions continue to be challenging, and we do not make them lightly. I want to personally thank each talented team member for their contributions to Chegg.
To conclude, I want to reinforce the key points from what I shared today.
With that, I’ll turn it over to David.
Prepared Remarks - David Longo, CFO Chegg, Inc.
Thank you, Nathan and good afternoon.
Today, I will be presenting our financial performance for the first quarter of 2025, along with the company’s outlook for the second quarter.
We delivered a good first quarter, surpassing our guidance on both revenue and adjusted EBITDA, and generated $16 million in free cash flow. Despite ongoing industry headwinds, we remain committed to our student-first strategy and prudent cost management in line with our business outlook. As part of this commitment, we announced a restructuring today, which I will elaborate on shortly. Additionally, during the quarter, we took further steps to enhance our capital structure by repurchasing $65 million of our 2026 convertible notes at a discount.
In the first quarter, total revenue was $121 million, a decrease of 30% year-over-year. This includes Subscription Services revenue of $108 million. We had 3.2 million subscribers during the quarter, representing a year-over-year decline of 31%. Skills and Other revenue was $14 million in the quarter, which includes our new revenue stream from content licensing. So far, we have executed two content licensing deals with two of the top ten technology companies in the world, generating $4 million of revenue in Q1 and we expect an additional $7 million in Q2. These deals represent less than 5 percent of our content library and are non-exclusive, allowing us the opportunity to license the content to other companies. We are in discussions with other companies to expand our licensing efforts even further.
In the first quarter gross margin was 56%. During the quarter, we streamlined our product offerings and discontinued certain content and internal-use software assets, resulting in a one-time charge of $16.2 million of accelerated depreciation recorded in cost of revenues. This negatively impacted gross margin by 13 percentage points.
Non GAAP operating expenses were $80.5 million in the quarter, a reduction of approximately $20 million or 20% year over year, driven by the execution of the restructurings we announced last year. We are on track to achieve the full-year savings of $120 million from these actions. The complete savings will be realized throughout this year. Our first quarter adjusted EBITDA was $19 million, representing a margin of 16%.
Free cash flow for the first quarter was $15.8 million, despite incurring approximately $8 million in cash outlays related to employee severance from our restructurings. Capital expenditures for the quarter were $9 million, down 69% year-over-year, as we are now fully realizing the benefits of our investments in AI.
As mentioned earlier, in the first quarter we opportunistically repurchased $65.2 million in aggregate principal amount of our 2026 convertible notes at a $7.8 million discount to par. Our 2025 convertible notes matured in March, and we repaid the full principal amount of $358.9 million.
Looking at the balance sheet, we concluded the quarter with cash and investments of $126 million and a net cash balance of $64 million.
As Nathan outlined earlier, we are executing an additional restructuring plan to continue to align our cost structure with our revenue as we navigate the continued industry challenges and the negative impact on our business. This restructuring will impact 248 employees, or approximately 22% of the company. This restructuring will result in non-GAAP expense savings of $45-$55 million in 2025 and $100-$110 million in 2026, stemming from employee departures, cost rationalizations, and real estate savings. We have negotiated a penalty-free agreement with our landlord to exit our Santa Clara lease prior to the expiration date, as we seek a smaller office workspace. We expect to incur charges of approximately $34-38 million related to this restructuring, representing mostly severance payments. Of this charge, we expect $31-35 million will be incurred in cash, with the remaining amount representing non-cash charges. We expect that a substantial portion of the cash and non-cash charges will be incurred in the second and third quarters. We anticipate completing these activities and substantially all charges by December 31, 2025. The cost savings from the two fully implemented restructurings announced in 2024, coupled with the restructuring announced today, will result in a combined non-GAAP savings of $165-$175 million in 2025.
Looking ahead, industry challenges continue to cause a notable decline in traffic and subscriber acquisitions. These conditions are a source of continued pressure on our business and are impacting our financial outlook.
For Q2 guidance, we expect:
In closing, while ongoing industry challenges impacting Chegg Study continue to affect our financial performance, the opportunity to support and serve students remains. We are taking the right steps to align the cost structure. At the same time, we continue to evaluate a range of strategic alternatives to ensure we are maximizing value for our shareholders and are encouraged by the interest we have received.
With that, I will turn the call over to the operator for your questions.
Conference Call and Webcast Information
To access the call, please dial 1-877-407-4018, or outside the U.S. +1-201-689-8471, five minutes prior to 5:00 a.m. Pacific Time (or 8:00 a.m. Eastern Time). A live webcast of the call will also be available at https://investor.chegg.com under the Events & Presentations menu. An audio replay will be available beginning at 9:00 a.m. Pacific Time (or 12:00 p.m. Eastern Time) on May 12, 2025, until 8:59 p.m. Pacific Time (or 11:59 p.m. Eastern Time) on May 19, 2025, by calling 1-844-512-2921, or outside the U.S. +1-412-317-6671, with Access ID 13753290. An audio archive of the call will also be available at https://investor.chegg.com.
Use of Investor Relations Website for Regulation FD Purposes
Chegg also uses its investor relations website, https://investor.chegg.com, as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Accordingly, investors should monitor https://investor.chegg.com, in addition to following press releases, Securities and Exchange Commission filings and public conference calls and webcasts.
About Chegg
Chegg provides individualized learning support to students as they pursue their educational journeys. Available on demand 24/7 and powered by over a decade of learning insights, the Chegg platform offers students artificial intelligence (AI)-powered academic support thoughtfully designed for education coupled with access to a vast network of subject matter experts who help ensure quality and accuracy. No matter the goal, level, or style, Chegg helps millions of students around the world learn with confidence by helping them build essential academic, life, and job skills to achieve success. Chegg is a publicly held company based in Santa Clara, California and trades on the NYSE under the symbol CHGG. For more information, visit www.chegg.com.
Use of Non-GAAP Measures
To supplement Chegg’s financial results presented in accordance with generally accepted accounting principles in the United States (GAAP), this press release and the accompanying tables and the related earnings conference call contain non-GAAP financial measures, including adjusted EBITDA, non-GAAP cost of revenues, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP income from operations, non-GAAP net (loss) income, non-GAAP weighted average shares, non-GAAP net income per share, and free cash flow. For reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled, “Reconciliation of Net Loss to EBITDA and Adjusted EBITDA,” “Reconciliation of GAAP to Non-GAAP Financial Measures,” “Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow,” and “Reconciliation of Forward-Looking Net Loss to EBITDA and Adjusted EBITDA.”
The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. Chegg defines (1) adjusted EBITDA as earnings before interest, taxes, depreciation and amortization or EBITDA, adjusted for share-based compensation expense, other income, net, acquisition-related compensation costs, impairment expense, restructuring charges, content and related assets charge and transitional logistic charges; (2) non-GAAP cost of revenues as cost of revenues excluding amortization of intangible assets, share-based compensation expense, acquisition-related compensation costs, restructuring charges, content and related assets charge, and transitional logistic charges; (3) non-GAAP gross profit as gross profit excluding amortization of intangible assets, share-based compensation expense, acquisition-related compensation costs, restructuring charges, content and related assets charge, and transitional logistic charges; (4) non-GAAP gross margin is defined as non-GAAP gross profit divided by net revenues, (5) non-GAAP operating expenses as operating expenses excluding share-based compensation expense, amortization of intangible assets, acquisition-related compensation costs, restructuring charges, impairment expense, impairment of lease related assets, and loss contingency; (6) non-GAAP income from operations as loss from operations excluding share-based compensation expense, amortization of intangible assets, acquisition-related compensation costs, restructuring charges, impairment expense, content and related assets charge, impairment of lease related assets, loss contingency, and transitional logistic charges; (7) non-GAAP net (loss) income as net loss excluding share-based compensation expense, amortization of intangible assets, acquisition-related compensation costs, amortization of debt issuance costs, the income tax effect of non-GAAP adjustments, restructuring charges, impairment expense, content and related assets charge, impairment of lease related assets, gain on sale of strategic equity investment, gain on early extinguishment of debt, loss contingency and transitional logistic charges; (8) non-GAAP weighted average shares outstanding as weighted average shares outstanding adjusted for the effect of shares for stock plan activity and shares related to our convertible senior notes, to the extent such shares are not already included in our weighted average shares outstanding; (9) non-GAAP net income per share is defined as non-GAAP net (loss) income divided by non-GAAP weighted average shares outstanding; and (10) free cash flow as net cash provided by operating activities adjusted for purchases of property and equipment. To the extent additional significant non-recurring items arise in the future, Chegg may consider whether to exclude such items in calculating the non-GAAP financial measures it uses.
Chegg believes that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding Chegg’s performance by excluding items that may not be indicative of Chegg’s core business, operating results or future outlook. Chegg management uses these non-GAAP financial measures in assessing Chegg’s operating results, as well as when planning, forecasting and analyzing future periods and believes that such measures enhance investors’ overall understanding of our current financial performance. These non-GAAP financial measures also facilitate comparisons of Chegg’s performance to prior periods.
As presented in the “Reconciliation of Net Loss to EBITDA and Adjusted EBITDA,” “Reconciliation of GAAP to Non-GAAP Financial Measures,” “Reconciliation of Forward-Looking Net Loss to EBITDA and Adjusted EBITDA,” and “Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow,” tables below, each of the non-GAAP financial measures excludes or includes one or more of the following items:
Share-based compensation expense.
Share-based compensation expense is a non-cash expense that varies in amount from period to period and is dependent on market forces that are often beyond Chegg's control. As a result, management excludes this item from Chegg's internal operating forecasts and models. Management believes that non-GAAP measures adjusted for share-based compensation expense provide investors with a basis to measure Chegg's core performance against the performance of other companies without the variability created by share-based compensation as a result of the variety of equity awards used by other companies and the varying methodologies and assumptions used.
Amortization of intangible assets.
Chegg amortizes intangible assets, including those that contribute to generating revenues, that it acquires in conjunction with acquisitions, which results in non‑cash expenses that may not otherwise have been incurred. Chegg believes excluding the expense associated with intangible assets from non-GAAP measures allows for a more accurate assessment of its ongoing operations and provides investors with a better comparison of period-over-period operating results. No corresponding adjustments have been made related to revenues generated from acquired intangible assets.
Acquisition-related compensation costs.
Acquisition-related compensation costs include compensation expense resulting from the employment retention of certain key employees established in accordance with the terms of the acquisitions.
Fonte: Business Wire
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