Chegg (CHGG) 26 Oct 202020 Q3 Earnings call transcript

Greetings and welcome to Chegg, Inc's Third Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tracey Ford, Vice President of Investor Relations for Chegg. Thank you.

You may begin.

afternoon. Good joining XXXX for call. third Chegg's you conference quarter Thank and Dan Andy On are Co-Chairperson CEO; today's call Officer. Rosensweig; and Financial Brown, Chief copy our press presentation A earnings with our investor our release is Relations Investor along at website investor.chegg.com. available of also call of on available will replay our be A this website. make at post chegg.com/mediacenter. information to website our on and our routinely announcements media We intend on important center website use to We make of these encourage you resources.

will we that of a make result date. of like to statements point cautionary filed the assumptions reasonable today as we that update this statements that as with We Before to call, including XX-Q statement. and XXXX as from begin, to Chegg's these filings Form refer on events. Any cause forward-looking course In August we you the to Commission forward-looking and caution those of quarterly report on described our undertake the believe materially company. new events, important and to risks results to language could the included SEC. or statements risk I consider are would future Exchange are from These well on factors the X, this we forward-looking today's We we the based in financial make could that be no future cause Securities actual forward-looking operating obligation information release forward-looking with as material earnings in other the of during factors regarding out future those and differ in that statements the results in the to particular, differ materially the subject statements. uncertainties to actual performance you

and present During both measure. non-GAAP call, this will financial we GAAP

release and results slide the investor website press on and in Our can earnings investor.chegg.com. non-GAAP our found IR GAAP deck reconciliation our be GAAP to

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over turn to the I Dan. call will Now,

third Chegg's welcome Thank everyone you, quarter to earnings Tracey, and call.

need navigate we times. and First has continue has this apparent your be become foremost, these pandemic unprecedented better you does hope higher leveraging model on-demand, and of that a to the technology families to all more much learner. It terrible and a student-centric, of to further us education only to for job healthy and affordable we that the as well, highlighted the transition is advantage to

on been shift high-quality students extraordinary students become, through in the we growth for it their As all to total for now to back take high will the our our more like continue provide continues and online, are they XXXX And shortly, of to business these will time. knew believe get on-demand, for confidence are would XX% year-over-year. you share results, why of you, modern outlook the and has affordable, are than support In need importantly on before year-over-year, quarter. not. an online uncertain X.X our or net evident on QX, millions relying learning, our The in we more experiencing towards Andy gives and momentum years. raise Chegg yielded results their initial to to to XXXX. at for walk personalized for would these of model better the helping are saw ever numbers moment such QX things million again reaching education while semesters, year, with clear revenue Millions I whether campus students Chegg are focused but navigate we a students as perform growth the the XX% trend subscriber return have we to they always around of tailored of inevitable a learner. for and our increasingly we globally, asking guidance This online these us world a adaptive, level. the a demanding through

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threepeat. note, on everything Great group turn team Magazine's Andy? focused the year Chegg time make want of could incredible this Places to thank will them world, for congratulate a it one take So of want with so this the I during to be Fortune Andy. that, that to row. incredible again for Chegg Chegg to moment of I and over I to third who as to and have It's And brilliantly employees executed I prouder so do unusual the great. they in once a Work not honored real in being a year this for remained

Thanks, Dan, afternoon, good and everyone.

hope safe I during foremost, and difficult First families your staying are you these times. and

had another business metrics our quarter ahead Chegg expectations. results, you of As the great with can once again, from see and financials our

During The provide also the for economic very initial four confidence us the XXXX domestically quarter, as a and an guidance offering. we and uncertainties. the for year, years, outlook for both our been success we executed give we to raise again experiencing, despite debt received convertible early next have well past internationally, ongoing are

at ahead approximately over the build for in all revenue well QX, million, while the along Adjusted with specifically approximately completed growth as for at were increasingly million, outstanding quarter primarily XXXX, was the driven convertible EBITDA debt model, offering, making of incremental to was to continue increase total XXXX investments. friendly quarter, our the issuer money. in to the markets. a XX% notes and cash we third In to significant and quarter future. as XX% international billion continue the concurrent what with Looking expected in a We both we subscriber investments the we quarter, a very $XX leverage growth $XXX opportunities we $X.X domestic X.X XX% of see of deep of ended million, in on see principal exchange the strong that by

minimize and shareholder our business, outstanding use expect opportunistic or the We instruments. flows at to to current repurchase potential including on to dilution our acquisitions times from sheet and cash these balance notes call cash fund to future operating

both sheet, cash and are to model which industry, We our and we shareholders. continue strongest the our combination to education scale, the advantage operating our balance customers provide believe believe of a in flows the significant

the experiencing, are Moving XXXX. we Based on momentum our to for and increasing results the guidance. QX from are strong we guidance on continued

and now $XXX we million and Services margin $XX $XXX expect between and revenue adjusted $XX million between Chegg QX, between EBITDA million with million gross between For and XX% and $XXX $XXX total million, million. XX%

between million now a result, between increasing between Chegg XX% between As $XXX XXXX $XXX Gross total million margin and XX% full-year million Services adjusted $XXX EBITDA with revenues are $XXX and guidance million. and and million we and million. our and $XXX expect $XXX

approximately with for Chegg initial to revenue our growing Services $XXX is expectation XXXX, revenue $XXX total to Turning million. approximately million,

to turn call year their provide expect end for a learning points to margin and from while delivered we to the that is the clear high operator strong confidence over and $XXX for increase serving with adjusted outlook approximately With the students expectations, and is with increasingly XXX basis to the QX. questions. XX% earning. million, them improving We guidance the of model to in another and approximately giving your education EBITDA expect expanding affordable quarter by services, adjusted EBITDA increasing initial It that, landscape will in QX XXXX. XXXX. high than strong over our above move of us had directly gross the be continued helping full value, our closing, In leverage margin, We envy outcomes model more I becoming

question Instructions] Jeff of from [Operator the Our question. with your Markets. first proceed BMO Silber with comes Please line Capital

In there of higher how curious talked but we Thanks. wondering, just can has little bit just get been color momentum take going, about as you out? I terms Chegg Study your you bit the rolled Pack. been rate, little that's remarks, about more you am in it I'm a how the a talked than expected prepared

been The mean by Yes, what this is Dan. great. do that. And momentum I has

can value are sure that an very seeing of because for expected. we rate we outside And they are started which really weren't it. can we a surprised are package a that, it than students But top that seeing clear taking earlier we the we So do. would us, how to U.S. similar than rate the writing U.S. On that take the in expected. take overwhelming create it's that better more we we

couldn't to with be happier honest we So be you.

have the Can little impact little I on bit And been higher. ARPU, a that? thought a about think might talk bit people you

full to Yes, and hard Thinkful. report, like Chegg and Services it's because really now ARPU we things includes a report it way like the breakout number includes things we advertising that

know and ARPU the if the yield So that number look you per but - do we up, just subscriber revenue is at is that up. subscriber,

So positive. extraordinarily it's

You advertising you rest we make is were just look have pleased. why been have of balance. compared advertising that's to slightly the an to the apples-to-apples, our businesses, business but to which may remember, up do much if at just has smaller you weaker, very But that it would be

Yes.

we're Dan when Jeff, internally the we seeing for involved. you've Unfortunately, Yes, subscribers, ARPU businesses increase like said. look at got it other

Our with Please of Sheldon question. Stephen comes William next the with from proceed line your Blair. question

strong Thanks and quarter. on another congrats

you. Thank

EBITDA in maybe And seeing talk you've adjusted Can trends been you've you and - including 'XX for within your some at Banko topline ahead. looking about recently funnel additionally continue frame trends what guidance? of Thinkful revenue included terms

you the tell are is of I'll parts But to - we better going it look what ago looking we when it - better than year. But expectations year over business I our turn all Andy. we to anticipated start us year more is, and performing break Andy November. this out. $XXX what than out mean, we million and clearly guidance gave for our than doing a originally we're last don't this

In growth just significantly the businesses. was great Thinkful, just month, So our it's are the so of because rate last the just growing take Thinkful's a month of our year will Thinkful all clearly seeing. this trough but to take we're for really on want sort February a seeing less not higher. really we're we it rates be quickly, had of are or I - the yet, early seeing real say, it's of growth in case significant contributor which raise businesses growth though bit little people to other that remind it's year, to and that than we've the from,

it's still to things. - in small, We Thinkful not with clearly the And and relatively investments Yes. point, Thinkful Dan's to accelerated with other XXXX and scale yet. development course at to we've some respect respect clearly

at small, again, it to scale contribute believe - definitely that contribute to acquisition. EBITDA think it relatively And at we've will EBITDA. made do so the And grow will continuing it's we when to anticipated we we next year, but at once look XXXX, the as we rates will it

comes of from Company. next line the question. question Our Needham MacDonald Ryan your & with proceed with Please

Congrats on an excellent quarter.

about to do of be students As for we trends the what as in you in risk ending adoption, risk early maybe guidance, have more into or any terms talk are and visibility can a Thanks. numbers have semester usage we you look online? bit you XQ different at the say there the look as fourth And quarter may guidance revenues that to December built Thanksgiving have that are Andy, been the any all? the universities at might and

I'll I'll Dan. let take the of second part care take take is first your - this part, of the question. Andy

that there to lot in companies navigate. terms we like look, had surprises, has been a of of other variables have So,

So start attending campus. we they anticipate thing are were that they is date, school they or which of how there actually would online. end is dates, original while were attending COVID which students on many total one whether get And didn't are students then their was scary, attending number

tell you subscribe in to it or can relates we've we so using what's COVID at they those are they're it. as parameters actually when And behavior see - we actually because going the their to schools it when on

we just school know how it that have if doing differently. But would we didn't have. that don't something done I that is - was was should So anticipate, probably

the when we just mean, like that penetration colleges, account how now - is sharing, means many just we a I well So, schools, time, bunch mentioned beyond English-speaking that for community in, XXX is the first rarely the haven't except more countries. into into work on to surprises initiatives countries penetration you things which any the countries upside, of which which global, we're we're seen online we

it's all them have would is is they many between very of has do we as and surprises things just revealed to them difficult dependent really which know, their So happen, as about should are the to people it's what we on upside, earning. but why - And help believe think to are navigate numbers happening of are be been just the the timing how are. of the learning to big curriculum, COVID that all

case, disappointing been for me country, good a to side, business gives surprises have as whereas our in business the having the the So, been great. not it's through just us, go this has

Okay.

then respect to on the semester And handle the are into with what well we fall - Ryan what now, a guidance, aren't semester schools right schools have QX good doing. and we're pretty doing,

we into our all so, and feel we where that with of we're thinking And guidance incorporate at. comfortable

Great. you. Thank

after that. on by given hear mean is, is think is come But early. They outbreak we the just schools I point case. semester second back the evidence going thing lot one may And ending but early, the homes we're not doesn't way, been interesting about Thanksgiving. not for What's ending that's the see Thanksgiving. the the we people not last what sure is that of COVID, a that, are of

benefiting. ready Chegg are circumstances, we circumstances, is all in for So and those

Our question Douglas proceed the JPMorgan. question. comes line with Anmuth your next with from of Please

add I you initial international think the And are about and the sure there's and of there. outlook. help may anything just of 'XX included is Study but quantitatively, sharing I'm conservatism tough mix there Pack initial and how it hoping Just account outlook? sub efforts? you be if can anything could assumptions ARPU kind your 'XX understand qualitatively in us on know what I was adoption in you kind

revenue this year. next you're then understand the to the the that XX% mid to XXs that trying Just you're guided initially year, and into plus seeing growth for Thanks.

Dan. ahead, Go

mentioned, a when year this we're Yes. aren't start than it, terms little to it's But is of giving And back when the alone is for actually a substantially it, guiding where at that. higher alone a top I'll guidance started higher for which actually of I we lot we early. - And we let early. percentage as I'm of in let of sure QX, 'XX, were guiding companies think look bit you on this what growth number.

is that big would I forward, right companies So are opportunity give we the question, momentum, it we before shows positive giving three think we and we it. felt just most all, think should going is the business given how we this about give guidance at and it Chegg for but months which how the because debated comfortable now,

So with let start that. me

the of sort March the and year The first continue through is campus. growth see to lapping of XX the second we'll reality after students part what thing then the left we is, - question the from of is substantial happens the to when

the As not domestically a good a majority in really belief the the COVID se, that reminder, that of account growth it's was result but done per we our domestically, saw job of fact investment the that in sharing. our we've of

we the able reap really continue to students familiar to international the benefits of the outside they So it's just to needed became nowhere, was real the positive to of jumped is leave Chegg. business, because out What of with which to campus, be U.S., expect surprises that.

outside I may or back may And campus. we seeing substantial, As U.S. still not of really substantial growth they the know, mean, on are are you

doing with very growth with continued next can to and plus recognizing a on halves improvements rate estimate mixture a that year, and might year best not but feel the of on just Study the us U.S. it's continued this things be Pack. domestically of So take substantial other renewals then number we the early Chegg the of there outside can two comfortable and we

November it's of where with combination we visualize minimally in all and these we're mentioned, - So XXXX pandemic a changes. in dealing the as year of a what could is now

can about as guidance imagine. we So feel the really you good

as I expectations, and modeling uptake. you give that up following Pack numbers mean, commentary out adoption that you and all any there on forward rolled clearly, mean, it about? but more can of going we any just think just Study are put ARPU, to about your and you just you And can that, earlier, around I above mentioned

Doug, at talk at spent you Andy the $XX.XX. for the as Pack much specific, but those just let time, $XX.XX versus has opportunity the Study numbers, I'll to do, Study to Chegg have that haven't is

$X but XX-plus seeing it's month, more be percent a gross So we'd margins.

it's bottom on both is a positive line, actually why next the real and growth topline So margins. which we're the only the on but positive expecting not our the year, improving EBITDA real substantially

So there. invest is massive of because shows other it continue up we're future to us, people remind Andy and pulled the growth. want a all But call, to so mentioned before I well, investments doing ahead the is thing there that last because we and such on think in forward to call opportunity some we've

But balances. on those all over several will years, we Study lines the would both top and for I that it's expect say bottom a make Chegg imagine next we and impact is significant So what us.

Yes.

comes question Jefferies. your Please question. with next proceed Thill from with Brent Our the of line

share model? you to at and things Can through see improve of you're what all unveiling, the that make ongoing rare type despite comfortable of this margin walk growth investment On in - engine it's time? how same you dual can that at this just What side, the you the kind time. same these happen new makes

investments. in to you've mentioned future our - in Right? that do is, with $XX.XX it investments much international, they incremental be then a we're new pretty initial us it investments making investments grant, whether we not growth. Right? is investments in what subscriber invest line. benefit be time with that they're or future drop we're Study Dan significant in been skills And Chegg could learning, growth what made they Well, Every have the we earlier. like long Whether decided we're Q&A making they made to and opportunities. investments bottom but $X.XX it what in Pack our insignificant and we $XX.XX, do the are at But based

line benefit scales in And between I that where the model which shareholders, profits and long-term. increasingly so us have benefit that, - the balance we've to driving our incremental, that that shareholders like bottom immediately call got investing we both make can in a future, what the while

we things. So we've this do to that model opportunity got that both great have

Andy And XX% Yes, look, is very blessed is in very we're increase is of sum plus I make model total XX% subscriber what of does produces smart - ratio liberate growth a only think up the flow. which with free the said, growth, what XX% that would then that the increase not I revenue investments, exactly growth, believe high way to it. and to time EBITDA cash right us the we percentage and do right,

international started that Chegg massive of which the make the done large road. that we an to sort investments made as that paying but business with itself, dividends to years you're will a now. And obvious large very to that redefine down also really pay-off the then we space think a lock the and sharing, is ago and benefit of few curriculum it's they is very So the and we to one investment We grow is make internationally, technological seeing increased of now. the that in and of prices, and platform allow us account we've leader course all lowered become Thinkful which is we've have

And business. those core because allows we're good on So profitable that focused the the are we're the it's even so where the for for notice to model areas news is you just hard it ways on. in it

Our Baer comes line Please Morgan proceed from with Stanley. the next question with question. your of Josh

it and relates as competition. wanted and go-to-market, profitability focus I on on international a great Thanks, to to congrats quarter.

customer efficient very a domestically, obviously acquisition. So

geographies? of in investments different might internationally then this levels any differences or how needed? the wondering competitive other Just differ And landscape marketing insights in into any

it significance Chegg obviously international question are Currently, sales, that's more the given the of we our news are the the is course a good lot actually operating even U.S. your that really us Yes, those that and shareholders than on The business. of how grew. things efficient focusing of of quickly business for business.

it, remarks We Beyond pay asked that a number the if to the content, prepared And every ever network in any to questions. similar have itself, answer And in away. new is got because XX% questions is in new tracks database said all in Chegg profitable even It's year customers our we've you that, we're of to develop were way total. our of we very we this to most least model at questions years new invested of other of is asked it the very international that gets the new. three and that right terms the being international, questions U.S., ago. we're and size in the which low becomes question subtract are but which a gets total Q&A cost one asked are benefiting shipped here then that stays unique being it about now and that questions the in

So it is significant. quite

a way we we to acquire and low it to way very customers. So low very have do cost cost a have

U.S. behavior people Chegg through where or chegg.com. point. actually of SCO either the to seeing to XX% this that We're outside U.S. similarly same come directly So, the at

grown, collectively marketing been Chegg markets So only been just has app our Services expenses faster. are they bigger Thinkful they for from haven't getting not shifted that

U.S., same good the seeing the with that the us. efficiency really exact rate Chegg the U.S., experience and for So we're efficiency outside in we that's

need same, but we are see XXX think And the because people a I they is help. countries in model countries and the relevant they which will students in turn. English-speaking we're is need to when non-English-speaking countries probably that's surprise help

of of the So sort the U.S. sort outside that accelerated Internet now really include of

we significant is Outside our point point. competitors for of of do parts As I on. competitive the competitors have U.S., for majority set set, sheet, always at have need uneven on for know the a business. in as can at nobody business the our scale size to We the with the the our students don't the you there or do U.S., balance U.S., but that coverage can't are something quality site, for best do they that we is similar to pretty they they their or what in depend been depend this

we where And We a do research in do only we those at we so this those not significant surveys, you but it do categories, it's see point. look - when don't when competitors. country-by-country we any globally, countries

to direct people position, the to seen the took we've consumer. And lot good so to this path U.S., similar in we're go a what very not of in

advantage. And to been so that's our

Please Our Raymond Aaron from next Kessler question comes with with proceed question. James. line the your of

you're and your offerings about get the just, about password maybe more of maybe you. Thank type And for going think that sharing learning, to more seeing curious you're you've in pandemic think shift additionally? pre-college the QX impact middle school on should QX? all what we and things with thinking kind we the has school students update when on I then what at talked of my about maybe high expect

that. I'll how let always, the as Andy account questions, talk sharing, question, about great Yes, for take second accounts we first,

that said to to primarily is always have model going this. direct our be We

and for system a necessarily but business the actually And are there need sales real go school makes strong the are go and we have much direct a more is the so our through can that to the that school they They each much students they through not district be older, we we attrition they more or high margins require would that students, have young expensive, has. not difficult, don't using school those the - decision. through in forces things we there remember school because parent

make decisions. these And future sometimes firm

much are age are in have and We're now for remind country we student, brand XX. is It's to high college the out come going The well. a So of us, we XX. use older us They is actually want this here them and of actually Mathway older, average to and - thing out to Mathway to through into people even students our them Community Writing college. as system. acquire customers XX Online students school not I XX. in then Chegg sell older. to exclusively through the college

older. are going So we

that us. paying with been and Thinkful for off with are down going has We ClearPass,

really to we don't go younger So necessarily. expect

respect with really QX. - Yes. sharing And see password we the to or is benefits in starting of that to started

week continued guidance. in - XX. of recall if Dan getting that into that's our - all that particularly the I in we've issue back is As ability - and as what it's U.S., went kind what, and the away. management, proximity the into the incorporated And accelerated question second benefit our is an correctly, the subsequently got of investments, investment of device prior in where that students QX that U.S. had done around implemented August is mentioned, particularly we sharing August, And off-campus went

your Please with proceed question next Markets. with Our comes line from Jason KeyBanc Capital of question. Celino the

On other question the some question, the management are previous of device the what from the details.

to of the Another was rollout that? details are that then with but the August, middle the in base? And happen your entire installed on what authentication multi-factor and

of of get Dan instead like would I instead like said.

was working it we actors. all in There of is part which sort that, mean our first we with year students done the back people we strange campus, on moved And you do And now. of of getting up people were we've was up see that our been get difficult the growth U.S. make and share. to it that. know reselling focused, XX% we've you that. There to of them more came, and at that coincidences to had when rid of - they to bad our then of when really it first that sure this. XX% stealing has saw hacking to they lot we as efforts accounts and can't moved a for off-campus, What not last then we the A share. do still already prove moved is rate when the quarter XX% what when and COVID by were So on we're in sort fact

up investments that to technology full investment. done than we've it technology we've were leading they things full the forward - halves of done lot that get a more we were So pulled

And so, need now to you devices. your register

some or swaps have which - use campus, want makes do very when did swap the it So you computer third, to that you and they And difficult. because a their labs go computer. when you computers do, we don't two don't money, people the don't - can on with can carry they devices to use they

And two sure identify it's we can be available that that to students. now those so fault. very factor to your make The want to we needs

used not but people it, two these and number who draw XXX% We aggressively don't concentric so using of circles made have really using eliminate they they things, who And aggressively. a a the and using from were substantial to that blocked casual wordplay who the paying is sharing one it then who's we've made, with is very, the of feel very XX% user if but the a along paying, progress plan. way. time he this we say We like people on impact is and use

that block was more ways from and international even still and we sharing that for risk. future there a users which bigger to So the will it's feel it coming in block go

a study by our teams a them, to technology team, obviously our engineering our team, been substantial So been us. it's it's worth effort privacy and kudos or teams because to lot

impact, we're rates now and And they familiar on-campus is our relevant We know fact experiencing when with we really in to our because of became outside not years was on a that if growth students are and you're are because about did big the Chegg location been U.S., know know you moved in thing. a plan. the We campus off-campus. it, which U.S., It similarly account location has management, and campus. has we're is just you're suddenly with now And the COVID I on-campus. on relevant look do super confusing COVID excited was track weren't ahead you you're off-campus. efforts We great proved we then really sharing if which device on what those with impact that are. made we of campus. the people us major numbers. see at can saw We the made only efforts if such what think the make whether a really are, which explosion people what up it's Chegg now around just U.S., or have an it's are

of Group. from question. proceed your with Fuhrman Please from line comes Craig-Hallum Alex the question next Our Capital

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closing our concludes back That hand to like for I'd to remarks. management it session. Q&A

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