Chegg (CHGG) 7 Aug 232023 Q2 Earnings call transcript

Greetings, and welcome to the Chegg Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [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 and ESG.

afternoon. Good joining XXXX for Call. Second 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 posted 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 of make like to statements point that in this Before call, including begin, actual course forward-looking we the company. events, and I would future are These we financial those forward-looking and the statements. risks results could operating forward-looking uncertainties material of during regarding cause out differ future to statements from the the to that subject performance materially

to to factors statements. included the cautionary in cause caution that from the differ as you consider in and Exchange forward-looking factors and in to We the Securities important February XXXX, refer could XX, earnings the described on materially we other the report well filings the results actual those as Chegg's on today's XX-K language In SEC. particular, with with Commission release risk our Form filed annual you

result make we new forward-looking statements a on of we assumptions information that to are Any that or events. be date. undertake of today these no as update statements based We believe future this as reasonable obligation to

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

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

website. also which posted the review you We also recommend sheet, data is on IR our investor

to I turn Now Dan. the over will call

and to call. Tracey, earnings QX our you, XXXX everyone welcome, Thank

revenue guidance executed for EBITDA. and team Our outperforming adjusted well, both

improve, quarter second upside drove the rates our which acquisition As trends retention saw results. customer progressed, in year-over-year and for the we

chapter catalyzed the We exciting artificial an advances are by in Chegg entering for new intelligence.

outsized last reported, companies with we because is will of rapidly to after early and Chegg. and and sought into strong It data advantage to services category-defining perceptions and create believe AI opportunities, brand valuable still Chegg AI relates grow and we returns. how these gained insights that new To leverage use is it highly loyalty, students greater of since pivoted take can sets we

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very positive. been has Feedback

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today's their in and employable Chegg developing skills-based assess order skills in students with proficiency, gaps current that journey help academic their to their identify help those them connecting acquire integrated are needs students economy. will pathways their then is Increasingly, be skills.

a We offerings, to our do position by this where leveraging we excellent continue see skills great are growth. to in

students and that know can health, appreciate mental of some We solutions of the thriving. finishing at or barriers, can of that these time chances in and education variety We their if graduating all. can today connect also financial address security we improve we that personal issues, face students to get a that such and food on of wide their way as challenges

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they is academically world's turned themselves age have population increasingly to online below advantage More of of to the professionally. XX% XX the than and and

of for bigger than to Now aided Andy? that, AI, Andy. turn will the ever. to it I further proliferation by them serve is And Chegg opportunity with the over

million, flow. services revenue EBITDA and delivered and driven was revenue cash everyone. we Dan, million. and Thanks, also $XXX good adjusted subscription $XXX QX guidance afternoon strong as good by was revenue of quarter our a exceeded Total

During the our platform. approximately million X.X subscribers quarter, we had on

which by Sales now and strong materials margin guidance, at came increase other year. $X.X beating Free with from change was offset income million share. higher slightly or This, a the and result in EBITDA $XX driven XX% revenue quarter, skills, is than revenue $XX.X the of primarily performance million the in contributed beat in the along higher operating million, contributing million which $XX adjusted to an the of required in last in was interest revenue million, of expected. XX% Gross $XX by flow model, with interest rates margin. strong came growth cash

included we income from million equity quarter. some the announced debt, $X quarter a our restructuring and of These outstanding investment. on million impacted contingencies repurchase accrued $XX.X for to related taken of by convertible $X.X the loss charge a which a net gain that offset items gain several had million We the an of a we partially our during GAAP was of of previous

significant continue We sheet debt cash million ended to net have $XX a representing and million of $XXX flow. quarter million outstanding of free value, balance investments, $XXX cash with at of drive strong the with cash. par and We total convertible

of $XXX debt the of of stock repurchased we convertible for million some million outstanding $XX our use our shares and $XXX earlier, million retire of approximately common X.X million. net mentioned savings to As

to We and shareholders. education the sheet the attractive us among to cash strongest industry flows operating in will are the results continue believe balance allow to combination and our deliver model, of our

experience As conversational our solely the students AI scale rolling on semesters. a of a including with create relying believe versus generated developing a to third-party around approach have models with providers will fully next truly out and two experience language differentiated students Dan models owning efforts, at We rapidly these for better we are develop mentioned, realigning cost. our to lower and partnering over resources large AI required

on moving Now guidance. to

QX, million subscription margin $XXX and to we $XX expect For XX% $XX with million and EBITDA and gross XX% million, million between $XXX be services between and and revenue $XXX $XXX adjusted between million. revenue total million between

typically QX. worth revenue in lower margins experience and that we is It seasonally noting

material, level impacting depreciation recently also have elevated Professor-led We an acquired is content gross of which margins. from

to in and moderate this improve. of QX impact the margins expect We

time. expect of the current than closing, students Chegg needs equipped In to embrace better the larger AI nobody much we will believe is opportunity allow future or meet We development to Chegg. over of a there

We data, sheet strong balance proprietary extend a model for future. brand to an and operating the industry-leading our have leadership into

over operator your the turn to questions. for that, With the call I'll

At from comes this question-and-answer we will time, Doug Anmuth session. proceed with question a Please conducting Our be [Operator first JPMorgan. your question. with Instructions]

with went about could of the path you about how Can deficiencies drivers Thanks experience CheggMate and AI XQ AI or from also been the improvements the new the then, the of Is more if the think, I talk for you think through and just guess just quarter. launch will acquisition the that And kind as down? second, the going that distance, differ Scale taking you've that you around from you just talk recognizing students retention the customer Thanks. perhaps some side? ChatGPT of of on you questions.

use is do No, seems second not is that it I indicate recognize the is the think can't things, students do the that which to what very will question it's I'll for going and to first, said, once different for. try and and you use they because is Yes. that we things and question. they specifically directly been it's students they built -- Chegg use great take that, for what they're they which they we research but what actually what that do need do, ChatGPT, which to

to indicate of And our use current both plan Chegg. with research seems the majority those overwhelming that to that remain

update and think news, and So seem good it's the results on I an that. seen, suggest to very think what that's we've I

news good really that's So us. for

-- differ? thing is you question second which how does the The asked, it that first

of to completely we so that ripping CSP. down uses building that is, it's the separate what everybody does to rebuilding in product, available Really, our its Chegg and and CS instead it is user a have experience

be the easy supplied video why an the simple, conversational get in existing great is it that different is conversational, concept it a of same much really nature. experience, more from how for how can that's to understanding interface, just how how vision, we this people more and and much So

basis of one school, user that anybody questions and is history experiences really the class collect per but XXX we things based to the that gone the do million-plus with to cool have learning that differently a on to be all than able be And data on create take completely the of would that able only and to not been able we'll have others we've do knowing professor. that particular and that student, personalized that else

that any generalist not the could space else do is largest education we frankly, because AI can do that the have So anybody in list. something or direct-to-consumer

pretty exciting. So that's

anything. study learn they're way using take actually they the them of to and then best content the to And build do without tools having out

the and the fact not writing in use for of ease and our difficulty using think overwhelmingly I for So learning. that it's ChatGPT,

I pretty us those think to it great of trends were to and which be then just And for things affecting shareholders. those great for the instead significant going being our it's CheggMate, Chegg. just is positive in

something What Scale different. is AI does very

that's has, AI unique uniquely for information, is student. work very and Chegg well. the does things is and does nature What create nature, our learning and allow specific user history, We Scale announced just ChatGPT data, what content that is all us we with our the our of our continue it to what and use conversational experiences and to each as explanations and which descriptions which

the us were to is this with on building we differentiator. do working have categories this, AI much allow always faster. planning Scale So the of will all We

a launching of launch time. get them of just instead of to more a XX be doing much few, rolling a So we rapid will all and with period in

work allow that a supply inside has everybody, work with have with they're great of work what system. continue leverage us else it's what everybody to we But no that partner, all does one will AI can ChatGPT. deal, to value but extraordinarily relevant and they generalists with is an Scale else So great our uniquely the we They wants.

Thank That's very you, Dan. helpful.

Yes, appreciate question. the

call Dan Path. our to that is he's Study internal you. that CS fill that That's Chegg CSP mentioned he referring the everybody in to on just in and Thank Chegg answer so the Study question. lingo aware here. was and using. Let me earlier just

with proceed next Our Markets. questions. from comes Jeff with Please question Silber BMO Capital your

of I'm and the overseas? Thanks if wondering seeing between that some any serve markets much. trends larger in subscribers you're so just U.S. you your the different

school summer more than U.S. experience is a the the U.S. outside is Well, it really

the over user most of So in of U.S.-based. months behavior data have we terms is the last few actual

been which and our is questions can been increased very, So results the the testing What in outside can't more time to and they're similar, I new that have really information that have speak we that those outside we the already. system very getting significantly U.S. U.S. to say asking engagement, the I it using experiences, will more because have have access of length more for

give So the -- but versus it's too international early to U.S. lens

do we'll up picks that the think able on a in call two next be the I weeks. semester lot to of really, because more about

of overwhelming the last of of majority stuff of good or first two the is the September through sort So happens. the two August week weeks when

before I know you you've talked helpful. curious, what strong I'm In talking business. you'll visibility think guidance need -- That's sorry. you annual start in And the past to just about your Okay. see the do about I'm again?

which lens how are our this. Andy to But ourselves and think I'm ask is on us given as perspective to a where volatility in, I people think have on moment, build few of those, now is that I focus of to of right great same really leads question, the it to sure ahead we you're reacting some confidence we Yes, right us, we information, for what's going and have asking. back the

just just, stay getting us QX. a QX, to think a of week fourth August, more closer opinion volatility I because I a in add we said from don't doing conservative the first good September, just we're we're people know over QX just information it's lens to that. Andy, of I approach with evolves, learned gives as the add my But weeks to have think I semester going to is of really What earlier we're reacting in that the into third, that what things. to now, think rollover And that. if what of I impact is couple to you to obviously, I And since provided. we more to will

think No, Dan, nailed it. you I

see Dan in Jeff, few more over trends last will to and next season confidence, certainly we said, we obviously, the that months, more to of before -- few need we a point. to pick the think start like weeks. we've If seen I couple aware, the that you're get up, continue us give the but periods

Thanks enough. fair so Okay, much.

comes Goldman question with your from Please question. Eric next proceed Sachs. Our with Sheridan

two asking -- questions, could, the I question. allow just would for much so Thanks the ask if be quickly: for cost me to One

this either prior implications strategy potential cost approach? strategy, should around reflect So out CheggMate that how when we three the is talked versus months or in and OpenAI. laid With to needed And approach business? different ago, you this the of invest we a how in investment cadence bring for new margin and of or sort that back the

And bit unclear. I'm a just little then

one one be next to into second would be this the over year people Thank you and a next will the of be would and When school you're be this be solution it would implemented back over more that and Or one a year months? depth go beginning the deeper momentum today two end builds get investment. So the about month, the one follow-up. next timing calendar of to the the as you. will of talking solution be year? deployed calendar towards Just will

the consider handle the it students second with and because second want Yes, going one But Andy I'm going I'll use to forever think we better the sure be day, is the you're I one, to depth answer product let to happy which first, just on is of a going then are. investment, it. rollout, the every get handle which to just is

the use it, or use subjects Depending will So on see product evolves. what they they what they

to AI they'll of nature kind of and to doing, start experience to the think it on experience they'll content, in it, they're the aspects subject matter certain generative So which way really the is the depending start that conversational about that is fall.

now, trying But of the what time. our viral people are of quality So thunder all to accuracy spread think bit and to mouth, Chegg which the the of that the like learn. expect a little right essential rolling over have we it's of to our content, start and is it, built spread content word I nature period that things of over years has for

I'll Andy think going you're But cost So talk about be think the constructive them structure to and let again, I I positive. and the find cost. to

Yes.

Scale So sooner extent, lot market cost leveraging was call, we partnering And the last talked fully some had lowest students. a by our us When when of moving third-party as experience on evaluated is far with but was far as to get the became there option few as it there completely multiple a the we conversational and the parts. generative generative this One about to for this, of things: -- still versus is a it AI technology. made we we that options evaluated having

as effective we've way the potentially this, And will said as -- the least way we deploy the and by us we believe soon solutions. CapEx to way, I can like actually cost-effective allow increase effective the we over we as the least maintain and get these us will allow far said, is we or so look -- even at that cost as most this time, implement less cost least time in yes, this think past, margins to over

So us. And out really the it rolls next win two -- semesters. was big this a is as over for it

thank Great, you.

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

into talked would especially that thanks about XQ the love during early you Hey, on quantification improvement of customer did see provide? third rough also, I measuring you're my can more you continue and some And there's how about July? of and detail taking thinking acquisition guess those there, any kind that for if questions. quarter, you retention, trends I improvement, some

we're subscription company your retention has business. variables, math rates percentage those it is know of is, And -- and levers should obviously, lot a so are, Yes, multiple renewed, at so Andy kinds to runs what rates, renewal, referring explained for the times. canceled, everybody what retention in that which you is their really look in what different up what's things. a of what

have And been renewal renewed. in a have for which excellent. seeing increase people we been decrease in that we is up So are an cancels, that seeing

So which seeing retention is higher basically great. those rate, are metrics we're

accounts we because one about is where which accounts, X.X a before do COVID -- started, this year, about COVID, to really million second and challenges The is used do we of peak all we new used to million. new peaked at X.X

we above have million. X remained Now

ahead so COVID, really were just far where company of we're before So the has we that accelerated.

people always it when we But understand we to what big were what few we're now years surprises me So in compared new don't referring become really the trend is ago. growth. how account just to a

we account in is was and including So substantial, each every new months, it pretty and growth were improving seeing July. declining and that

closer objective to getting we're of returning So our growth. to

CheggMate use helpful. Good follow-up. you I considering are just all in that there branding Very And hear. One didn't at prepared potential all? press the branding at remarks. that Was the you to release noticed or guess intentional? quick changing I

Yes. product, we and even to it skills to all AI math. could as the or the made in Study into make value separate going barter the everything, as terms the I for here Chegg. it education we it's could Chegg the be the Chegg. of ChatGPT initially, no Chegg, else, really versus that and it's including depth and we space in Pack, a writing to students it's I decision Obviously, create what know deeper of quality understood we we and we're that just longer will differentiation Chegg the anybody But got have and make and integrated trying be Study mean, and point is And say when

additional our how it them. for the had, as for things value we more that And imagine you'll address. And over to video always has continuing to we as more other watch can -- power, that yield. that stronger. create we We can roll students, that that our believe ARPU and sticky created, the we about value even pricing the put get becomes, the everybody, which it our increase the gets more the time, more we can you we we out, think And the areas been we video will strong, concept as see do out

a before. the it's than we had bigger one move So

you. Good Thank to hear.

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

Wanted Thank ask you to on the question. Great. one competition. for

a I'm solutions maybe maybe of leader for I and had does education thinking new think thoughts few Chegg similar about compared students just favorable APIs or as education-specific complementary you different Conmigo new used clear the historically, well? AI, other these fashion. to leveraging pretty on think in ChatGPT competitive landscape to how open are the any a landscape, moment? use a or competitive learning. about sort models wondering that a might how AI competitive Like as ignoring language or what Quizlet the landscape companies from come the Like future as vendors

that computing, that -- such they then great really, No, big a changed conversational the because have for goodness to the Yes. from everything the perspective, of ChatGPT of speed we going our And think shown. moat nature I of get NVIDIA, done, don't stronger, what has here. the And game that question. they the we're have really they the is only is learning sort -- and have moat analysis sort thank

the set already have leverage their created incredible own their doing next companies by very that the against being the customers. are known loyalty day, at for to big able of and datasets value are is of exists But and something that brands, end already own

why our these the education do We're AI more from experience we better learning space that what not AI its itself we the has the data do. perspective generalists against data, do. own. So the the in dataset on Without or can't differentiated a it's irrelevant, relevant running than creates the nobody that's it's

only keeping And our Andy own moat said, bigger. LLMs, and gets think our building it proprietary, as by so we

of is, thing have to it. invest take it capital none really second The and does them

total. more revenue generate free I think flow generate we than in them cash most of

mostly going datasets seen compare do. as building, terms sort size you and actual we're concept these what is of them. of the we're with you've versus companies in what business, What Chegg able you'll just to bots from where the our see and versus is think the has the what be I to of chat insignificant capabilities So video

think only moat and that leave do, already we with it gets you'll I our similar big. was which bigger perspective is

Andy Thanks quarterly since CapEx. I that's for then lowest And The one level on XXXX, Dan, helpful. think. one quick

Just much was sustainable? wondering your or leveraging from how of is should that Or we this that saw Q&A engagement for about content own AI level Essentially, how think Gen lower we versus Thanks. creation. like students CapEx going forward?

was the know, fairly have low seems where without is small to still it's period time. doubt. while school, a well It's for it No, us. -- a have of we seasonally as right? have in And the the actually went probably we we students -- you it gone quarter school, -- Some fewest

I CapEx it have no, benefit that implementing AI efficiencies beyond So these will this. solutions for -- at we CapEx our as point. that. of this expect But believe call expect of some a that wouldn't We into sake into on some do as do we argument we XXXX start move of the

the I should to particular human. get for Andy able of perfectly. cost And for versus leverage piece being us of is it reason always that, explained so by think content for less each The the that everything the content AI reason being way,

basis therefore, and actually be we'll spending. of cost on answered overall at per the question content questions rate to more answer before a than ever able a we've lower So

of were this we nature things going unique ability like to think paths differentiator. to the with is important in, and become of those content to create the learning and areas that investing professor led the I the ChatGPT some in and So much world other be AI new scale really have data leverage we less

Andy for saying. And was so reason the that's what

Thanks. Great.

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

for in my separate I'll ones questions. this. Thanks taking two have

here the the start in commentary of we sort to one then go into accounts sign-ups counts new and first around Dan, and subscriber second XQ rates Should trough improving. to the sort just of half we see is terms back expect improvements retention of the a of clarification, quarter in On as year? your

you to get curious wondering I thoughts. maybe just math problems. Berkeley, from of GPTX and And separately, There mid-July in or potentially more if all then Stanford have think some efficacy further declining the you're into that leaning way and the using out, to the that Chegg just when think, you sort functionality differentiate case math were of of research sort on lack And yourself. about with your rollout at of math about additional Thanks. of use the

Yes, good question.

take me first. the second one Let

And think One college of the to about viral over to it's years one students learned of the the things terms communicate in in is, that we've very nature market another. I that's in our advantage. And about It AI of excited way, building helping ChatGPT. very the think terms was are when by we got I people and were the we education. company. And too

all have would themselves and support academic backgrounds, to skills-based it I both going mean with could lives, of all the elevate it if people with great walks be if how help you're to apply anything, AI support. to ability

of interested we'd you would and people think calling I why been people all And that's I that is and are that's root that, building. what the to in help. be terms that have in our rooting for for of success think surprise Chegg lot to a

its out think that own. message our it for so one wrong their we're accuracy. And quickly. known information on the that And pretty takes to So happened person gets semester, getting destroy and I

re-asking to lead mind we're first more it, honest To question, great with forgot it? would nothing getting be really you into there's better. because think you, the I I So and

renewal of and seeing around up Q&A in fewer the around rates was are It retention that renewing. actually sort commentary one the that you're of cancellations previous Yes, and for subscribers more

of count growth think sort and this second you year? quarter half into that of to as expect as subscriber dynamic, start sort back about you the of get So here that in trough we of metric be the level would we to sort see

continue, year think From trends I'm see, we've continue looking add you'll we'll in expect perspective, sure earlier, quarter we what had before different promises think, to to all positive like our false current terms I because Andy to going current to and on, I this. see stick of find if and trend very mentioned we and think one we're we but out we're time then a the -- happen. -- will the a trends goes I'll I a as and for that very if at

do, to growth. valuable we of papers, you more expect the Research very is think to writing to for that what isn't launch to it do the is which do. the think And the really We be good we Stanford that. also they perspective, don't new do. we acknowledge valuable that From do will is we our which that to what products what pointed than fact students We return

So to but -- we just growth moving And the direction trends be hoping in that for. and company that a when we to going happens, have are see, we're the were again. wait but to expect

comes next with Please Alex Our with Craig-Hallum. question from question. proceed Fuhrman your

and Hi, I that guys. question. needle? debit emerging the past, start my India, you payments can talk of markets so a little India, of in said to the could you the well taking bit when business the rollout line an on acceptance update that was bit think handled you hadn't Thanks very in much you hoping specifically your about maybe for to in and see us card market could India move little give in you all a time I

can new matter. else for very world will The resulted or four or lived one the in in the outcome rolling last allow say, we one the in, a for for it that latter really I cards. yet, payment has the because month of debit anybody not specifically, out me three unified to Yes. us to the But making predict payment is I platform, years, this I for are capability we've want which answer good predictions which in think first don't that is hard and

going impact happen that's the So to find we but month. over next few to start months, it's start this live And when going that the this out month. seeing of we'll

for very that's So exciting us.

Thank That's you. Okay. helpful. really

Yes. the question. Appreciate

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

Thanks. going new us you in back may saw to working bring here QX on summer. Dan, the or just on and the tone season playbook the that of school later you Can into to just in the that and that ultimately, be demand contemplating? up going seeing speed you're in anything

Yes. your winds down, have a the then starts, up. summer and Look, you school, investor to to school we really give question the semester of scale, school sense picks

we'll we're and go when prepared And new all now. then around then our by XX of first a start peak a of terms again, that. And happens, half to think So September of about within XX% real will and four expecting account week we're double, will period. and two about weeks the volume I in three from what in in triple period volume terms for days up that

we've always good Now of really been in terms go-to-market, the at go-to-market.

has paid you've No I I think else one tried. near that, no in seen mean that have the else anything has with the do subscribers. succeeded. space, we size one education others

more As EBITDA I said, we generate do in than companies revenue. most

more that good significant So we're people, have that very teach terms working. channels that's being of the of and and clips are as couple to influencers use channel has able much at who been TikTok Obviously, to using us. But become the us effective content been it. years, to in for really last our us a over think I

that's leading So than say in on the past. into I have would we more new we're the that horizon the one only

of you the the and beginning demand And to sorry, continuing tone going of well? as demand, that QX the strengthen on week-over-week see into did

Yes.

say, quarter, all that us this we guidance August. August and mentioned big are through beginning have the as two first of of to that we earlier, Things the given. to the versus positive trends because see give two three began three and really weeks the we gives weeks the I June first expecting, I what as confidence through of first weeks last of of as June change to were As that and month can

So in one week season be day -- versus the peak will a will trough week season. larger be larger than the one

you're me as weekend, So this you to something, have Andy the he be said, is at, to which patient. said not do best

are just going as to terms seeing, we were what seeing are So go patient were hoping trends through the and I we positive what be of have we we now, But it. like rest continued. to see you in of the

Dan. Thanks

proceed with comes James. your Our Peterson Raymond Brian next with question from Please question.

Brian. on [indiscernible] is for this Hi,

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everybody. proud your results. team the of the you, and really questions. Thanks Thank for Yes. We're

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going elements own our We are our advantage. it to and use build to

be months going head and six so Chegg, to just And are working. exciting super for next the we're down

rest the all summer. So Enjoy Thanks. the joining your call. of thank you for

This concludes today's conference.

your your You Thank disconnect for may at participation. time. you this lines