UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

or

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________             

Commission file number 001-36180

CHEGG, INC.

(Exact name of registrant as specified in its charter)

Delaware						20-3237489
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

3990 Freedom Circle

Santa Clara, CA, 95054

(Address of principal executive offices)

(408) 855-5700

(Registrant’s telephone number, including area code)

Title of each class			Trading symbol(s)			Name of each exchange on which registered
Common stock, $0.001 par value per share			CHGG			The New York Stock Exchange

•Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

•Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

•Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			x			Accelerated filer			☐
Non-accelerated filer			☐			Smaller reporting company			☐
Emerging growth company			☐

•If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

•Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  x

•As of October 23, 2023, the Registrant had 115,814,932 outstanding shares of Common Stock.

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TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited):

4

Condensed Consolidated Balance Sheets - September 30, 2023 and December 31, 2022

4

Condensed Consolidated Statements of Operations - for the Three and Nine Months Ended September 30, 2023 and 2022

5

Condensed Consolidated Statements of Comprehensive (Loss) Income - for the Three and Nine Months Ended September 30, 2023 and 2022

6

Condensed Consolidated Statements of Stockholder's Equity - for the Three and Nine Months Ended September 30, 2023 and 2022

7

Condensed Consolidated Statements of Cash Flows - for the Nine Months Ended September 30, 2023 and 2022

9

Notes to Condensed Consolidated Financial Statements

10

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 5.

Other Information

33

Item 6.

Exhibits

34

Signatures

35

Unless the context requires otherwise, the words “we,” “us,” “our,” “Company” and “Chegg” refer to Chegg, Inc. and its subsidiaries taken as a whole.

Chegg, Chegg.com, Chegg Study, EasyBib, the Chegg “C” logo, Busuu and Thinkful are some of our trademarks used in this Quarterly Report on Form 10-Q. Solely for convenience, our trademarks, trade names and service marks referred to in this Quarterly Report on Form 10-Q appear without the ®, ™ and SM symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names. Other trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

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NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations and results of operations are forward-looking statements. The words “believe,” “may,” “will,” “would,” “could,” “estimate,” “continue,” “anticipate,” “intend,” “project,” “endeavor,” “expect,” “plan to,” “if,” “future,” “likely,” “potentially,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.

Our forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CHEGG, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for number of shares and par value)

(unaudited)

			September 30, 2023						December 31, 2022
Assets
Current assets
Cash and cash equivalents			$	94,419					$	473,677
Short-term investments			166,841						583,973
Accounts receivable, net of allowance of $245 and $394 at September 30, 2023 and December 31, 2022, respectively			30,480						23,515
Prepaid expenses			30,761						28,481
Other current assets			25,195						34,754
Total current assets			347,696						1,144,400
Long-term investments			412,541						216,233
Property and equipment, net			168,735						204,383
Goodwill			617,690						615,093
Intangible assets, net			56,638						78,333
Right of use assets			26,568						18,838
Deferred tax assets			145,807						167,524
Other assets			28,964						20,612
Total assets			$	1,804,639					$	2,465,416
Liabilities and stockholders' equity
Current liabilities
Accounts payable			$	18,187					$	12,367
Deferred revenue			58,906						56,273
Accrued liabilities			73,133						70,234
Total current liabilities			150,226						138,874
Long-term liabilities
Convertible senior notes, net			599,291						1,188,593
Long-term operating lease liabilities			19,537						13,375
Other long-term liabilities			2,236						7,985
Total long-term liabilities			621,064						1,209,953
Total liabilities			771,290						1,348,827
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, $0.001 par value per share, 10,000,000 shares authorized, no shares issued and outstanding			—						—
Common stock, $0.001 par value per share: 400,000,000 shares authorized; 115,671,820 and 126,473,827 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively			116						126
Additional paid-in capital			1,151,697						1,244,504
Accumulated other comprehensive loss			(56,426)						(57,488)
Accumulated deficit			(62,038)						(70,553)
Total stockholders' equity			1,033,349						1,116,589
Total liabilities and stockholders' equity			$	1,804,639					$	2,465,416

See Notes to Condensed Consolidated Financial Statements.

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CHEGG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Net revenues			$	157,854					$	164,739					$	528,308					$	561,704
Cost of revenues			83,575						45,203						180,137						145,972
Gross profit			74,279						119,536						348,171						415,732
Operating expenses:
Research and development			46,202						45,426						145,981						150,321
Sales and marketing			28,872						31,803						96,845						109,580
General and administrative			57,075						53,742						186,357						154,547
Total operating expenses			132,149						130,971						429,183						414,448
(Loss) income from operations			(57,870)						(11,435)						(81,012)						1,284
Interest expense, net and other income, net:
Interest expense, net			(733)						(1,525)						(3,115)						(4,738)
Other income, net			40,492						97,258						116,671						105,247
Total interest expense, net and other income, net			39,759						95,733						113,556						100,509
(Loss) income before (provision for) benefit from income taxes			(18,111)						84,298						32,544						101,793
(Provision for) benefit from income taxes			(172)						167,264						(24,029)						162,987
Net (loss) income			$	(18,283)					$	251,562					$	8,515					$	264,780
Net (loss) income per share
Basic			$	(0.16)					$	1.99					$	0.07					$	2.07
Diluted			$	(0.16)					$	1.23					$	(0.24)					$	1.31
Weighted average shares used to compute net (loss) income per share
Basic			115,407						126,132						119,001						128,166
Diluted			115,407						148,045						121,876						151,221

See Notes to Condensed Consolidated Financial Statements.

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CHEGG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

(unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Net (loss) income			$	(18,283)					$	251,562					$	8,515					$	264,780
Other comprehensive (loss) income
Change in net unrealized loss on investments, net of tax			(322)						(1,946)						(930)						(17,196)
Change in foreign currency translation adjustments, net of tax			(12,925)						(31,056)						1,992						(79,340)
Other comprehensive (loss) income			(13,247)						(33,002)						1,062						(96,536)
Total comprehensive (loss) income			$	(31,530)					$	218,560					$	9,577					$	168,244

See Notes to Condensed Consolidated Financial Statements.

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CHEGG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)

			Three Months Ended September 30, 2023
			Common Stock
			Shares						Par  Value						Additional Paid-In Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total Stockholders’ Equity
Balances at June 30, 2023			115,178						$	115					$	1,121,820					$	(43,179)					$	(43,755)					$	1,035,001
Issuance of common stock upon exercise of stock options			3						—						26						—						—						26
Net share settlement of equity awards			491						1						(2,789)						—						—						(2,788)
Share-based compensation expense			—						—						32,640						—						—						32,640
Other comprehensive loss			—						—						—						(13,247)						—						(13,247)
Net loss			—						—						—						—						(18,283)						(18,283)
Balances at September 30, 2023			115,672						$	116					$	1,151,697					$	(56,426)					$	(62,038)					$	1,033,349

			Three Months Ended September 30, 2022
			Common Stock
			Shares						Par  Value						Additional Paid-In Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total Stockholders’ Equity
Balances at June 30, 2022			126,344						$	126					$	1,211,506					$	(68,868)					$	(323,973)					$	818,791
Repurchases of common stock			(1,147)						(1)						(23,077)						—						—						(23,078)
Net share settlement of equity awards			227						—						(2,555)						—						—						(2,555)
Share-based compensation expense			—						—						34,814						—						—						34,814
Other comprehensive loss			—						—						—						(33,002)						—						(33,002)
Net income			—						—						—						—						251,562						251,562
Balances at September 30, 2022			125,424						$	125					$	1,220,688					$	(101,870)					$	(72,411)					$	1,046,532

See Notes to Condensed Consolidated Financial Statements.

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			Nine Months Ended September 30, 2023
			Common Stock
			Shares						Par  Value						Additional Paid-In Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total Stockholders’ Equity
Balances at December 31, 2022			126,474						$	126					$	1,244,504					$	(57,488)					$	(70,553)					$	1,116,589
Repurchases of common stock			(13,008)						(13)						(186,355)						—						—						(186,368)
Issuance of common stock upon exercise of stock options and ESPP			379						—						3,105						—						—						3,105
Net share settlement of equity awards			1,827						3						(13,857)						—						—						(13,854)
Share-based compensation expense			—						—						104,003						—						—						104,003
Proceeds from capped call related to extinguishment of 2025 notes			—						—						297						—						—						297
Other comprehensive income			—						—						—						1,062						—						1,062
Net income			—						—						—						—						8,515						8,515
Balances at September 30, 2023			115,672						$	116					$	1,151,697					$	(56,426)					$	(62,038)					$	1,033,349

			Nine Months Ended September 30, 2022
			Common Stock
			Shares						Par  Value						Additional Paid-In Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total Stockholders’ Equity
Balances at December 31, 2021			136,952						$	137					$	1,449,305					$	(5,334)					$	(337,191)					$	1,106,917
Repurchases of common stock			(12,709)						(13)						(323,515)						—						—						(323,528)
Issuance of common stock upon exercise of stock options and ESPP			319						—						4,557						—						—						4,557
Net share settlement of equity awards			862						1						(12,776)						—						—						(12,775)
Share-based compensation expense			—						—						103,117						—						—						103,117
Other comprehensive loss			—						—						—						(96,536)						—						(96,536)
Net income			—						—						—						—						264,780						264,780
Balances at September 30, 2022			125,424						$	125					$	1,220,688					$	(101,870)					$	(72,411)					$	1,046,532

See Notes to Condensed Consolidated Financial Statements.

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CHEGG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

			Nine Months Ended September 30,
			2023						2022
Cash flows from operating activities
Net income			$	8,515					$	264,780
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense			101,596						98,341
Other depreciation and amortization expense			108,945						64,295
Deferred income taxes			20,929						6,376
Gain on early extinguishment of debt			(85,926)						(93,519)
Loss contingency			7,000						—
Operating lease expense, net			4,535						4,746
Impairment of intangible asset			3,600						—
Loss from write-off of property and equipment			3,578						3,117
Amortization of debt issuance costs			2,610						4,084
Gain on foreign currency remeasurement of purchase consideration			—						(4,628)
Tax benefit related to release of valuation allowance			—						(174,601)
Print textbook depreciation expense			—						1,610
Impairment on lease related assets			—						3,411
Gain on textbook library, net			—						(4,976)
Other non-cash items			(389)						619
Change in assets and liabilities, net of effect of acquisition of business:
Accounts receivable			(6,908)						(2,259)
Prepaid expenses and other current assets			558						13,251
Other assets			8,671						15,926
Accounts payable			4,820						(1,728)
Deferred revenue			2,539						11,434
Accrued liabilities			(6,149)						(23,323)
Other liabilities			(9,810)						(5,240)
Net cash provided by operating activities			168,714						181,716
Cash flows from investing activities
Purchases of property and equipment			(57,298)						(79,242)
Purchases of textbooks			—						(3,815)
Proceeds from disposition of textbooks			9,787						2,503
Purchases of investments			(585,275)						(534,008)
Maturities of investments			561,197						783,912
Proceeds from sale of investments			238,681						—
Purchase of strategic equity investment			(11,853)						(6,000)
Acquisition of business, net of cash acquired			—						(401,125)
Net cash provided by (used in) investing activities			155,239						(237,775)
Cash flows from financing activities
Proceeds from common stock issued under stock plans, net			3,108						4,558
Payment of taxes related to the net share settlement of equity awards			(13,857)						(12,776)
Repurchases of common stock			(186,368)						(323,528)
Repayment of convertible senior notes			(505,986)						(401,203)
Proceeds from exercise of convertible senior notes capped call			297						—
Net cash used in financing activities			(702,806)						(732,949)
Effect of exchange rate changes			(379)						4,628
Net decrease in cash, cash equivalents and restricted cash			(379,232)						(784,380)
Cash, cash equivalents and restricted cash, beginning of period			475,854						855,893
Cash, cash equivalents and restricted cash, end of period			$	96,622					$	71,513

			Nine Months Ended September 30,
			2023						2022
Supplemental cash flow data:
Cash paid during the period for:
Interest			$	741					$	875
Income taxes, net of refunds			$	8,368					$	5,530
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	7,037					$	6,908
Right of use assets obtained in exchange for lease obligations:
Operating leases			$	12,407					$	7,603
Non-cash investing and financing activities:
Accrued purchases of long-lived assets			$	5,879					$	4,101

			September 30,
			2023						2022
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents			$	94,419					$	69,349
Restricted cash included in other current assets			60						63
Restricted cash included in other assets			2,143						2,101
Total cash, cash equivalents and restricted cash			$	96,622					$	71,513

See Notes to Condensed Consolidated Financial Statements.

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CHEGG, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Background and Basis of Presentation

Company and Background

Chegg, Inc. (“we,” “us,” “our,” “Company” or “Chegg”), headquartered in Santa Clara, California, was incorporated as a Delaware corporation in July 2005. Millions of people all around the world Learn with Chegg. Our mission is to improve learning and learning outcomes by putting students first. We support life-long learners starting with their academic journey and extending into their careers. The Chegg platform provides products and services to support learners to help them better understand their academic course materials, and also provides personal and professional development skills training, to help them achieve their learning goals.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated financial statements include the results of Chegg, Inc. and its wholly-owned subsidiaries. Significant intercompany balances and transactions have been eliminated. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, including normal recurring adjustments, necessary to present fairly our financial position as of September 30, 2023, our results of operations, results of comprehensive (loss) income, and stockholders' equity for the three and nine months ended September 30, 2023 and 2022 and cash flows for the nine months ended September 30, 2023 and 2022. Our results of operations, results of comprehensive (loss) income, stockholders' equity, and cash flows for the nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year.

We have a single operating and reportable segment and operating unit structure. The condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the Annual Report on Form 10-K) filed with the SEC.

Except for our policies on strategic investments, there have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report on Form 10-K.

Strategic Investments

Investments in partnerships where we have the ability to exercise significant influence, but not control, over the investee are accounted for under the equity method of accounting. Equity method investments are initially recorded at cost and adjusted for our share of the investees' earnings or losses, based on our percentage ownership, recognized on a one-quarter lag basis within other income, net on our condensed consolidated statements of operations.

Investments in entities where we do not have the ability to exercise significant influence and which do not have readily determinable fair values are accounted for at cost, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, if any.

Strategic investments are included in other assets on our condensed consolidated balance sheets. We assess our strategic investments for impairment whenever events or changes in circumstances indicate that they may be impaired. The factors we consider in our evaluation include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee or factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations or working capital deficiencies.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities; the disclosure of contingent liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience, knowledge of current business conditions, and various other factors we believe to be reasonable under the circumstances. These estimates are based on management’s knowledge about current events and

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expectations about actions we may undertake in the future. Actual results could differ from these estimates, and such differences could be material to our financial position and results of operations. There have been no material changes in our use of estimates during the nine months ended September 30, 2023 as compared to the use of estimates disclosed in Part II, Item 8 “Consolidated Financial Statements and Supplementary Data” contained in our Annual Report on Form 10-K for the year ended December 31, 2022.

Leases

During the nine months ended September 30, 2023, we extended our existing lease agreement related to our corporate headquarters in Santa Clara and reassessed lease terms related to office spaces internationally in India, resulting in the recording of $12.4 million of right of use assets in exchange for lease liabilities.

The aggregate future minimum lease payments and reconciliation to operating lease liabilities as of September 30, 2023, are as follows (in thousands):

			September 30, 2023
Remaining three months of 2023			$	2,201
2024			7,818
2025			6,578
2026			5,903
2027			5,493
Thereafter			1,898
Total future minimum lease payments			29,891
Less imputed interest			(3,485)
Total lease liabilities			$	26,406

Condensed Consolidated Statements of Operations Details

Other income, net consists of the following (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Gain on early extinguishment of debt			$	32,149					$	93,519					$	85,926					$	93,519
Interest income			8,430						3,737						30,351						7,246
Gain on foreign currency remeasurement of purchase consideration			—						—						—						4,628
Other			(87)						2						394						(146)
Total other income, net			$	40,492					$	97,258					$	116,671					$	105,247

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

There were no accounting pronouncements issued during the nine months ended September 30, 2023 that would have a material impact on our financial statements.

Recently Adopted Accounting Pronouncements

We did not adopt any accounting pronouncements during the nine months ended September 30, 2023 that had a material impact on our financial statements.

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Note 2. Revenues

Revenue Recognition

Revenues are recognized when control of the goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The majority of our revenues are recognized over time, with certain revenues being recognized at a point in time.

We have changed our revenue disaggregation to Subscription Services and Skills and Other to better reflect the nature and timing of revenue and cash flows. Subscription Services includes revenues from our Chegg Study Pack, Chegg Study, Chegg Writing, Chegg Math, and Busuu offerings. Skills and Other includes revenues from our Skills, advertising services, print textbooks and eTextbooks offerings. We no longer present our Required Materials product line separately as we no longer recognize significant revenue from our print textbook and eTextbooks offerings.

The following tables set forth our total net revenues for the periods shown disaggregated for our Subscription Services and Skills and Other product lines (in thousands, except percentages):

			Three Months Ended September 30,																		Change
			2023						2022												$						%
Subscription Services			$	139,912					$	146,001											$	(6,089)					(4)		%
Skills and Other			17,942						18,738												(796)						(4)
Total net revenues			$	157,854					$	164,739											$	(6,885)					(4)

			Nine Months Ended September 30,																		Change
			2023						2022												$						%
Subscription Services			$	474,207					$	494,462											$	(20,255)					(4)		%
Skills and Other			54,101						67,242												(13,141)						(20)
Total net revenues			$	528,308					$	561,704											$	(33,396)					(6)

During the three and nine months ended September 30, 2023, we recognized revenues of $36.6 million and $53.0 million, respectively, that were included in our deferred revenue balance at the beginning of each respective reporting period. During the three and nine months ended September 30, 2022, we recognized revenues of $35.2 million and $33.8 million, respectively, that were included in our deferred revenue balance at the beginning of each respective reporting period.

Contract Balances

The following table presents our accounts receivable, net, contract assets and deferred revenue balances (in thousands, except percentages):

															Change
			September 30, 2023						December 31, 2022												$						%
Accounts receivable, net			$	30,480					$	23,515											$	6,965					30		%
Contract assets			9,148						11,946												(2,798)						(23)
Deferred revenue			58,906						56,273												2,633						5

During the nine months ended September 30, 2023 our accounts receivable, net balance increased by $7.0 million, or 30%, primarily due to timing of billings and seasonality of our business. During the nine months ended September 30, 2023, our contract assets balance decreased by $2.8 million, or 23%, primarily due to our Thinkful service. During the nine months ended September 30, 2023, our deferred revenue balance increased by $2.6 million, or 5%, primarily due to timing of bookings and seasonality of our business.

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Note 3. Net (Loss) Income Per Share

The following tables set forth the computation of basic and diluted net (loss) income per share (in thousands, except per share amounts):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Basic
Numerator:
Net (loss) income			$	(18,283)					$	251,562					$	8,515					$	264,780
Denominator:
Weighted average shares used to compute net (loss) income per share, basic			115,407						126,132						119,001						128,166
Net (loss) income per share, basic			$	(0.16)					$	1.99					$	0.07					$	2.07
Diluted
Numerator:
Net (loss) income			$	(18,283)					$	251,562					$	8,515					$	264,780
Convertible senior notes activity, net of tax(1)			—						(69,042)						(38,079)						(66,630)
Net (loss) income, diluted			$	(18,283)					$	182,520					$	(29,564)					$	198,150
Denominator:
Weighted average shares used to compute net (loss) income per share, basic			115,407						126,132						119,001						128,166
Shares related to stock plan activity			—						504						—						674
Shares related to convertible senior notes			—						21,409						2,875						22,381
Weighted average shares used to compute net (loss) income per share, diluted			115,407						148,045						121,876						151,221
Net (loss) income per share, diluted			$	(0.16)					$	1.23					$	(0.24)					$	1.31

(1) Includes the gain on early extinguishment and interest expense on our notes, net of tax, when dilutive. For further information, see Note 5, “Convertible Senior Notes.”

The following potential weighted-average shares of common stock outstanding were excluded from the computation of diluted net (loss) income per share because including them would have been anti-dilutive (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Shares related to stock plan activity			8,732						7,534						8,349						4,148
Shares related to convertible senior notes			10,280						—						10,378						—
Total common stock equivalents			19,012						7,534						18,727						4,148

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Note 4. Cash and Cash Equivalents, Investments and Fair Value Measurements

The following tables show our cash and cash equivalents, and investments’ fair value level classification, adjusted cost, unrealized gain, unrealized loss and fair value as of September 30, 2023 and December 31, 2022 (in thousands except for fair value levels):

			September 30, 2023
			Fair Value Level						Adjusted Cost						Unrealized Gain						Unrealized Loss						Fair Value
Cash and cash equivalents:
Cash									$	42,015					$	—					$	—					$	42,015
Money market funds			Level 1						52,404						—						—						52,404
Total cash and cash equivalents									$	94,419					$	—					$	—					$	94,419
Short-term investments:
Corporate debt securities			Level 2						$	58,911					$	—					$	(258)					$	58,653
Agency bonds			Level 2						108,919						—						(731)						108,188
Total short-term investments									$	167,830					$	—					$	(989)					$	166,841
Long-term investments:
Corporate debt securities			Level 2						$	220,649					$	8					$	(2,598)					$	218,059
U.S. treasury securities			Level 1						98,462						—						(1,248)						97,214
Agency bonds			Level 2						98,642						—						(1,374)						97,268
Total long-term investments									$	417,753					$	8					$	(5,220)					$	412,541

			December 31, 2022
			Fair Value Level						Adjusted Cost						Unrealized Gain						Unrealized Loss						Fair Value
Cash and cash equivalents:
Cash									$	33,532					$	—					$	—					$	33,532
Money market funds			Level 1						440,145						—						—						440,145
Total cash and cash equivalents									$	473,677					$	—					$	—					$	473,677
Short-term investments:
Commercial paper			Level 2						$	11,744					$	—					$	(29)					$	11,715
Corporate debt securities			Level 2						491,459						—						(4,130)						487,329
U.S. treasury securities			Level 1						85,271						—						(342)						84,929
Total short-term investments									$	588,474					$	—					$	(4,501)					$	583,973
Long-term investments:
Corporate debt securities			Level 2						$	125,735					$	158					$	(909)					$	124,984
U.S. treasury securities			Level 1						30,633						122						—						30,755
Agency bonds			Level 2						60,635						—						(141)						60,494
Total long-term investments									$	217,003					$	280					$	(1,050)					$	216,233

As of September 30, 2023, we determined that the unrealized losses on our investments were not driven by credit related factors. During the three and nine months ended September 30, 2023 and 2022, we did not recognize any losses on our investments due to credit related factors. During the three and nine months ended September 30, 2023 and 2022, our realized gains and losses on investments were not significant.

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The following table shows our cash equivalents and investments' adjusted cost and fair value by contractual maturity as of September 30, 2023 (in thousands):

			Adjusted Cost						Fair Value
Due within one year			$	167,830					$	166,841
Due after one year through three years			417,753						412,541
Investments not due at a single maturity date			52,404						52,404
Total			$	637,987					$	631,786

Investments not due at a single maturity date in the preceding table consisted of money market funds.

Strategic Investments

In May 2023, we entered into a $15.0 million commitment to invest in Sound Ventures AI Fund, L.P. (Sound Ventures), a limited partnership that invests in artificial intelligence companies, for an approximate 6% ownership. We accounted for our investment under the equity method of accounting. During the nine months ended September 30, 2023, we funded $11.8 million of our investment commitment. As part of the conditions for entering into the investment, we are contractually required to provide additional investment commitments. As of September 30, 2023, we have unfunded investment commitments of $3.2 million, which can be issued at any time within five years of the commencement of the partnership, which occurred in February 2023.

In July 2022, we completed an investment of $6.0 million in Knack Technologies, Inc. (Knack), a privately held U.S. based peer-to-peer tutoring platform for higher education institutions. We do not have the ability to exercise significant influence over Knack's operating and financial policies and have elected to account for our investment at cost as it does not have a readily determinable fair value. We did not record any impairment charges during the three and nine months ended September 30, 2023, as there were no significant identified events or changes in circumstances that would be considered an indicator for impairment. There were no observable price changes in orderly transactions for the identical or similar investments of the same issuer during the three and nine months ended September 30, 2023.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

We report our financial instruments at fair value with the exception of the notes (defined below). The estimated fair value of the notes was determined based on the trading price of the notes as of the last day of trading for the period. We consider the fair value of the notes to be a Level 2 measurement due to the limited trading activity. The estimated fair value of the 2026 notes as of September 30, 2023 and December 31, 2022 was $191.3 million and $385.0 million, respectively. The estimated fair value of the 2025 notes as of September 30, 2023 and December 31, 2022 was $324.1 million and $640.5 million, respectively. For further information on the notes, refer to Note 5, “Convertible Senior Notes.”

Note 5. Convertible Senior Notes

In August 2020, we issued $1.0 billion in aggregate principal amount of 0% convertible senior notes due in 2026 (2026 notes). The aggregate principal amount of the 2026 notes includes $100 million from the initial purchasers fully exercising their option to purchase additional notes. In March 2019, we issued $700 million in aggregate principal amount of 0.125% convertible senior notes due in 2025 (2025 notes, together with the 2026 notes, the notes) and in April 2019, the initial purchasers fully exercised their option to purchase $100 million of additional 2025 notes for aggregate total principal amount of $800 million. The notes were issued in private placements to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended.

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The total net proceeds from the notes are as follows (in thousands):

			2026 Notes						2025 Notes
Principal amount			$	1,000,000					$	800,000
Less initial purchasers’ discount			(15,000)						(18,998)
Less other issuance costs			(904)						(822)
Net proceeds			$	984,096					$	780,180

The notes are our senior, unsecured obligations and are governed by indenture agreements by and between us and Computershare Trust Company, National Association (as successor to Wells Fargo Bank, National Association), as Trustee (the indentures). The 2026 notes bear no interest and will mature on September 1, 2026, unless repurchased, redeemed or converted in accordance with their terms prior to such date. The 2025 notes bear interest of 0.125% per year which is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2019. The 2025 notes will mature on March 15, 2025, unless repurchased, redeemed or converted in accordance with their terms prior to such date.

Each $1,000 principal amount of the 2026 notes will initially be convertible into 9.2978 shares of our common stock. This is equivalent to an initial conversion price of approximately $107.55 per share, which is subject to adjustment in certain circumstances. Each $1,000 principal amount of the 2025 notes will initially be convertible into 19.3956 shares of our common stock. This is equivalent to an initial conversion price of approximately $51.56 per share, which is subject to adjustment in certain circumstances.

Prior to the close of business on the business day immediately preceding June 1, 2026 for the 2026 notes and December 15, 2024 for the 2025 notes, the notes are convertible at the option of holders only upon satisfaction of the following circumstances:

•during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 for the 2026 notes and June 30, 2019 for the 2025 notes, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the respective conversion price for the notes on each applicable trading day;

•during the five-business day period after any 10 consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;

•if we call any or all of the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or

•upon the occurrence of certain specified corporate events described in the indentures.

On or after June 1, 2026 for the 2026 notes and December 15, 2024 for the 2025 notes until the close of business on the second scheduled trading day immediately preceding the respective maturity dates, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, the notes may be settled in shares of our common stock, cash or a combination of cash and shares of our common stock, at our election.

If we undergo a fundamental change, as defined in the indentures, prior to the respective maturity dates, subject to certain conditions, holders of the notes may require us to repurchase for cash all or any portion of their notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if specific corporate events, described in the indentures, occur prior to the respective maturity dates, we will also increase the conversion rate for a holder who elects to convert their notes in connection with such specified corporate events.

In August 2023, in connection with our securities repurchase program, we extinguished $169.7 million aggregate principal amount of the 2026 notes in privately-negotiated transactions for a total consideration of $135.8 million, which was paid to the holders in cash. We also incurred approximately $0.4 million in fees resulting in a total reacquisition price of $136.2 million. The carrying amount of the extinguished notes was $168.3 million resulting in a $32.1 million gain on early extinguishment of debt. We elected to reacquire and not cancel the extinguished 2026 notes.

In May 2023, in connection with our securities repurchase program, we extinguished $85.8 million and $341.1 million aggregate principal amount of the 2026 notes and 2025 notes, respectively, in privately-negotiated transactions for a total consideration of $368.6 million, which was paid to the holders in cash. We also incurred approximately $1.2 million in fees

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resulting in a total reacquisition price of $369.8 million. The carrying amount of the extinguished notes was $423.5 million resulting in a $53.8 million gain on early extinguishment of debt. We elected to reacquire and not cancel the extinguished 2026 notes and the 2025 notes were canceled with the trustee. Additionally, we terminated 2025 notes capped call transactions underlying 6,615,161 shares of our common stock and received aggregate cash proceeds of $0.3 million.

As of September 30, 2023, we had 9,297,800 and 6,961,352 shares remaining underlying the 2026 notes and 2025 notes, respectively. During the three months ended September 30, 2023, the conditions allowing holders of the 2026 notes and 2025 notes to convert were not met and therefore the 2026 notes and 2025 notes are not convertible the following quarter.

The net carrying amount of the notes is as follows (in thousands):

			September 30, 2023																		December 31, 2022
			2026 Notes						2025 Notes												2026 Notes						2025 Notes
Principal			$	244,479					$	358,914											$	500,000					$	699,979
Unamortized issuance costs			(1,883)						(2,219)												(4,837)						(6,549)
Net carrying amount			$	242,596					$	356,695											$	495,163					$	693,430

The following table sets forth the total interest expense recognized related to the notes (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
2026 notes:
Contractual interest expense			$	—					$	—					$	—					$	—
Amortization of issuance costs			238						556						873						1,863
Total 2026 notes interest expense			$	238					$	556					$	873					$	1,863
2025 notes:
Contractual interest expense			$	112					$	220					$	510					$	654
Amortization of issuance costs			384						749						1,737						2,221
Total 2025 notes interest expense			$	496					$	969					$	2,247					$	2,875

Capped Call Transactions

Concurrently with the offering of the 2026 notes and 2025 notes, we used $103.4 million and $97.2 million, respectively, of the net proceeds to enter into privately negotiated capped call transactions which are expected to reduce or offset potential dilution to holders of our common stock upon conversion of the notes or offset the potential cash payments we would be required to make in excess of the principal amount of any converted notes. The capped call transactions automatically exercise upon conversion of the notes and as of September 30, 2023, cover 9,297,800 and 6,961,352 shares of our common stock for the 2026 notes and 2025 notes, respectively. These are intended to effectively increase the overall conversion price from $107.55 to $156.44 per share for the 2026 notes and $51.56 to $79.32 per share for the 2025 notes. The effective increase in conversion price as a result of the capped call transactions serves to reduce potential dilution to holders of our common stock and/or offset the cash payments we are required to make in excess of the principal amount of any converted notes. As these transactions meet certain accounting criteria, they are recorded in stockholders’ equity as a reduction of additional paid-in capital on our condensed consolidated balance sheets and are not accounted for as derivatives. The fair value of the capped call instrument is not remeasured each reporting period. The cost of the capped call is not expected to be deductible for tax purposes.

Note 6. Commitments and Contingencies

We may from time to time be subject to certain legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks, patents, copyrights, and other intellectual property rights; employment claims; and general contract or other claims. We may also, from time to time, be subject to various legal or government claims, demands, disputes, investigations, or requests for information. Such matters may include, but not be limited to, claims, disputes, or investigations related to warranty, refund, breach of contract, employment, intellectual property, government regulation, or compliance or other matters.

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On March 1, 2023, Plaintiff Shiva Stein, derivatively on behalf of Chegg, filed a stockholder derivative complaint in the Court of Chancery of the State of Delaware (Case No. 2023-0244-NAC) asserting breach of fiduciary duty, unjust enrichment, and waste of corporate asset claims against members of Chegg’s Board and certain Chegg officers. The matter is stayed. The Company disputes these claims and intends to vigorously defend itself in this matter.

On February 14, 2023, Plaintiff Brian Stansell, individually and on behalf of other similarly situated stockholders of Chegg, filed a putative class action complaint in the Court of Chancery of the State of Delaware (Case No. 2023-0180) on behalf of all Chegg stockholders who were eligible to vote at Chegg's 2022 Annual Stockholders' Meeting, asserting breach of fiduciary duty claims against the members of Chegg's Board. The Company disputes these claims and intends to vigorously defend itself in this matter.

On December 27, 2022, Plaintiff Sheri Moyer, individually and on behalf of all others similarly situated, filed a putative consumer class action in the United States District Court for the Northern District of California (Case No. 22-cv-09123) on behalf of all purchasers of a Chegg product or service as part of an automatic renewal plan or continuous service offer within the past four years. On July 25, 2023, the Company received an order granting its motion to compel arbitration, and the case will be stayed pending arbitration. The Company and Plaintiff have resolved this matter by agreement and dismissal is in process.

On December 22, 2022, JPMorgan Chase Bank, N.A. (JPMC) asserted a demand for repayment by the Company of certain investment proceeds received by the Company in its capacity as an investor in TAPD, Inc. (more commonly known as “Frank”). JPMC seeks such repayment pursuant to certain provisions in the existing Support Agreement between JPMC and the Company that was entered into in connection with JPMC's acquisition of Frank. JPMC has alleged fraud on the part of certain former Frank executives regarding the quantity and quality of its customer accounts. The Company is not at fault however is pursuing a settlement agreement with JPMC. As of September 30, 2023, we believe a loss is probable and reasonably estimable, and we have previously recognized an estimated loss contingency accrual of $7.0 million within general and administrative expense on our condensed consolidated statements of operations during the three months ended June 30, 2023.

On November 9, 2022, Plaintiff Joshua Keller, individually and on behalf of all others similarly situated, filed a putative class action in the United States District Court for the Northern District of California (Case No. 22-cv-06986) on behalf of individuals whose data was allegedly impacted by past data breaches. On August 15, 2023, the Company received an order granting its motion to compel arbitration, and the case will be stayed and administratively closed pending the conclusion of arbitration, if Plaintiff decides to pursue arbitration. The Company disputes Plaintiff's claims and intends to vigorously defend itself in this matter should it continue.

On March 30, 2022, Joseph Robinson, derivatively on behalf of Chegg, filed a shareholder derivative complaint against Chegg and certain of its current and former directors and officers in the United States District Court for the Northern District of California, alleging violations of securities laws and breaches of fiduciary duties. On February 22, 2023, Plaintiff filed an Amended Shareholder Derivative Complaint. This matter has been consolidated with Choi, below, and both matters are stayed. The Company disputes these claims and intends to vigorously defend itself in this matter.

On January 12, 2022, Rak Joon Choi, derivatively on behalf of Chegg, filed a shareholder derivative complaint against Chegg and certain of its current and former directors and officers in the United States District Court for the Northern District of California, alleging violations of securities laws, breaches of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. On February 22, 2023, Plaintiff filed an Amended Shareholder Derivative Complaint. This matter has been consolidated with Robinson, above, and both matters are stayed. The Company disputes these claims and intends to vigorously defend itself in this matter.

On December 22, 2021, Steven Leventhal, individually and on behalf of all others similarly situated, filed a purported securities fraud class action on behalf of all purchasers of Chegg common stock between May 5, 2020 and November 1, 2021, inclusive, against Chegg and certain of its current and former officers in the United States District Court for the Northern District of California (Case No. 5:21-cv-09953), alleging that Chegg and several of its officers made materially false and misleading statements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. On September 7, 2022, KBC Asset Management and The Pompano Beach Police & Firefighters Retirement System were appointed as lead plaintiff in the case. On December 8, 2022, Plaintiff filed his Amended Complaint and seeks unspecified compensatory damages, costs, and expenses, including counsel and expert fees. The Company disputes these claims and intends to vigorously defend itself in this matter.

On September 13, 2021, Pearson Education, Inc. (Pearson) filed a complaint captioned Pearson Education, Inc. v. Chegg, Inc. (Pearson Complaint) in the United States District Court for the District of New Jersey against the Company (Case 2:21-

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cv-16866), alleging infringement of Pearson’s registered copyrights and exclusive rights under copyright in violation of the United States Copyright Act. Pearson is seeking injunctive relief, monetary damages, costs, and attorneys’ fees. The Company filed its answer to the Pearson Complaint on November 19, 2021. Pearson’s June 29, 2022 Motion for Leave to File Amended Complaint seeking to add Bedford, Freeman & Worth Publishing Group, LLC d/b/a Macmillan Learning as a plaintiff was denied. Pearson filed an Amended Complaint on May 10, 2023, and the Company filed an amended answer on June 7, 2023. The Company disputes these claims and intends to vigorously defend itself in this matter.

On June 18, 2020, we received a Civil Investigative Demand (CID) from the Federal Trade Commission (FTC) regarding certain alleged deceptive or unfair acts or practices related to consumer privacy and/or data security. On October 31, 2022, the FTC published the parties’ agreed-upon consent order regarding Chegg’s privacy and data security practices. On January 27, 2023, the FTC finalized its order ("Final Order") requiring Chegg to implement a comprehensive information security program, limit the data the Company can collect and retain, offer users multi factor authentication to secure their accounts, and allow users to request access to and delete their data. No monetary penalties or fines were included in the Final Order.

Aside from the loss contingency accrual recorded related to the Frank matter, we have not recorded any additional loss contingency accruals related to the above matters as we do not believe that a loss is probable in these matters. We are not aware of any other pending legal matters or claims, individually or in the aggregate, that are expected to have a material adverse impact on our consolidated financial position, results of operations, or cash flows. However, our analysis of whether a claim will proceed to litigation cannot be predicted with certainty, nor can the results of litigation be predicted with certainty. Nevertheless, defending any of these actions, regardless of the outcome, may be costly, time consuming, distract management personnel and have a negative effect on our business. An adverse outcome in any of these actions, including a judgment or settlement, may cause a material adverse effect on our future business, operating results and/or financial condition.

Note 7. Guarantees and Indemnifications

We have agreed to indemnify our directors and officers for certain events or occurrences, subject to certain limits, while such persons are or were serving at our request in such capacity. We may terminate the indemnification agreements with these persons upon termination of employment, but termination will not affect claims for indemnification related to events occurring prior to the effective date of termination. We have a directors’ and officers’ insurance policy that limits our potential exposure up to the limits of our insurance coverage. In addition, we also have other indemnification agreements with various vendors against certain claims, liabilities, losses, and damages. The maximum amount of potential future indemnification is unlimited.

We believe the fair value of these indemnification agreements is immaterial. We have not recorded any liabilities for these agreements as of September 30, 2023.

Note 8. Common Stock

We are authorized to issue 400 million shares of our common stock, with a par value per share of $0.001. As of September 30, 2023, we have reserved the following shares of our common stock for future issuance:

			September 30, 2023
Outstanding stock options			254,209
Outstanding RSUs and PSUs			10,295,610
Shares available for grant under the 2023 Equity Incentive Plan			12,166,070
Shares available for issuance under the Amended and Restated 2013 Employee Stock Purchase Plan			4,000,000
Total common shares reserved for future issuance			26,715,889

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Stock Plans

2023 Equity Incentive Plan

On April 7, 2023, our Board of Directors adopted our 2023 Equity Incentive Plan (the “2023 EIP”), which was subsequently approved by our stockholders and became effective on June 7, 2023, replacing our 2013 Equity Incentive Plan (the “2013 Plan”). On the effective date of the 2023 EIP, 12,000,000 shares of our common stock were reserved for issuance under the 2023 EIP. On June 6, 2023, the date on which the 2013 Plan expired, all remaining shares available for grant under the 2013 Plan were cancelled, and we will not make any additional grants under the 2013 Plan. In addition, any shares subject to awards, including shares subject to awards granted under the 2013 Plan that were outstanding on June 7, 2023, that are cancelled, forfeited, repurchased, expire by their terms without shares being issued, are used to pay the exercise price of an option or stock appreciation right or withheld to satisfy the tax withholding obligations related to any award, will be returned to the pool of shares available for grant and issuance under the 2023 EIP. As of September 30, 2023, there were 12,166,070 shares available for grant under the 2023 EIP. The 2023 EIP permits the granting of incentive stock options, non-qualified stock options, RSUs, restricted stock awards, stock bonus awards, stock appreciation rights and performance awards. The 2023 EIP terminates on April 7, 2033.

Amended and Restated 2013 Employee Stock Purchase Plan

On April 7, 2023, our Board of Directors adopted our Amended and Restated 2013 Employee Stock Purchase Plan (the “A&R ESPP”), which was subsequently approved by our stockholders and became effective on June 7, 2023. The A&R ESPP permits eligible employees to purchase shares of our common stock by accumulating funds through periodic payroll deductions. The A&R ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Code. Under the A&R ESPP, eligible employees will be granted an option to purchase shares of our common stock at a 15% discount to the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period or (ii) the last day of each purchase period in the applicable offering period. The Compensation Committee of our Board of Directors shall determine the duration and commencement date of each offering period, provided that an offering period shall in no event be longer than twenty-seven (27) months, except as otherwise provided by an applicable sub-plan. Upon approval of the A&R ESPP, the available share pool under our existing 2013 Employee Stock Purchase Plan was reduced, and we have reserved 4,000,000 shares of our common stock under the A&R ESPP. As of September 30, 2023, there were 4,000,000 shares of common stock available for future issuance under the A&R ESPP.

2023 Equity Inducement Plan

On October 11, 2023, our Board of Directors approved and adopted our 2023 Equity Inducement Plan (the “2023 EINP”). On the effective date of the 2023 EINP, 2,000,000 shares of our common stock were reserved for issuance under the 2023 EINP. The 2023 EINP permits the granting of non-qualified stock options and restricted stock unit awards. The 2023 EINP terminates on the later of (i) October 11, 2033 or (ii) ten years from the last date that additional shares are added to the EINP by the Compensation Committee of our Board of Directors.

Note 9. Stockholders' Equity

Share Repurchases

In June 2023, we repurchased 3,433,157 shares of our common stock in open market transactions for $34.5 million.

In February 2023, we entered into an accelerated share repurchase (ASR) agreement with a financial institution (2023 ASR). We accounted for the 2023 ASR as two separate transactions, a repurchase of our common stock and an equity-linked contract indexed to our common stock that met certain accounting criteria for classification in stockholders' equity. Upon execution, we paid a fixed amount of $150.0 million and received an initial delivery of 7,599,747 shares of our common stock, which were retired immediately. The initial delivery of shares of our common stock represented approximately 80 percent of the fixed amount paid of $150.0 million, which was based on the share price of our common stock on the date of execution. The 2023 ASR, along with $1.9 million in associated costs, primarily consisting of an estimated 1% excise tax, were recorded as a reduction to additional paid in capital on our condensed consolidated statements of stockholders’ equity. The 2023 ASR settled during the three months ended June 30, 2023 and we received an additional delivery of 1,974,762 shares of our common stock, which were retired immediately. The 2023 ASR resulted in a total repurchase of 9,574,509 shares of our common stock at a

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volume-weighted-average price, less an agreed upon discount, of $15.67 per share. We were not required to make any additional cash payments or delivery of common stock to the financial institution upon settlement.

In February 2022 and December 2021, we entered into ASR agreements with financial institutions. During the year ended December 31, 2022, we received a total of 11,562,475 shares of our common stock from these ASR agreements, which were retired immediately. Additionally, during the year ended December 31, 2022, we repurchased 1,146,803 shares of our common stock in open market transactions.

Securities Repurchase Program

In August 2023, our board of directors approved a $200.0 million increase to our existing securities repurchase program authorizing the repurchase of up to $2.2 billion of our common stock and/or convertible notes, through open market purchases, block trades, and/or privately negotiated transactions or pursuant to Rule 10b5-1 plans, in compliance with applicable securities laws and other legal requirements. The timing, volume, and nature of the repurchases will be determined by management based on the capital needs of the business, market conditions, applicable legal requirements, and other factors.

As of December 31, 2022, we had $642.6 million remaining under the securities repurchase program. During the nine months ended September 30, 2023, we increased our existing securities repurchase program by $200.0 million, repurchased shares of our common stock for $184.5 million and a portion of our notes for $504.4 million. As of September 30, 2023, we had $153.7 million remaining under the securities repurchase program, which has no expiration date and will continue until otherwise suspended, terminated or modified at any time for any reason by our board of directors.

Share-based Compensation Expense

Total share-based compensation expense recorded for employees and non-employees is as follows (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Cost of revenues			$	598					$	653					$	1,685					$	1,945
Research and development			11,027						9,172						33,909						30,954
Sales and marketing			2,435						2,771						7,116						11,176
General and administrative			17,870						21,574						58,886						54,266
Total share-based compensation expense			$	31,930					$	34,170					$	101,596					$	98,341

During the three and nine months ended September 30, 2023, we capitalized share-based compensation expense of $0.7 million and $2.4 million, respectively. During the three and nine months ended September 30, 2022, we capitalized share-based compensation expense of $0.7 million and $4.8 million, respectively. As of September 30, 2023, total unrecognized share-based compensation expense was approximately $170.7 million, which is expected to be recognized over the remaining weighted-average vesting period of approximately 1.9 years.

Activity for RSUs and PSUs is as follows:

			RSUs and PSUs Outstanding
			Shares Outstanding						Weighted Average Grant Date Fair Value
Balance at December 31, 2022			9,155,680						$	36.03
Granted			5,546,566						15.39
Released			(2,852,092)						35.71
Forfeited			(1,554,544)						32.67
Balance at September 30, 2023			10,295,610						25.51

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Note 10. Restructuring

In June 2023, we announced a reduction in workforce to better position the Company to execute against its AI strategy and to create long-term, sustainable value for its students and investors. This resulted in a management approved restructuring plan that impacted approximately 90 employees primarily in the United States. During the nine months ended September 30, 2023, we recorded restructuring charges of $5.7 million related to one-time employee termination benefits classified on our condensed consolidated statements of operations based on the employees' job function. As of September 30, 2023, $4.7 million in payments have been made and the $1.0 million liability is included within accrued liabilities on our condensed consolidated balance sheets. The total cost of the restructuring plan of $5.7 million has been recorded and we expect it to be substantially completed by the end of fiscal 2023. We expect cost savings from the restructuring plan to be reinvested in future growth opportunities.

Note 11. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

			September 30, 2023						December 31, 2022
Content			$	325,811					$	339,879
Software			43,595						45,422
Leasehold improvements			10,784						10,860
Furniture and fixtures			5,147						4,952
Computer and equipment			3,514						3,321
Property and equipment			388,851						404,434
Less accumulated depreciation and amortization			(220,116)						(200,051)
Property and equipment, net			$	168,735					$	204,383

Depreciation and content amortization expense during the three and nine months ended September 30, 2023 was $56.9 million and $108.9 million, respectively, which included the $34.2 million accelerated depreciation discussed below. Depreciation and content amortization expense during the three and nine months ended September 30, 2022 was $22.4 million and $64.3 million, respectively.

As part of the design and build of our new generative AI experience, in August 2023, we streamlined our product experiences. As a result, we elected to abandon certain content and software assets and accelerated depreciation over shortened useful lives for completed assets as well as impaired in-progress software assets prior to their completion. We also recognized other costs associated with abandoning these content and software assets. Additionally, we impaired our internships.com trade name and adjusted the carrying value to zero. The total content and related assets charge has been recorded during the three months ended September 30, 2023.

Condensed consolidated statements of operations classification and total charge recorded is as follows (in thousands):

			Classification						Total charge
Accelerated depreciation of content and software			Cost of revenues						$	34,195
Impairment of in-progress software			Cost of revenues						2,616
Other costs			Cost of revenues						1,431
Total costs of revenues									38,242
Impairment of indefinite-lived trade name			General and administrative						3,600
Total general and administrative expense									3,600
Total content and related assets charge									$	41,842

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes included in Part I, Item 1, “Financial Statements (unaudited)” of this Quarterly Report on Form 10-Q. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. See the section titled “Note about Forward-Looking Statements” for additional information. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q.

Overview

Millions of people all around the world Learn with Chegg. Our mission is to improve learning and learning outcomes by putting students first. We support life-long learners starting with their academic journey and extending into their careers. The Chegg platform provides products and services to support learners to help them better understand their academic course materials, and also provides personal and professional development skills training, to help them achieve their learning goals.

Our long-term strategy is centered upon our ability to utilize our Subscription Services to increase student engagement with our learning platform. We continue to invest in the expansion of our offerings and technology platform to provide a more compelling and personalized solution and deepen engagement with students. As AI technologies continue to advance, we are taking advantage of the increased opportunities by leveraging new tools to better serve our students. We rapidly realigned our investments and resources around AI earlier this year, and we continue to position ourselves for success, including utilizing Chegg technology as well as third-party AI tools to develop large language models (LLMs) that will allow our students to see a much simpler, conversational user interface, personalized learning pathways, more in-depth content, and the ability to transform it automatically into innovative study tools. Our ability to achieve these long-term objectives is subject to numerous risks and uncertainties, which are described in greater detail in Part II, Item 1A, “Risk Factors.”

During the three and nine months ended September 30, 2023, we generated net revenues of $157.9 million and $528.3 million, respectively. During the three and nine months ended September 30, 2022, we generated net revenues of $164.7 million and $561.7 million, respectively.

We have changed our revenue disaggregation to Subscription Services and Skills and Other to better reflect the nature and timing of revenue and cash flows. Subscription Services includes revenues from our Chegg Study Pack, Chegg Study, Chegg Writing, Chegg Math, and Busuu offerings. Skills and Other includes revenues from our Skills, advertising services, print textbooks and eTextbooks offerings. We no longer present our Required Materials product line separately as we no longer expect to have significant revenue from our print textbook and eTextbooks offerings.

We have presented revenues for our two product lines, Subscription Services and Skills and Other, based on how students view us and the utilization of our products by them. More detail on our two product lines is discussed in the next two sections titled “Subscription Services” and “Skills and Other.”

Subscription Services

Our Subscription Services can be accessed internationally through our websites and on mobile devices and include Chegg Study Pack, Chegg Study, Chegg Writing, Chegg Math, and Busuu and students typically pay to access our Subscription Services on a monthly basis. Revenues from our Subscription Services are primarily recognized ratably over the monthly subscription period whereas the number of subscribers are determined as those who have paid to access our services at any time during the period. Changes in revenues are primarily related to changes in subscribers however they may not necessarily coincide as a result of timing. Our Chegg Study subscription service provides “Expert Questions and Answers” and step-by-step “Textbook Solutions,” helping students with their course work. When students need writing help, including plagiarism detection scans and creating citations for their papers, they can use our Chegg Writing subscription service. Our Chegg Math subscription service, including Mathway, helps students understand math by providing a step-by-step math solver and calculator. We also offer our Chegg Study Pack as a premium subscription bundle of our Chegg Study, Chegg Writing, and Chegg Math services, which also includes additional features such as flashcards, concept videos, practice questions and quizzes, and instructor-created materials through Uversity. Our Busuu language learning platform offers a comprehensive solution

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through a combination of self-paced lessons, live classes with expert tutors and the ability to learn and practice with members of the Busuu language learning community.

In the aggregate, Subscription Services revenues were 89% and 90% of net revenues during the three and nine months ended September 30, 2023, respectively, compared to 89% and 88% of net revenues during the three and nine months ended September 30, 2022, respectively.

Skills and Other

Our Skills and Other product line includes revenues from Skills, advertising services, print textbooks and eTextbooks. Our skills-based learning platform offers professional courses focused on the most in-demand technology skills. We work with leading brands and programmatic partners to deliver advertising across our platforms. We also provide a platform for students to rent or buy print textbooks and eTextbooks, which helps students save money compared to the cost of buying new.

In the aggregate, Skills and Other revenues were 11% and 10% of net revenues during the three and nine months ended September 30, 2023, respectively, compared to 11% and 12% of net revenues during the three and nine months ended September 30, 2022, respectively.

Seasonality of Our Business

Revenues from Subscription Services are primarily recognized ratably over the subscription term which has generally resulted in our highest revenues and profitability in the fourth quarter as it reflects more days of the academic year. Certain variable expenses, such as marketing expenses, remain highest in the first and third quarters such that our profitability may not provide meaningful insight on a sequential basis. As a result of these factors, the most concentrated periods for our revenues and expenses do not necessarily coincide, and comparisons of our historical quarterly results of operations on a sequential basis may not provide meaningful insight into our overall financial performance.

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Results of Operations

The following table summarizes our historical condensed consolidated statements of operations (in thousands, except percentage of total net revenues):

			Three Months Ended September 30,																								Nine Months Ended September 30,
			2023												2022												2023												2022
Net revenues			$	157,854					100		%				$	164,739					100		%				$	528,308					100		%				$	561,704					100		%
Cost of revenues(1)			83,575						53						45,203						27						180,137						34						145,972						26
Gross profit			74,279						47						119,536						73						348,171						66						415,732						74
Operating expenses:
Research and development(1)			46,202						30						45,426						28						145,981						27						150,321						27
Sales and marketing(1)			28,872						18						31,803						19						96,845						18						109,580						20
General and administrative(1)			57,075						36						53,742						33						186,357						35						154,547						27
Total operating expenses			132,149						84						130,971						80						429,183						80						414,448						74
(Loss) income from operations			(57,870)						(37)						(11,435)						(7)						(81,012)						(14)						1,284						—
Total interest expense, net and other income, net			39,759						25						95,733						58						113,556						21						100,509						18
(Loss) income before (provision for) benefit from income taxes			(18,111)						(12)						84,298						51						32,544						7						101,793						18
(Provision for) benefit from income taxes			(172)						0						167,264						102						(24,029)						(5)						162,987						29
Net (loss) income			$	(18,283)					(12)		%				$	251,562					153		%				$	8,515					2		%				$	264,780					47		%
(1) Includes share-based compensation expense as follows:
Cost of revenues			$	598											$	653											$	1,685											$	1,945
Research and development			11,027												9,172												33,909												30,954
Sales and marketing			2,435												2,771												7,116												11,176
General and administrative			17,870												21,574												58,886												54,266
Total share-based compensation expense			$	31,930											$	34,170											$	101,596											$	98,341

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Three and Nine Months Ended September 30, 2023 and 2022

    

Net Revenues    

The following tables set forth our total net revenues for the periods shown for our Subscription Services and Skills and Other product lines (in thousands, except percentages):

			Three Months Ended September 30,																		Change
			2023						2022												$						%
Subscription Services			$	139,912					$	146,001											$	(6,089)					(4)		%
Skills and Other			17,942						18,738												(796)						(4)
Total net revenues			$	157,854					$	164,739											$	(6,885)					(4)

			Nine Months Ended September 30,																		Change
			2023						2022												$						%
Subscription Services			$	474,207					$	494,462											$	(20,255)					(4)		%
Skills and Other			54,101						67,242												(13,141)						(20)
Total net revenues			$	528,308					$	561,704											$	(33,396)					(6)

Subscription Services revenues decreased $6.1 million, or 4%, and $20.3 million, or 4%, during the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The decrease was primarily due to a 8%, 9%, and 5% decrease in subscribers who have paid to access our services during the three months ended September 30, 2023, June 30, 2023 and March 31, 2023, respectively, compared to the same periods in 2022. Subscription Services revenues were 89% and 90% of net revenues during the three and nine months ended September 30, 2023, respectively, compared to 89% and 88% of net revenues during the three and nine months ended September 30, 2022, respectively.

Skills and Other revenues decreased $0.8 million, or 4%, during the three months ended September 30, 2023 compared to the same period in 2022, remaining relatively flat. Skills and Other revenues decreased $13.1 million, or 20% during the nine months ended September 30, 2023, compared to the same period in 2022. The decrease was primarily due to lower revenues of $22.5 million from print textbooks and eTextbooks as a result of recognizing revenue on a net basis from our partnership with GT Marketplace, LLC that began in April 2022. Skills and Other revenues were 11% and 10% of net revenues during the three and nine months ended September 30, 2023, respectively, compared to 11% and 12% of net revenues during the three and nine months ended September 30, 2022, respectively.

Cost of Revenues

The following tables set forth our cost of revenues for the periods shown (in thousands, except percentages):

			Three Months Ended September 30,																		Change
			2023						2022												$						%
Cost of revenues(1)			$	83,575					$	45,203											$	38,372					85		%
(1) Includes share-based compensation expense of:			$	598					$	653											$	(55)					(8)		%

			Nine Months Ended September 30,																		Change
			2023						2022												$						%
Cost of revenues(1)			$	180,137					$	145,972											$	34,165					23		%
(1) Includes share-based compensation expense of:			$	1,685					$	1,945											$	(260)					(13)		%

Cost of revenues increased during the three and nine months ended September 30, 2023, compared to the same periods in 2022, due to the $38.2 million content and related assets charge, primarily comprised of accelerated depreciation expense, recorded as we realign our resources around our AI strategy. As a result, we expect cost of revenues to decrease in the near term, resulting in an increase in gross margin. See Note 11, “Property and Equipment, Net” of our accompanying Notes to

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Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements (unaudited)” of this Quarterly Report on Form 10-Q for additional information.

Cost of revenues increased $38.4 million, or 85%, during the three months ended September 30, 2023, compared to the same period in 2022 primarily attributable to the content and related assets charge. Gross margins decreased to 47% during the three months ended September 30, 2023, from 73% during the same period in 2022.

Cost of revenues increased $34.2 million, or 23%, during the nine months ended September 30, 2023, compared to the same period in 2022. The increase was primarily attributable to the content and related assets charge of $38.2 million and higher other depreciation and amortization expense of $11.0 million partially offset by the absence of print textbook and eTextbook related costs of $9.2 million, lower employee-related expenses, including share-based compensation expense, of $2.3 million, and lower transitional logistic charges of $1.9 million. Gross margins decreased to 66% during the nine months ended September 30, 2023, from 74% during the same period in 2022.

Operating Expenses

The following tables set forth our total operating expenses for the periods shown (in thousands, except percentages):

			Three Months Ended September 30,																		Change
			2023						2022												$						%
Research and development(1)			$	46,202					$	45,426											$	776					2		%
Sales and marketing(1)			28,872						31,803												(2,931)						(9)
General and administrative(1)			57,075						53,742												3,333						6
Total operating expenses			$	132,149					$	130,971											$	1,178					1
(1) Includes share-based compensation expense of:
Research and development			$	11,027					$	9,172											$	1,855					20		%
Sales and marketing			2,435						2,771												(336)						(12)
General and administrative			17,870						21,574												(3,704)						(17)
Share-based compensation expense			$	31,332					$	33,517											$	(2,185)					(7)

			Nine Months Ended September 30,																		Change
			2023						2022												$						%
Research and development(1)			$	145,981					$	150,321											$	(4,340)					(3)		%
Sales and marketing(1)			96,845						109,580												(12,735)						(12)
General and administrative(1)			186,357						154,547												31,810						21
Total operating expenses			$	429,183					$	414,448											$	14,735					4
(1) Includes share-based compensation expense of:
Research and development			$	33,909					$	30,954											$	2,955					10		%
Sales and marketing			7,116						11,176												(4,060)						(36)
General and administrative			58,886						54,266												4,620						9
Share-based compensation expense			$	99,911					$	96,396											$	3,515					4

Research and Development

Research and development expenses increased $0.8 million, or 2%, during the three months ended September 30, 2023 compared to the same period in 2022, remaining relatively flat. Research and development expenses as a percentage of net revenues were 30% during the three months ended September 30, 2023 compared to 28% during the same period in 2022.

Research and development expenses decreased $4.3 million, or 3%, during the nine months ended September 30, 2023 compared to the same period in 2022. The decrease was primarily attributable to lower employee-related expenses, including share-based compensation expense, of $2.0 million, and lower contractor spend of $1.6 million, partially offset by restructuring charges of $1.7 million. Research and development expenses as a percentage of net revenues were 27% during the nine months ended September 30, 2023 and 2022.

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Sales and Marketing

Sales and marketing expenses decreased by $2.9 million, or 9%, during the three months ended September 30, 2023, compared to the same period in 2022. The decrease was primarily attributable to lower employee-related expenses, including share-based compensation expense, of $1.5 million. Sales and marketing expenses as a percentage of net revenues were 18% during the three months ended September 30, 2023 compared to 19% during the same period in 2022.

Sales and marketing expenses decreased by $12.7 million, or 12%, during the nine months ended September 30, 2023, compared to the same period in 2022. The decrease was primarily attributable to lower paid marketing expenses of $5.6 million, primarily due to Busuu, and lower employee-related expenses, including share-based compensation expense, of $4.7 million, partially offset by restructuring charges of $1.2 million. Sales and marketing expenses as a percentage of net revenues were 18% during the nine months ended September 30, 2023 compared to 20% during the same period in 2022.

General and Administrative

General and administrative expenses increased $3.3 million, or 6%, during the three months ended September 30, 2023 compared to the same period in 2022. The increase was primarily due to an impairment charge related to our intangible asset of $3.6 million, which was part of the content and related assets charge as we realign our resources around our AI strategy, which was partially offset by lower employee-related expenses, including share-based compensation expense, of $2.0 million. General and administrative expenses as a percentage of net revenues were 36% during the three months ended September 30, 2023 compared to 33% during the same period in 2022.

General and administrative expenses increased $31.8 million, or 21%, during the nine months ended September 30, 2023 compared to the same period in 2022. The increase was primarily due to higher employee-related expenses, including share-based compensation expense, of $18.2 million, a loss contingency accrual of $7.0 million, restructuring charges of $2.8 million, an impairment charge related to our intangible asset of $3.6 million, which was part of the content and related assets charge as we realign our resources around our AI strategy, which was partially offset by the absence of the impairment on lease related assets of $3.4 million. General and administrative expenses as a percentage of net revenues were 35% during the nine months ended September 30, 2023 compared to 27% during the same period in 2022.

Interest Expense and Other Income, Net

The following tables set forth our interest expense and other income, net, for the periods shown (in thousands, except percentages):

			Three Months Ended September 30,																		Change
			2023						2022												$						%
Interest expense, net			$	(733)					$	(1,525)											$	792					(52)		%
Other income, net			40,492						97,258												(56,766)						n/m
Total interest expense, net and other income, net			$	39,759					$	95,733											$	(55,974)					n/m

			Nine Months Ended September 30,																		Change
			2023						2022												$						%
Interest expense, net			$	(3,115)					$	(4,738)											$	1,623					(34)		%
Other income, net			116,671						105,247												11,424						n/m
Total interest expense, net and other income, net			$	113,556					$	100,509											$	13,047					n/m

______________________________________

n/m - not meaningful

Interest expense, net decreased $0.8 million, or 52%, and $1.6 million, or 34%, during the three and nine months ended September 30, 2023 compared to the same periods in 2022, primarily due to the partial extinguishments of the 2026 notes in August 2022 and May 2023 and the 2025 notes in May 2023.

Other income, net decreased $56.8 million during the three months ended September 30, 2023 compared to the same period in 2022 primarily due to the absence of the $93.5 million gain on early extinguishment of a portion of the 2026 notes that occurred in August 2022, partially offset by $32.1 million gain on early extinguishment of a portion of the 2026 notes and an

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increase in interest income of $4.7 million. Other income, net increased $11.4 million, during the nine months ended September 30, 2023 compared to the same period in 2022 primarily due to a $85.9 million gain on early extinguishments of a portion of the 2026 notes and 2025 notes and an increase in interest income of $23.1 million, partially offset by the absence of the $93.5 million gain on early extinguishment of a portion of the 2026 notes that occurred in August 2022 and the absence of the $4.6 million gain on foreign currency remeasurement of purchase consideration related to our acquisition of Busuu.

(Provision for) benefit from income taxes

The following tables set forth our (provision for) benefit from income taxes for the periods shown (in thousands, except percentages):

			Three Months Ended September 30,																		Change
			2023						2022												$						%
(Provision for) benefit from income taxes			$	(172)					$	167,264											$	(167,436)					n/m

			Nine Months Ended September 30,																		Change
			2023						2022												$						%
(Provision for) benefit from income taxes			$	(24,029)					$	162,987											$	(187,016)					n/m

______________________________________

n/m - not meaningful

(Provision for) benefit from income taxes increased $167.4 million and $187.0 million during the three and nine months ended September 30, 2023 compared to the same periods in 2022. The increase was primarily due to the absence of a valuation allowance benefit as a result of releasing our valuation allowance against a substantial amount of our U.S. deferred tax assets in 2022.

Liquidity and Capital Resources

As of September 30, 2023, our principal sources of liquidity were cash, cash equivalents, and investments totaling $673.8 million, which were held for working capital purposes. The substantial majority of our net revenues are from e-commerce transactions with students, which are settled immediately through payment processors, as opposed to our accounts payable, which are settled based on contractual payment terms with our suppliers.

In August 2023, our board of directors approved a $200.0 million increase to our existing securities repurchase program authorizing the repurchase of up to $2.2 billion of our common stock and/or convertible notes, through open market purchases, block trades, and/or privately negotiated transactions or pursuant to Rule 10b5-1 plans, in compliance with applicable securities laws and other legal requirements. The timing, volume, and nature of the repurchases will be determined by management based on the capital needs of the business, market conditions, applicable legal requirements, and other factors. We have entered into accelerated share repurchase programs with financial institutions for $750.0 million, repurchased shares in open market transactions for $57.6 million and repurchased our convertible senior notes in privately-negotiated transactions for aggregate consideration of $1,238.7 million. As of September 30, 2023, we had $153.7 million remaining under the securities repurchase program, which has no expiration date and will continue until otherwise suspended, terminated or modified at any time for any reason by our board of directors.

In February 2021, we completed an equity offering in which we raised net proceeds of $1,091.5 million, after deducting underwriting discounts and commissions and offering expenses. In August 2020 and March/April 2019, we closed offerings of our 2026 notes and 2025 notes, generating net proceeds of approximately $984.1 million and $780.2 million, respectively, in each case after deducting the initial purchasers’ discount and estimated offering expenses payable by us. The 2026 notes and 2025 notes mature on September 1, 2026 and March 15, 2025, respectively, unless converted, redeemed or repurchased in accordance with their terms prior to such dates.

As of September 30, 2023, we have incurred cumulative losses of $62.0 million from our operations and we may incur additional losses in the future. Our operations have been financed primarily by equity and convertible senior notes offerings as well as cash generated from operations.

Aside from the changes in operating lease obligations and unfunded commitments as disclosed in Note 1, “Background and Basis of Presentation,” and Note 4, “Cash and Cash Equivalents, Investments and Fair Value Measurements,” respectively,

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of our accompanying Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q, there were no other material changes in our commitments under contractual obligations, as disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2022.

We believe that our existing sources of liquidity will be sufficient to fund our operations and debt service obligations for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, our investments in research and development activities, our acquisition of new products and services, and our sales and marketing activities. To the extent that existing cash and cash from operations are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Additional funds may not be available on terms favorable to us or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, operating cash flows and financial condition.

Most of our cash, cash equivalents, and investments are held in the United States. As of September 30, 2023, our foreign subsidiaries held an insignificant amount of cash in foreign jurisdictions. We currently do not intend or foresee a need to repatriate these foreign funds; however, as a result of the Tax Cuts and Jobs Act, we anticipate the U.S. federal impact to be minimal if these foreign funds are repatriated. In addition, based on our current and future needs, we believe our current funding and capital resources for our international operations are adequate.

The following table sets forth our cash flows (in thousands):

			Nine Months Ended September 30,
			2023						2022
Condensed Consolidated Statements of Cash Flows Data:
Net cash provided by operating activities			$	168,714					$	181,716
Net cash provided by (used in) investing activities			155,239						(237,775)
Net cash used in financing activities			(702,806)						(732,949)

Cash Flows from Operating Activities

Net cash provided by operating activities during the nine months ended September 30, 2023 was $168.7 million. Our net income of $8.5 million was increased by significant non-cash operating expenses including share-based compensation expense of $101.6 million, other depreciation and amortization expense of $108.9 million, which includes $34.2 million of accelerated depreciation expense recorded as we realign our resources around our AI strategy and develop the new Chegg product experience, deferred income taxes of $20.9 million, and a loss contingency of $7.0 million, partially offset by the gain on early extinguishment of a portion of the 2026 notes and 2025 notes of $85.9 million.

Net cash provided by operating activities during the nine months ended September 30, 2022 was $181.7 million. Our net income of $264.8 million was increased by significant non-cash operating expenses including share-based compensation expense of $98.3 million and other depreciation and amortization expense of $64.3 million, partially offset by the gain on early extinguishment of debt of $93.5 million and the tax benefit related to release of valuation allowance of $174.6 million.

Cash Flows from Investing Activities

Net cash provided by investing activities during the nine months ended September 30, 2023 was $155.2 million and was related to the maturities of investments of $561.2 million and proceeds from sale of our investments of $238.7 million, partially offset by purchases of investments of $585.3 million and the purchases of property and equipment of $57.3 million.

Net cash used in investing activities during the nine months ended September 30, 2022 was $237.8 million and was related to the acquisition of a business of $401.1 million, the purchases of investments of $534.0 million, the purchases of property and equipment of $79.2 million and the purchase of a strategic equity investment of $6.0 million, partially offset by the maturities of investments of $783.9 million.

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Cash Flows from Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2023 was $702.8 million and was primarily related to the repayment of a portion of our 2026 notes and 2025 notes of $506.0 million, repurchases of common stock of $186.4 million and payment of $13.9 million in taxes related to the net share settlement of equity awards.

Net cash used in financing activities during the nine months ended September 30, 2022 was $732.9 million and was primarily related to the repayment of a portion of our 2026 notes of $401.2 million, repurchases of common stock of $323.5 million and payment of $12.8 million in taxes related to the net share settlement of equity awards, partially offset by proceeds from issuance of common stock under stock plans of $4.6 million.

Critical Accounting Policies, Significant Judgments and Estimates

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes in our critical accounting policies and estimates during the nine months ended September 30, 2023 as compared to the critical accounting policies and estimates disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2022.

Recent Accounting Pronouncements

For relevant recent accounting pronouncements, see Note 1, “Background and Basis of Presentation,” of our accompanying Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements (unaudited)” of this Quarterly Report on Form 10-Q.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk during the nine months ended September 30, 2023, compared to the disclosures in Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” contained in our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 4. CONTROLS AND PROCEDURES

(a)Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report.

In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on management’s evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

(b)Changes in Internal Control over Financial Reporting

During the nine months ended September 30, 2023, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We may from time to time be subject to certain legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks, patents, copyrights, and other intellectual property rights; employment claims; and general contract or other claims. We may also, from time to time, be subject to various legal or government claims, demands, disputes, investigations, or requests for information. Such matters may include, but not be limited to, claims, disputes, or investigations related to warranty, refund, breach of contract, employment, intellectual property, government regulation, or compliance or other matters. See Note 6, “Commitments and Contingencies,” of our accompanying Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements (unaudited)” of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. There have been no material changes in our risk factors from our Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Securities

We had no unregistered sales of our securities during the three months ended September 30, 2023.

Purchases of Securities by the Registrant and Affiliated Purchasers

We did not purchase any of our common stock during the three months ended September 30, 2023.

ITEM 5. OTHER INFORMATION

Rule 10b5-1 Trading Plans

During the three months ended September 30, 2023, none of our Section 16 officers or directors adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" as defined in Item 408 of Regulation S-K during the covered period.

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ITEM 6. EXHIBITS

Incorporated by Reference

Exhibit No.

Exhibit

Form

File No

Filing Date

Exhibit No.

Filed Herewith

3.1

2023 Equity Inducement Plan, and forms of agreements thereunder

S-8

001-36180

10/11/23

99.1

31.01

Certification of Dan Rosensweig, Chief Executive Officer and Co-Chairperson, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

31.02

Certification of Andrew Brown, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

32.01**

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

101.INS

Inline XBRL Instance Document

X

101.SCH

Inline XBRL Taxonomy Extension Schema

X

101.CAL

Inline XBRL Taxonomy Extension Calculation

X

101.LAB

Inline XBRL Taxonomy Extension Labels

X

101.PRE

Inline XBRL Taxonomy Extension Presentation

X

101.DEF

Inline XBRL Taxonomy Extension Definition

X

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

X

**			This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

			CHEGG, INC.
October 30, 2023			By:						/S/ ANDREW BROWN
									Andrew Brown
									Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

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