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 ~~June~~September 30, 2022


☐			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 ~~July 28,~~October 25, 2022, the Registrant had ~~126,398,679~~125,477,315 outstanding shares of Common Stock.

Table of Contents

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited):

Condensed Consolidated Balance Sheets - ~~June~~September 30, 2022 and December 31, 2021

Condensed Consolidated Statements of Operations - for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

Condensed Consolidated Statements of Comprehensive Income (Loss) ~~Income~~ - for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

Condensed Consolidated Statements of Stockholder's Equity - for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

Condensed Consolidated Statements of Cash Flows - for the ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

Notes to Condensed Consolidated Financial Statements

Item 2.

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3334

Item 4.

Controls and Procedures

3334

PART II - OTHER INFORMATION

Unregistered Sales of Equity Securities and Use of Proceeds

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, internships.com, Research Ready, 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.

Table of Contents

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, our objectives for future operations, and the impact of the ~~ongoing~~ coronavirus (COVID-19) pandemic on our financial condition and results of operations are forward-looking statements. The words “believe,” “may,” “will,” “would,” “could,” “estimate,” “continue,” “anticipate,” “intend,” “project,” “endeavor,” “expect,” “plans 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, 2021. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time, such as the COVID-19 global pandemic. Many of the risks and uncertainties are ~~currently~~ elevated by, and may or will continue to be elevated by, the ~~current~~ COVID-19 pandemic. 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. We qualify all of our forward-looking statements by these cautionary statements.

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.

Table of Contents

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)
June 30,
2022 December 31,
2021
Assets
Current assets
Cash and cash equivalents $ 402,089 $ 854,078
Short-term investments 981,288 691,781
Accounts receivable, net of allowance of $234 and $153 at June 30, 2022 and December 31, 2021, respectively 16,815 17,850
Prepaid expenses 20,115 35,093
Other current assets 31,559 23,846
Total current assets 1,451,866 1,622,648
Long-term investments 265,729 745,993
Textbook library, net — 11,241
Property and equipment, net 195,370 169,938
Goodwill 616,649 289,763
Intangible assets, net 91,469 40,566
Right of use assets 15,485 18,062
Other assets 17,951 21,035
Total assets $ 2,654,519 $ 2,919,246
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 11,910 $ 11,992
Deferred revenue 53,297 35,143
Accrued liabilities 69,160 67,209
Total current liabilities 134,367 114,344
Long-term liabilities
Convertible senior notes, net 1,680,931 1,678,155
Long-term operating lease liabilities 11,281 12,447
Other long-term liabilities 9,149 7,383
Total long-term liabilities 1,701,361 1,697,985
Total liabilities 1,835,728 1,812,329
Commitments and contingencies (Note 9) 0 0
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; 126,343,933 and 136,951,956 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively 126 137
Additional paid-in capital 1,211,506 1,449,305
Accumulated other comprehensive loss (68,868) (5,334)
Accumulated deficit (323,973) (337,191)
Total stockholders' equity 818,791 1,106,917
Total liabilities and stockholders' equity $ 2,654,519 $ 2,919,246


	September 30, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	69,349	$	854,078
Short-term investments	871,408		691,781
Accounts receivable, net of allowance of $298 and $153 at September 30, 2022 and December 31, 2021, respectively	22,187		17,850
Prepaid expenses	33,441		35,093
Other current assets	35,196		23,846
Total current assets	1,031,581		1,622,648
Long-term investments	286,781		745,993
Textbook library, net	—		11,241
Property and equipment, net	202,362		169,938
Goodwill	589,702		289,763
Intangible assets, net	80,646		40,566
Right of use assets	18,144		18,062
Deferred tax assets	166,965		1,365
Other assets	21,680		19,670
Total assets	$	2,397,861	$	2,919,246
Liabilities and stockholders' equity
Current liabilities
Accounts payable	$	14,902	$	11,992
Deferred revenue	60,475		35,143
Accrued liabilities	68,096		67,209

Total current liabilities	143,473		114,344
Long-term liabilities
Convertible senior notes, net	1,187,513		1,678,155
Long-term operating lease liabilities	12,347		12,447
Other long-term liabilities	7,996		7,383
Total long-term liabilities	1,207,856		1,697,985
Total liabilities	1,351,329		1,812,329
Commitments and contingencies (Note 9)
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; 125,423,860 and 136,951,956 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	125		137
Additional paid-in capital	1,220,688		1,449,305
Accumulated other comprehensive loss	(101,870)		(5,334)
Accumulated deficit	(72,411)		(337,191)
Total stockholders' equity	1,046,532		1,106,917
Total liabilities and stockholders' equity	$	2,397,861	$	2,919,246

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

CHEGG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Net revenues	Net revenues	$	194,721	$	198,478	$	396,965	$	396,856	Net revenues	$	164,739	$	171,942	$	561,704	$	568,798
Cost of revenues	Cost of revenues	45,684		60,708		100,769		132,092		Cost of revenues	45,203		67,102		145,972		199,194
Gross profit	Gross profit	149,037		137,770		296,196		264,764		Gross profit	119,536		104,840		415,732		369,604
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	52,480		41,595		104,895		87,726		Research and development	45,426		43,269		150,321		130,995
Sales and marketing	Sales and marketing	35,279		21,686		77,777		47,900		Sales and marketing	31,803		27,239		109,580		75,139
General and administrative	General and administrative	53,935		39,719		100,805		77,589		General and administrative	53,742		33,971		154,547		111,560

Total operating expenses	Total operating expenses	141,694		103,000		283,477		213,215		Total operating expenses	130,971		104,479		414,448		317,694
Income from operations		7,343		34,770		12,719		51,549
(Loss) income from operations										(Loss) income from operations	(11,435)		361		1,284		51,910
Interest expense, net and other income (expense), net:	Interest expense, net and other income (expense), net:									Interest expense, net and other income (expense), net:
Interest expense, net	Interest expense, net	(1,616)		(1,701)		(3,213)		(3,630)		Interest expense, net	(1,525)		(1,633)		(4,738)		(5,263)
Other income (expense), net	Other income (expense), net	1,809		1,920		7,989		(75,288)		Other income (expense), net	97,258		8,670		105,247		(66,618)
Total interest expense, net and other income (expense), net	Total interest expense, net and other income (expense), net	193		219		4,776		(78,918)		Total interest expense, net and other income (expense), net	95,733		7,037		100,509		(71,881)
Income (loss) before provision for income taxes		7,536		34,989		17,495		(27,369)
Provision for income taxes		(60)		(2,225)		(4,277)		(5,046)
Income (loss) before benefit from (provision for) income taxes										Income (loss) before benefit from (provision for) income taxes	84,298		7,398		101,793		(19,971)
Benefit from (provision for) income taxes										Benefit from (provision for) income taxes	167,264		(747)		162,987		(5,793)
Net income (loss)	Net income (loss)	$	7,476	$	32,764	$	13,218	$	(32,415)	Net income (loss)	$	251,562	$	6,651	$	264,780	$	(25,764)
Net income (loss) per share	Net income (loss) per share									Net income (loss) per share
Basic	Basic	$	0.06	$	0.23	$	0.10	$	(0.23)	Basic	$	1.99	$	0.05	$	2.07	$	(0.18)
Diluted	Diluted	$	0.06	$	0.20	$	0.10	$	(0.23)	Diluted	$	1.23	$	0.05	$	1.31	$	(0.18)
Weighted average shares used to compute net income (loss) per share	Weighted average shares used to compute net income (loss) per share									Weighted average shares used to compute net income (loss) per share
Basic	Basic	126,272		143,112		129,201		138,756		Basic	126,132		144,746		128,166		140,775
Diluted	Diluted	149,574		168,282		129,934		138,756		Diluted	148,045		146,699		151,221		140,775

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

CHEGG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ~~INCOME~~

(in thousands)

(unaudited)

Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
Net income (loss) $ 7,476 $ 32,764 $ 13,218 $ (32,415)
Other comprehensive (loss) income
Change in net unrealized (loss) gain on investments, net of tax (2,333) 375 (15,250) (1,519)
Change in foreign currency translation adjustments, net of tax (29,613) (107) (48,284) (981)
Other comprehensive (loss) income (31,946) 268 (63,534) (2,500)
Total comprehensive (loss) income $ (24,470) $ 33,032 $ (50,316) $ (34,915)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income (loss)	$	251,562	$	6,651	$	264,780	$	(25,764)
Other comprehensive loss
Change in net unrealized loss on investments, net of tax	(1,946)		(455)		(17,196)		(1,974)
Change in foreign currency translation adjustments, net of tax	(31,056)		(127)		(79,340)		(1,108)
Other comprehensive loss	(33,002)		(582)		(96,536)		(3,082)
Total comprehensive income (loss)	$	218,560	$	6,069	$	168,244	$	(28,846)

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

CHEGG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)


		Three Months Ended June 30, 2022												Three Months Ended September 30, 2022
		Common Stock												Common Stock
		Shares	Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity			Shares	Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
Balances at March 31, 2022		126,682	$	127	$	1,176,765	$	(36,922)	$	(331,449)	$	808,521
Balances at June 30, 2022													Balances at June 30, 2022	126,344	$	126	$	1,211,506	$	(68,868)	$	(323,973)	$	818,791
Repurchases of common stock	Repurchases of common stock	(837)	(1)		1		—		—		—		Repurchases of common stock	(1,147)	(1)		(23,077)		—		—		(23,078)

Issuance of common stock upon exercise of stock options and ESPP		265	—		4,102		—		—		4,102

Net share settlement of equity awards	Net share settlement of equity awards	234	—		(2,754)		—		—		(2,754)		Net share settlement of equity awards	227	—		(2,555)		—		—		(2,555)
Share-based compensation expense	Share-based compensation expense	—	—		33,392		—		—		33,392		Share-based compensation expense	—	—		34,814		—		—		34,814
Other comprehensive loss	Other comprehensive loss	—	—		—		(31,946)		—		(31,946)		Other comprehensive loss	—	—		—		(33,002)		—		(33,002)
Net income	Net income	—	—		—		—		7,476		7,476		Net income	—	—		—		—		251,562		251,562
Balances at June 30, 2022		126,344	$	126	$	1,211,506	$	(68,868)	$	(323,973)	$	818,791
Balances at September 30, 2022													Balances at September 30, 2022	125,424	$	125	$	1,220,688	$	(101,870)	$	(72,411)	$	1,046,532


		Three Months Ended June 30, 2021												Three Months Ended September 30, 2021
		Common Stock												Common Stock
		Shares	Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity			Shares	Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
Balances at March 31, 2021		141,317	$	141	$	1,645,352	$	(1,238)	$	(400,912)	$	1,243,343
Equity component on conversions of 2023 notes and 2025 notes		—	—		(225,615)		—		—		(225,615)
Issuance of common stock upon conversions of 2023 notes		2,857	3		224,281		—		—		224,284
Net proceeds from capped call related to conversions of 2023 notes and 2025 notes		—	—		44,192		—		—		44,192
Balances at June 30, 2021													Balances at June 30, 2021	144,621	$	145	$	1,706,855	$	(970)	$	(368,148)	$	1,337,882

Issuance of common stock upon exercise of stock options and ESPP	Issuance of common stock upon exercise of stock options and ESPP	120	—		4,919		—		—		4,919		Issuance of common stock upon exercise of stock options and ESPP	14	—		106		—		—		106
Net share settlement of equity awards	Net share settlement of equity awards	327	1		(15,466)		—		—		(15,465)		Net share settlement of equity awards	266	—		(14,697)		—		—		(14,697)
Share-based compensation expense	Share-based compensation expense	—	—		29,192		—		—		29,192		Share-based compensation expense	—	—		25,157		—		—		25,157
Other comprehensive income		—	—		—		268		—		268
Other comprehensive loss													Other comprehensive loss	—	—		—		(582)		—		(582)
Net income	Net income	—	—		—		—		32,764		32,764		Net income	—	—		—		—		6,651		6,651
Balances at June 30, 2021		144,621	$	145	$	1,706,855	$	(970)	$	(368,148)	$	1,337,882
Balances at September 30, 2021													Balances at September 30, 2021	144,901	$	145	$	1,717,421	$	(1,552)	$	(361,497)	$	1,354,517


	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

Table of Contents

Six Months Ended June 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 (11,562) (12) (300,438) — — (300,450)
Issuance of common stock upon exercise of stock options and ESPP 319 — 4,557 — — 4,557
Net share settlement of equity awards 635 1 (10,221) — — (10,220)
Share-based compensation expense — — 68,303 — — 68,303
Other comprehensive loss — — — (63,534) — (63,534)
Net income — — — — 13,218 13,218
Balances at June 30, 2022 126,344 $ 126 $ 1,211,506 $ (68,868) $ (323,973) $ 818,791


		Six Months Ended June 30, 2021												Nine Months Ended September 30, 2021
		Common Stock												Common Stock
		Shares	Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity			Shares	Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
Balances at December 31, 2020	Balances at December 31, 2020	129,344	$	129	$	1,030,577	$	1,530	$	(422,601)	$	609,635	Balances at December 31, 2020	129,344	$	129	$	1,030,577	$	1,530	$	(422,601)	$	609,635
Cumulative-effect adjustment related to adoption of ASU 2020-06	Cumulative-effect adjustment related to adoption of ASU 2020-06	—	—		(465,006)		—		86,868		(378,138)		Cumulative-effect adjustment related to adoption of ASU 2020-06	—	—		(465,006)		—		86,868		(378,138)
Issuance of common stock in connection with equity offering, net of offering costs	Issuance of common stock in connection with equity offering, net of offering costs	10,975	11		1,091,455		—		—		1,091,466		Issuance of common stock in connection with equity offering, net of offering costs	10,975	11		1,091,455		—		—		1,091,466
Equity component on conversions of 2023 notes and 2025 notes	Equity component on conversions of 2023 notes and 2025 notes	—	—		(236,920)		—		—		(236,920)		Equity component on conversions of 2023 notes and 2025 notes	—	—		(236,920)		—		—		(236,920)
Issuance of common stock upon conversions of 2023 notes	Issuance of common stock upon conversions of 2023 notes	2,983	3		235,518		—		—		235,521		Issuance of common stock upon conversions of 2023 notes	2,983	3		235,518		—		—		235,521
Net proceeds from capped call related to conversions of 2023 notes and 2025 notes	Net proceeds from capped call related to conversions of 2023 notes and 2025 notes	—	—		67,769		—		—		67,769		Net proceeds from capped call related to conversions of 2023 notes and 2025 notes	—	—		67,769		—		—		67,769
Issuance of common stock upon exercise of stock options and ESPP	Issuance of common stock upon exercise of stock options and ESPP	164	—		5,265		—		—		5,265		Issuance of common stock upon exercise of stock options and ESPP	178	—		5,371		—		—		5,371
Net share settlement of equity awards	Net share settlement of equity awards	1,155	2		(74,642)		—		—		(74,640)		Net share settlement of equity awards	1,421	2		(89,339)		—		—		(89,337)
Share-based compensation expense	Share-based compensation expense	—	—		52,839		—		—		52,839		Share-based compensation expense	—	—		77,996		—		—		77,996
Other comprehensive loss	Other comprehensive loss	—	—		—		(2,500)		—		(2,500)		Other comprehensive loss	—	—		—		(3,082)		—		(3,082)
Net loss	Net loss	—	—		—		—		(32,415)		(32,415)		Net loss	—	—		—		—		(25,764)		(25,764)
Balances at June 30, 2021		144,621	$	145	$	1,706,855	$	(970)	$	(368,148)	$	1,337,882
Balances at September 30, 2021													Balances at September 30, 2021	144,901	$	145	$	1,717,421	$	(1,552)	$	(361,497)	$	1,354,517

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

CHEGG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Six Months Ended
June 30,
2022 2021
Cash flows from operating activities
Net income (loss) $ 13,218 $ (32,415)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Print textbook depreciation expense 1,610 6,581
Other depreciation and amortization expense 41,921 30,187
Share-based compensation expense 64,171 51,645
Amortization of debt issuance costs 2,779 3,097
Gain on foreign currency remeasurement of purchase consideration (4,628) —
Impairment on lease related assets 3,411 —
Loss on early extinguishment of debt — 78,152
Loss on change in fair value of derivative instruments, net — 7,148
Loss from write-off of property and equipment 2,767 1,042
Gain on sale of strategic equity investment — (5,338)
(Gain) loss on textbook library, net (4,967) 4,230
Operating lease expense, net of accretion 3,242 3,064
Other non-cash items 167 298
Change in assets and liabilities, net of effect of acquisition of businesses:
Accounts receivable 3,227 3,462
Prepaid expenses and other current assets 28,768 (14,715)
Other assets 13,058 7,220
Accounts payable (5,246) (3,139)
Deferred revenue 4,256 2,062
Accrued liabilities (21,034) 4,197
Other liabilities (2,965) (2,277)
Net cash provided by operating activities 143,755 144,501
Cash flows from investing activities
Purchases of property and equipment (57,286) (46,595)
Purchases of textbooks (3,815) (5,018)
Proceeds from disposition of textbooks 2,494 6,709
Purchases of investments (356,553) (984,606)
Maturities of investments 522,466 455,536
Proceeds from sale of strategic equity investment — 7,081
Acquisition of businesses, net of cash acquired (401,125) (7,891)
Net cash used in investing activities (293,819) (574,784)
Cash flows from financing activities
Proceeds from common stock issued under stock plans, net 4,558 5,267
Payment of taxes related to the net share settlement of equity awards (10,221) (74,642)
Proceeds from equity offering, net of offering costs — 1,091,466
Repayment of convertible senior notes — (300,751)
Proceeds from exercise of convertible senior notes capped call — 69,004
Repurchases of common stock (300,450) —
Net cash (used in) provided by financing activities (306,113) 790,344
Effect of exchange rate changes 4,628 —
Net (decrease) increase in cash, cash equivalents and restricted cash (451,549) 360,061
Cash, cash equivalents and restricted cash, beginning of period 855,893 481,715
Cash, cash equivalents and restricted cash, end of period $ 404,344 $ 841,776


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities
Net income (loss)	$	264,780	$	(25,764)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Print textbook depreciation expense	1,610		9,024
Other depreciation and amortization expense	64,295		46,273
Share-based compensation expense	98,341		76,157
Amortization of debt issuance costs	4,084		4,509
Gain on foreign currency remeasurement of purchase consideration	(4,628)		—
Impairment on lease related assets	3,411		—
(Gain) loss on early extinguishment of debt	(93,519)		78,152
Loss on change in fair value of derivative instruments, net	—		7,148
Loss from write-off of property and equipment	3,117		1,857
Tax benefit related to release of valuation allowance	(174,601)		—
Deferred income taxes	6,376		563
Gain on sale of strategic equity investment	—		(12,496)
(Gain) loss on textbook library, net	(4,976)		8,765
Operating lease expense, net of accretion	4,746		4,527
Restructuring charges	—		1,851
Other non-cash items	619		(65)
Change in assets and liabilities, net of effect of acquisition of businesses:
Accounts receivable	(2,259)		3,593
Prepaid expenses and other current assets	13,251		(31,070)
Other assets	15,926		9,472
Accounts payable	(1,728)		1,820
Deferred revenue	11,434		17,363
Accrued liabilities	(23,323)		10,552
Other liabilities	(5,240)		(4,108)
Net cash provided by operating activities	181,716		208,123
Cash flows from investing activities
Purchases of property and equipment	(79,242)		(67,126)
Purchases of textbooks	(3,815)		(10,666)
Proceeds from disposition of textbooks	2,503		7,815
Purchases of investments	(534,008)		(1,574,060)
Maturities of investments	783,912		893,315
Purchase of strategic equity investment	(6,000)		—
Proceeds from sale of strategic equity investment	—		16,076
Acquisition of businesses, net of cash acquired	(401,125)		(7,891)
Net cash used in investing activities	(237,775)		(742,537)
Cash flows from financing activities
Proceeds from common stock issued under stock plans, net	4,558		5,373
Payment of taxes related to the net share settlement of equity awards	(12,776)		(89,339)


Proceeds from equity offering, net of offering costs	—		1,091,466
Repayment of convertible senior notes	(401,203)		(300,755)
Proceeds from exercise of convertible senior notes capped call	—		69,005
Repurchases of common stock	(323,528)		—
Payment of escrow related to acquisition	—		(7,451)
Net cash (used in) provided by financing activities	(732,949)		768,299
Effect of exchange rate changes	4,628		—
Net (decrease) increase in cash, cash equivalents and restricted cash	(784,380)		233,885
Cash, cash equivalents and restricted cash, beginning of period	855,893		481,715
Cash, cash equivalents and restricted cash, end of period	$	71,513	$	715,600


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Supplemental cash flow data:	Supplemental cash flow data:					Supplemental cash flow data:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	437	$	615	Interest	$	875	$	1,053
Income taxes, net of refunds	Income taxes, net of refunds	$	3,915	$	4,268	Income taxes, net of refunds	$	5,530	$	5,610
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	3,869	$	4,030	Operating cash flows from operating leases	$	6,908	$	5,934
Right of use assets obtained in exchange for lease obligations:	Right of use assets obtained in exchange for lease obligations:					Right of use assets obtained in exchange for lease obligations:
Operating leases	Operating leases	$	3,244	$	—	Operating leases	$	7,603	$	—
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Accrued purchases of long-lived assets	Accrued purchases of long-lived assets	$	4,057	$	2,341	Accrued purchases of long-lived assets	$	4,101	$	1,837
Issuance of common stock related to repayment of convertible senior notes	Issuance of common stock related to repayment of convertible senior notes	$	—	$	235,521	Issuance of common stock related to repayment of convertible senior notes	$	—	$	235,521


		June 30,				September 30,
		2022		2021				2022		2021
Reconciliation of cash, cash equivalents and restricted cash:	Reconciliation of cash, cash equivalents and restricted cash:						Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	Cash and cash equivalents	$	402,089	$	840,056		Cash and cash equivalents	$	69,349	$	713,837
Restricted cash included in other current assets	Restricted cash included in other current assets	64		—			Restricted cash included in other current assets	63		—
Restricted cash included in other assets	Restricted cash included in other assets	2,191		1,720			Restricted cash included in other assets	2,101		1,763
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	404,344	$	841,776		Total cash, cash equivalents and restricted cash	$	71,513	$	715,600

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

CHEGG, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Background and Basis of Presentation

Company and Background

Chegg, Inc. (Chegg, the Company, we, us, or our), 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 ~~June~~September 30, 2022, our results of operations, results of comprehensive income (loss) ~~income,~~, and stockholders' equity for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 and cash flows for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. Our results of operations, results of comprehensive income (loss) ~~income,~~, stockholders' equity, and cash flows for the ~~six~~nine months ended ~~June~~September 30, 2022 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, 2021 (the Annual Report on Form 10-K) filed with the SEC.

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.

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 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 ~~six~~nine months ended ~~June~~September 30, 2022 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, 2021.

Table of Contents

Condensed Consolidated Statements of Operations Details

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Loss on early extinguishment of debt		$	—	$	—	$	—	$	(78,152)
Gain (loss) on early extinguishment of debt(1)										Gain (loss) on early extinguishment of debt(1)	$	93,519	$	—	$	93,519	$	(78,152)
Loss on change in fair value of derivative instruments, net	Loss on change in fair value of derivative instruments, net	—		—		—		(7,148)		Loss on change in fair value of derivative instruments, net	—		—		—		(7,148)
Gain on sale of strategic equity investments	Gain on sale of strategic equity investments	—		—		—		5,338		Gain on sale of strategic equity investments	—		7,158		—		12,496
Gain on foreign currency remeasurement of purchase consideration~~(1)~~(2)	Gain on foreign currency remeasurement of purchase consideration~~(1)~~(2)	—		—		4,628		—		Gain on foreign currency remeasurement of purchase consideration~~(1)~~(2)	—		—		4,628		—
Interest income	Interest income	2,032		1,851		3,509		3,900		Interest income	3,737		1,485		7,246		5,385
Other	Other	(223)		69		(148)		774		Other	2		27		(146)		801
Total other income (expense), net	Total other income (expense), net	$	1,809	$	1,920	$	7,989	$	(75,288)	Total other income (expense), net	$	97,258	$	8,670	$	105,247	$	(66,618)

(1) For further information, see Note 8, “Convertible Senior Notes.”

(2) For further information, see Note 5, “Acquisition.”

Impairment of Lease Related Assets

Right of use (ROU) assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. During the ~~three~~nine months ended ~~June~~September 30, 2022, we announced the closure of our San Francisco office and determined that the carrying amount of the ROU asset was not recoverable. As a result, we recorded an impairment charge of $3.4 million, consisting of a $2.0 million impairment of a ROU asset and $1.4 million write-off of leasehold improvements, included in general and administrative expense on our condensed consolidated statement of operations. Our intent and ability to sublease the office as well as the local market conditions were factored in when measuring the amount of impairment.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

There were no accounting pronouncements issued during the ~~six~~nine months ended ~~June~~September 30, 2022 that would have an impact on our financial statements.

Recently Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, Business Combinations-Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Accounting Standards Codification (ASC) Topic 606 as if the acquirer had originated the contracts. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted. We early adopted ASU 2021-08 on January 1, 2022 and applied it to our acquisition of Busuu. The most significant impacts were an increase in contract liabilities, contained within deferred revenue, and goodwill.

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 aims to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange based on the economic substance of the modification or exchange. Early adoption is permitted and the guidance must be applied prospectively to all modifications or exchanges that occur on or after the date of adoption. The guidance is effective for annual periods beginning after December 15, 2021. We adopted ASU 2021-04 on January 1, 2022 under the prospective method of adoption and there was no impact to our results of operations as we did not modify or exchange any freestanding equity-classified written call options.

Table of Contents

Note 2. Revenues

Revenue Recognition

Revenues are recognized when control of the promised 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 as services are performed, with certain revenues being recognized at a point in time.

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


		Three Months Ended June 30,				Change					Three Months Ended September 30,				Change
		2022		2021		$		%			2022		2021		$		%
Chegg Services	Chegg Services	$	189,076	$	173,513	$	15,563	9	%	Chegg Services	$	159,264	$	146,790	$	12,474	8	%
Required Materials	Required Materials	5,645		24,965		(19,320)		(77)		Required Materials	5,475		25,152		(19,677)		(78)
Total net revenues	Total net revenues	$	194,721	$	198,478	$	(3,757)	(2)		Total net revenues	$	164,739	$	171,942	$	(7,203)	(4)


		Six Months Ended June 30,				Change					Nine Months Ended September 30,				Change
		2022		2021		$		%			2022		2021		$		%
Chegg Services	Chegg Services	$	373,888	$	335,864	$	38,024	11	%	Chegg Services	$	533,152	$	482,654	$	50,498	10	%
Required Materials	Required Materials	23,077		60,992		(37,915)		(62)		Required Materials	28,552		86,144		(57,592)		(67)
Total net revenues	Total net revenues	$	396,965	$	396,856	$	109	0		Total net revenues	$	561,704	$	568,798	$	(7,094)	(1)

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, we recognized ~~$42.2~~$35.2 million and ~~$32.9~~$33.8 million, respectively, of revenues that were included in our deferred revenue balance at the beginning of each respective reporting period. During the three and ~~six~~nine months ended ~~June~~September 30, 2021 we recognized ~~$44.1~~$31.3 million and ~~$32.0~~$32.6 million, respectively, of revenues that were included in our deferred revenue balance at the beginning of each respective reporting period. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, we recognized ~~$0.3 million~~no operating lease income and $5.1 million ~~respectively,~~ of operating lease income, respectively, from print textbook rentals that we owned. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, we recognized ~~$10.0~~$6.2 million and ~~$20.7~~$26.9 million, respectively, of operating lease income from print textbook rentals that we owned. The decreases in operating lease income are primarily due to the transition of our Required Materials product line. For further information, refer to Note 7, “Required Materials Transition.”

Contract Balances

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


						Change						Change
		June 30, 2022		December 31, 2021			$		%			September 30, 2022		December 31, 2021		$		%

Accounts receivable, net	Accounts receivable, net	$	16,815	$	17,850		$	(1,035)	(6)	%	Accounts receivable, net	$	22,187	$	17,850	$	4,337	24	%
Contract assets	Contract assets	12,988		14,231			(1,243)		(9)		Contract assets	12,710		14,231		(1,521)		(11)
Deferred revenue	Deferred revenue	53,297		35,143			18,154		52		Deferred revenue	60,475		35,143		25,332		72

During the ~~six~~nine months ended ~~June~~September 30, 2022 our accounts receivable, net balance ~~decreased~~increased by ~~$1.0~~$4.3 million, or 6%24%, primarily due to timing of billings and seasonality of our business. During the ~~six~~nine months ended ~~June~~September 30, 2022, our contract assets balance decreased by ~~$1.2~~$1.5 million, or 9%11%, primarily due to our Thinkful service. During the ~~six~~nine months ended ~~June~~September 30, 2022, our deferred revenue balance increased by ~~$18.2~~$25.3 million, or ~~52%~~72%, primarily due to acquired deferred revenue in conjunction with our acquisition of Busuu, increased bookings, and seasonality of our business.

Table of Contents

Note 3. Net Income (Loss) Per Share

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Basic	Basic									Basic
Numerator:	Numerator:									Numerator:
Net income (loss)	Net income (loss)	$	7,476	$	32,764	$	13,218	$	(32,415)	Net income (loss)	$	251,562	$	6,651	$	264,780	$	(25,764)
Denominator:	Denominator:									Denominator:
Weighted average shares used to compute net income (loss) per share, basic	Weighted average shares used to compute net income (loss) per share, basic	126,272		143,112		129,201		138,756		Weighted average shares used to compute net income (loss) per share, basic	126,132		144,746		128,166		140,775

Net income (loss) per share, basic	Net income (loss) per share, basic	$	0.06	$	0.23	$	0.10	$	(0.23)	Net income (loss) per share, basic	$	1.99	$	0.05	$	2.07	$	(0.18)

Diluted	Diluted									Diluted
Numerator:	Numerator:									Numerator:
Net income (loss)	Net income (loss)	$	7,476	$	32,764	$	13,218	$	(32,415)	Net income (loss)	$	251,562	$	6,651	$	264,780	$	(25,764)
Convertible senior notes interest expense, net of tax		1,212		1,212		—		—
Convertible senior notes activity, net of tax(1)										Convertible senior notes activity, net of tax(1)	(69,042)		—		(66,630)		—
Net income (loss), diluted	Net income (loss), diluted	$	8,688	$	33,976	$	13,218	$	(32,415)	Net income (loss), diluted	$	182,520	$	6,651	$	198,150	$	(25,764)
Denominator:	Denominator:									Denominator:
Weighted average shares used to compute net income (loss) per share, basic	Weighted average shares used to compute net income (loss) per share, basic	126,272		143,112		129,201		138,756		Weighted average shares used to compute net income (loss) per share, basic	126,132		144,746		128,166		140,775
Shares related to stock plan activity	Shares related to stock plan activity	427		2,295		733		—		Shares related to stock plan activity	504		1,953		674		—
Shares related to convertible senior notes	Shares related to convertible senior notes	22,875		22,875		—		—		Shares related to convertible senior notes	21,409		—		22,381		—
Weighted average shares used to compute net income (loss) per share, diluted	Weighted average shares used to compute net income (loss) per share, diluted	149,574		168,282		129,934		138,756		Weighted average shares used to compute net income (loss) per share, diluted	148,045		146,699		151,221		140,775

Net income (loss) per share, diluted	Net income (loss) per share, diluted	$	0.06	$	0.20	$	0.10	$	(0.23)	Net income (loss) per share, diluted	$	1.23	$	0.05	$	1.31	$	(0.18)

(1) Includes the gain on early extinguishment on our 2026 notes and interest expense on our notes, net of tax. For further information, see Note 8, “Convertible Senior Notes.”

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


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended September 30,		Nine Months Ended September 30,
		2022	2021	2022	2021		2022	2021	2022	2021
Shares related to stock plan activity	Shares related to stock plan activity	8,041	1,142	3,645	2,999	Shares related to stock plan activity	7,534	849	4,148	2,727
Shares related to convertible senior notes	Shares related to convertible senior notes	—	268	22,875	25,901	Shares related to convertible senior notes	—	22,875	—	23,876
Total common stock equivalents	Total common stock equivalents	8,041	1,410	26,520	28,900	Total common stock equivalents	7,534	23,724	4,148	26,603

Table of Contents

Note 4. Cash and Cash Equivalents, and 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 ~~June~~September 30, 2022 and December 31, 2021 (in thousands except for fair value levels):


		June 30, 2022										September 30, 2022
		Fair Value Level	Adjusted Cost		Unrealized Gain		Unrealized Loss		Fair Value			Fair Value Level	Adjusted Cost		Unrealized Gain		Unrealized Loss		Fair Value
Cash and cash equivalents:	Cash and cash equivalents:										Cash and cash equivalents:
Cash	Cash		$	45,885	$	—	$	—	$	45,885	Cash		$	35,131	$	—	$	—	$	35,131

Money market funds	Money market funds	Level 1	199,003		—		—		199,003		Money market funds	Level 1	34,218		—		—		34,218
Commercial paper		Level 2	157,234		—		(33)		157,201

Total cash and cash equivalents	Total cash and cash equivalents		$	402,122	$	—	$	(33)	$	402,089	Total cash and cash equivalents		$	69,349	$	—	$	—	$	69,349
Short-term investments:	Short-term investments:										Short-term investments:
Commercial paper	Commercial paper	Level 2	$	81,649	$	—	$	(382)	$	81,267	Commercial paper	Level 2	$	11,720	$	—	$	(114)	$	11,606
Corporate debt securities	Corporate debt securities	Level 2	831,482		10		(9,889)		821,603		Corporate debt securities	Level 2	770,221				(12,945)		757,276
U.S. treasury securities	U.S. treasury securities	Level 1	79,675		—		(1,257)		78,418		U.S. treasury securities	Level 1	104,671		—		(2,145)		102,526

Total short-term investments	Total short-term investments		$	992,806	$	10	$	(11,528)	$	981,288	Total short-term investments		$	886,612	$	—	$	(15,204)	$	871,408
Long-term investments:	Long-term investments:										Long-term investments:
Corporate debt securities	Corporate debt securities	Level 2	$	198,816	$	8	$	(5,582)	$	193,242	Corporate debt securities	Level 2	$	156,687	$	—	$	(4,065)	$	152,622
U.S. treasury securities	U.S. treasury securities	Level 1	74,535		—		(2,048)		72,487		U.S. treasury securities	Level 1	101,890		—		(1,907)		99,983

Agency bonds											Agency bonds	Level 2	34,119		57		—		34,176
Total long-term investments	Total long-term investments		$	273,351	$	8	$	(7,630)	$	265,729	Total long-term investments		$	292,696	$	57	$	(5,972)	$	286,781


	December 31, 2021
	Fair Value Level	Adjusted Cost		Unrealized Gain		Unrealized Loss		Fair Value
Cash and cash equivalents:
Cash		$	30,324	$	—	$	—	$	30,324
Money market funds	Level 1	823,754		—		—		823,754

Total cash and cash equivalents		$	854,078	$	—	$	—	$	854,078
Short-term investments:
Commercial paper	Level 2	$	124,211	$	2	$	(33)	$	124,180
Corporate debt securities	Level 2	552,609		36		(546)		552,099

Agency bonds	Level 2	15,500		2		—		15,502
Total short-term investments		$	692,320	$	40	$	(579)	$	691,781
Long-term investments:
Corporate debt securities	Level 2	$	724,517	$	—	$	(3,277)	$	721,240
U.S. treasury securities	Level 1	24,860		—		(107)		24,753

Total long-term investments		$	749,377	$	—	$	(3,384)	$	745,993

As of ~~June~~September 30, 2022, we determined that the declines in the market value of our investment portfolio were not driven by credit related factors. During the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 we did not recognize any losses on our investments due to credit related factors. During the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, our ~~gross~~ realized gains and losses on investments were not significant.

Table of Contents

The following table shows our cash equivalents and investments' adjusted cost and fair value by contractual maturity as of ~~June~~September 30, 2022 (in thousands):


		Adjusted Cost		Fair Value			Adjusted Cost		Fair Value
Due in 1 year or less	Due in 1 year or less	$	1,150,040	$	1,138,489	Due in 1 year or less	$	886,612	$	871,408
Due in 1-2 years	Due in 1-2 years	273,351		265,729		Due in 1-2 years	292,696		286,781
Investments not due at a single maturity date	Investments not due at a single maturity date	199,003		199,003		Investments not due at a single maturity date	34,218		34,218
Total	Total	$	1,622,394	$	1,603,221	Total	$	1,213,526	$	1,192,407

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

Strategic Investment

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 months ended September 30, 2022, 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 months ended September 30, 2022.

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. 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 ~~June~~September 30, 2022 and December 31, 2021 was ~~$725.0~~$370.0 million and $840.0 million, respectively. The estimated fair value of the 2025 notes as of ~~June~~September 30, 2022 and December 31, 2021 was ~~$588.3~~$595.0 million and $682.2 million, respectively. For further information on the notes, refer to Note 8, “Convertible Senior Notes.”

Table of Contents

Note 5. Acquisition

On January 13, 2022, we completed our acquisition of 100% of the outstanding shares of Busuu Online S.L (Busuu) in cash, an online language learning company that offers a comprehensive solution 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. The acquisition helps to expand our existing offerings and global reach through language learning, allowing us to drive further into international markets.

The following table presents the preliminary allocation of purchase consideration recorded on our condensed consolidated balance sheet as of the acquisition date (in thousands):


	Busuu
Cash and cash equivalents	$	20,525
Accounts receivable	2,446
Right of use assets	2,715
Other acquired assets	3,710
Acquired intangible assets	71,600
Total identifiable assets acquired	100,996
Accounts payable	(5,174)
Accrued liabilities(1)	(21,964)
Deferred revenue	(16,761)
Long term operating lease liabilities	(2,038)
Other long-term liabilities(1)	(1,646)
Net identifiable assets acquired	53,413
Goodwill	368,237
Total fair value of purchase consideration	$	421,650

(1) During the three months ended June 30, 2022, we recorded a $0.8 million decrease to accrued liabilities and a $1.7 million increase to other long-term liabilities as a result of measurement period adjustments to the fair value of the initial liabilities related to taxes.

The estimates and assumptions regarding the fair value of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income taxes, and goodwill are subject to change as we obtain additional information during the measurement period, which usually lasts for up to one year from the acquisition date.

~~Table of Contents~~

Goodwill is primarily attributable to the potential for expanding our offerings to include an online language learning platform and global reach allowing us to drive further into international markets. Substantially all of the amounts recorded for intangible assets and goodwill are deductible for tax purposes.

The following table presents the details of the allocation of purchase consideration to the acquired intangible assets (in thousands, except weighted-average amortization period):


	Busuu
	Amount		Weighted-Average Amortization Period (in months)
Trade name	$	4,600	72
Customer lists	18,000		24
Developed technology	49,000		84
Total acquired intangible assets	$	71,600	68

During the ~~six~~nine months ended ~~June~~September 30, 2022 and year ended December 31, 2021, we incurred acquisition-related expenses of $0.6 million and $5.3 million, respectively, associated with our acquisition of Busuu, which have been included in general and administrative expense on our condensed consolidated statement of operations.

Table of Contents

The purchase consideration was paid in Euros, which is different from our functional currency of United States Dollars. We initially funded an equivalent of $417.0 million that was remeasured at $421.7 million at closing, which is included in our statement of cash flows as a cash outflow from investing activities net of cash acquired, resulting in a $4.6 million gain included in other income (expense), net on our condensed consolidated statement of operations.

The Busuu purchase agreement provides for additional payments of up to approximately $25.5 million, subject to the continued employment of certain key employees. These payments are not included in the fair value of the purchase consideration but rather are expensed ratably as acquisition-related compensation costs and classified based on the ~~seller's~~employees' job function, on our condensed consolidated statement of operations. As of ~~June~~September 30, 2022, we have recorded approximately ~~$3.6~~$5.3 million within accrued liabilities on our condensed consolidated balance sheets for these payments.

Since the acquisition date, we have recorded revenues and net loss from Busuu of ~~$19.7~~$29.0 million and ~~$19.5~~$28.7 million, respectively. These results should not be taken as representative of future results of operations of the combined company. The following unaudited supplemental pro forma revenues and earnings is for informational purposes only and presents our combined results as if the acquisition of Busuu had occurred on January 1, 2021. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, our unaudited supplemental pro forma revenues ~~from Busuu~~ would have been ~~$194.8~~$164.7 million and ~~$397.7~~$562.4 million, respectively. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, our unaudited supplemental pro forma revenues ~~from Busuu~~ would have been ~~$208.7~~$184.2 million and ~~$417.3~~$601.5 million, respectively. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, our unaudited supplemental pro forma earnings would have been a net income of ~~$8.2~~$253.6 million and ~~$13.6~~$267.3 million, respectively. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, our unaudited supplemental pro forma earnings would have been a net ~~income~~loss of ~~$22.4~~$3.9 million and ~~net loss of $51.7~~$55.6 million, respectively. The unaudited supplemental pro forma earnings information includes the historical combined operating results adjusted for acquisition-related compensation costs, amortization of intangible assets, share-based compensation expense and acquisition-related expenses and does not necessarily reflect the actual results that would have been achieved, nor is it necessarily indicative of our future consolidated results.

~~Table of Contents~~

Note 6. Goodwill and Intangible Assets

Goodwill consists of the following (in thousands):


	~~Six~~Nine Months Ended ~~June~~September 30, 2022
Beginning balance	$	289,763
Initial addition due to acquisition	367,376
Foreign currency translation adjustment	~~(41,351)~~(68,298)
Measurement period adjustments related to prior acquisition(1)	861
Ending balance	$	~~616,649~~589,702

(1) For further information, see Note 5, “Acquisition.”

Intangible assets consist of the following (in thousands, except weighted-average amortization period):


		June 30, 2022										September 30, 2022
		Weighted-Average Amortization Period (in months)	Gross Carrying Amount		Accumulated Amortization		Foreign Currency Translation Adjustment		Net Carrying Amount			Weighted-Average Amortization Period (in months)	Gross Carrying Amount		Accumulated Amortization		Foreign Currency Translation Adjustment		Net Carrying Amount
Developed technologies	Developed technologies	80	$	106,703	$	(38,095)	$	(5,490)	$	63,118	Developed technologies	80	$	106,703	$	(41,306)	$	(8,638)	$	56,759
Content libraries	Content libraries	60	12,230		(8,059)		—		4,171		Content libraries	60	12,230		(8,670)		—		3,560
Customer lists	Customer lists	35	34,190		(17,117)		(1,720)		15,353		Customer lists	35	34,190		(19,527)		(2,385)		12,278
Trade and domain names	Trade and domain names	52	16,213		(10,458)		(528)		5,227		Trade and domain names	52	16,213		(10,928)		(836)		4,449
Indefinite-lived trade name	Indefinite-lived trade name	—	3,600		—		—		3,600		Indefinite-lived trade name	—	3,600		—		—		3,600
Total intangible assets, net	Total intangible assets, net	67	$	172,936	$	(73,729)	$	(7,738)	$	91,469	Total intangible assets, net	67	$	172,936	$	(80,431)	$	(11,859)	$	80,646

December 31, 2021
Weighted-Average Amortization
Period
(in months) Gross
Carrying
Amount Accumulated
Amortization Foreign Currency Translation Adjustment Net
Carrying
Amount
Developed technologies 76 $ 57,521 $ (31,790) $ — $ 25,731
Content library 60 12,230 (6,836) — 5,394
Customer lists 47 16,190 (12,432) — 3,758
Trade and domain names 44 11,613 (9,530) — 2,083
Indefinite-lived trade name — 3,600 — — 3,600
Total intangible assets, net 65 $ 101,154 $ (60,588) $ — $ 40,566

Table of Contents


	December 31, 2021
	Weighted-Average Amortization Period (in months)	Gross Carrying Amount		Accumulated Amortization		Foreign Currency Translation Adjustment		Net Carrying Amount
Developed technologies	76	$	57,521	$	(31,790)	$	—	$	25,731
Content libraries	60	12,230		(6,836)		—		5,394
Customer lists	47	16,190		(12,432)		—		3,758
Trade and domain names	44	11,613		(9,530)		—		2,083

Indefinite-lived trade name	—	3,600		—		—		3,600

Total intangible assets, net	65	$	101,154	$	(60,588)	$	—	$	40,566

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, amortization expense related to our finite-lived intangible assets totaled approximately ~~$6.8~~$6.5 million and ~~$13.2~~$19.7 million, respectively. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, amortization expense related to our finite-lived intangible assets totaled approximately ~~$3.2~~$3.0 million and ~~$7.6~~$10.7 million, respectively.

~~Table of Contents~~

As of ~~June~~September 30, 2022, the estimated future amortization expense related to our finite-lived intangible assets is as follows (in thousands):


Remaining six months of 2022		$	12,893
Remaining three months of 2022				Remaining three months of 2022	$	5,950
2023	2023	24,047		2023	22,844
2024	2024	13,318		2024	12,757
2025	2025	11,226		2025	10,688
2026	2026	10,879		2026	10,340
Thereafter	Thereafter	15,506		Thereafter	14,467
Total	Total	$	87,869	Total	$	77,046

Note 7. Required Materials Transition

In April 2022, we entered into definitive agreements regarding the sale of our print textbook library and partnership with GT Marketplace, LLC (GT) for our Required Materials product line. We will continue to offer our Required Materials offering on our website and maintain relationships with the students, however, GT has purchased our existing print textbook library for $14 million, subject to payment terms and certain adjustments, and will continue to make print textbook investments and provide fulfillment logistics for print textbook transactions. We expect that we will continue to fulfill eTextbook transactions through the end of 2022, at which point GT will fulfill eTextbook transactions.

Upon board of directors approval of the transaction with GT in April 2022, our net textbook library and unrecognized deferred revenue related to print textbook transactions met the criteria to be classified as a held for sale asset group which had a carrying amount of $7.7 million. During the three months ended June 30, 2022, we subsequently sold the held for sale asset group to GT at a gain of $4.4 million, subject to certain adjustments, included in cost of revenues on our condensed consolidated statement of operations.

Subsequent to April 2022, we no longer recognize operating lease income from print textbooks that we own ratable on a gross basis. In relation to print textbooks owned by GT, we recognize revenues immediately on a net basis, representing the margin earned, based on our role in the transaction as an agent as we have concluded that we do not control the use of the print textbooks, and therefore record only the net revenue share we earn.

Note 8. 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~~

Table of Contents

$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.

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.

~~Table of Contents~~

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 ~~5-business~~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 September 2022, in connection with our securities repurchase program, we extinguished $500.0 million aggregate principal amount of the 2026 notes in privately-negotiated transactions for $399.9 million, which was paid to the holders in cash. We also incurred approximately $1.3 million in fees resulting in total consideration of $401.2 million. The carrying amount of the extinguished 2026 notes was $494.7 million resulting in a $93.5 million gain on early extinguishment of debt. We elected to reacquire and not cancel the extinguished 2026 notes and left the associated capped call transactions outstanding. As of September 30, 2022, we had 9,297,800 shares remaining underlying the 2026 notes capped call transactions.

Table of Contents

During the three months ended ~~June~~September 30, 2022, 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. During the year ended December 31, 2021, we issued 2,983,011 shares of our common stock related to the redemption of our 2023 notes.

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


		June 30, 2022				December 31, 2021				September 30, 2022						December 31, 2021
		2026 Notes		2025 Notes		2026 Notes		2025 Notes				2026 Notes		2025 Notes			2026 Notes		2025 Notes
Principal	Principal	$	1,000,000	$	699,979	$	1,000,000	$	699,982		Principal	$	500,000	$	699,979		$	1,000,000	$	699,982

Unamortized issuance costs	Unamortized issuance costs	(11,002)		(8,046)		(12,309)		(9,518)			Unamortized issuance costs	(5,169)		(7,297)			(12,309)		(9,518)
Net carrying amount	Net carrying amount	$	988,998	$	691,933	$	987,691	$	690,464		Net carrying amount	$	494,831	$	692,682		$	987,691	$	690,464

~~Table of Contents~~

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
2026 notes:	2026 notes:									2026 notes:
Contractual interest expense	Contractual interest expense	$	—	$	—	$	—	$	—	Contractual interest expense	$	—	$	—	$	—	$	—
Amortization of issuance costs	Amortization of issuance costs	657		657		1,307		1,307		Amortization of issuance costs	556		663		1,863		1,970
Total 2026 notes interest expense	Total 2026 notes interest expense	$	657	$	657	$	1,307	$	1,307	Total 2026 notes interest expense	$	556	$	663	$	1,863	$	1,970
2025 notes:	2025 notes:									2025 notes:
Contractual interest expense	Contractual interest expense	$	219	$	218	$	434	$	455	Contractual interest expense	$	220	$	221	$	654	$	676
Amortization of issuance costs	Amortization of issuance costs	740		740		1,472		1,548		Amortization of issuance costs	749		749		2,221		2,297
Total 2025 notes interest expense	Total 2025 notes interest expense	$	959	$	958	$	1,906	$	2,003	Total 2025 notes interest expense	$	969	$	970	$	2,875	$	2,973
2023 notes:	2023 notes:									2023 notes:
Contractual interest expense	Contractual interest expense	$	—	$	12	$	—	$	78	Contractual interest expense	$	—	$	—	$	—	$	78
Amortization of issuance costs	Amortization of issuance costs	—		74		—		242		Amortization of issuance costs	—		—		—		242
Total 2023 notes interest expense	Total 2023 notes interest expense	$	—	$	86	$	—	$	320	Total 2023 notes interest expense	$	—	$	—	$	—	$	320

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 ~~June~~September 30, 2022, cover 9,297,800 and 13,576,513 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 9. 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.

Table of Contents

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 breaches of fiduciary duties, among others (the “Robinson Matter”). The Robinson Matter has been consolidated with the Choi Matter (described below) and has been stayed on the same terms. 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 breaches of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, among others (the “Choi Matter”). The Company disputes these claims and intends to vigorously defend itself in this matter. On March 1, 2022, the court entered an order deeming the Choi Matter related to the Leventhal Matter (described below). On March 29, 2022, the Court entered an order staying the Choi Matter during the pendency of the Leventhal Matter.

~~Table of Contents~~

On December 22, 2021, Steven Leventhal, individually and on behalf of all others similarly situated, filed a ~~purported~~putative 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 (the “Leventhal Matter”). On September 7, 2022, Judge Edward J. Davila appointed the lead plaintiff and approved lead counsel in this matter.The parties agreed upon a scheduling for amending the complaint and motion to dismiss briefing in early 2023, and with a hearing slated for June 2023. The plaintiff in this matter 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-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. On June 29, 2022, Pearson filed a Motion for Leave to File Amended Complaint which seeks to add Bedford, Freeman & Worth Publishing Group, LLC d/b/a Macmillan Learning (“Macmillan Learning”) as a plaintiff, add an additional claim for relief on behalf of both Pearson and Macmillan Learning for copyright infringement, and add allegations regarding Pearson’s original complaint. 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) to determine whether we may have violated Section 5 of the FTC Act or the Children's Online Privacy Protection Act (COPPA), as they relate to deceptive or unfair acts or practices related to consumer privacy and/or data security. We have provided the FTC with the requested responses to interrogatories and follow-up questions and have produced documents pertaining to data breach incidents and our data security and privacy practices generally. We have agreed to enter into a Consent Order with the FTC related to consumer privacy and data security, which has been announced by the FTC but has not yet been published on the Federal Register. No COPPA provisions nor monetary fines are included in the Consent Order.

On May 12, 2020, we received notice that 15,107 arbitration demands were filed against us on April 30, 2020 by individuals all represented by the same legal counsel. Each individual claimant claimed to have suffered more than $25 thousand in damages as a result of the unauthorized access of certain items of their user data in April 2018. On July 1, 2020, an additional 1,007 arbitration demands were filed by the same counsel, making identical allegations. On August 12, 2020, an additional 577 arbitration demands were filed by the same counsel, making identical allegations. Related cases were filed by the same counsel in Maryland and California. We disputed that these claimants had a valid basis for seeking arbitration, asserted that they have acted in bad faith and have been working with the Maryland and California courts and plaintiffs’ counsel on resolution of these claims. The Maryland case is now closed. On August 22, 2021, Chegg and the claimants' legal counsel, on behalf of its clients, entered into a settlement agreement, pursuant to which each eligible claimant that signs a release agreement agrees, among other things, to dismiss with prejudice all claims against Chegg that such claimant currently maintains in exchange for such claimant's pro rata portion of the settlement amount. Claimants had until January 26, 2022 to sign their release agreements. As a result of the settlement, all but 4four petitions to compel arbitration in the California action were dismissed with prejudice.

We have not recorded any 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,

Table of Contents

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 10. 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 ~~June~~September 30, 2022.

~~Table of Contents~~

Note 11. Stockholders' Equity

Securities Repurchase Program

In June 2022, our board of directors approved a $1.0 billion increase to our existing securities repurchase program authorizing the repurchase of up to $2.0 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. ~~$1.1 billion remains~~During the three months ended September 30, 2022, we repurchased $500.0 million aggregate principal amount of the 2026 notes in privately-negotiated transactions for $399.9 million. Additionally, we repurchased 1,146,803 shares of our common stock in open market transactions for $23.1 million. As of September 30, 2022, we had $642.6 million remaining under the 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.

Accelerated Share Repurchases

On February 22, 2022, we entered into an accelerated share repurchase (ASR) agreement with a financial institution (2022 ASR). We accounted for the 2022 ASR as 2two 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 $300.0 million and received an initial delivery of 8,562,255 shares of our common stock over the following 3three business days, which were retired immediately. The initial delivery of shares of our common stock represented approximately 80 percent of the fixed amount paid of $300.0 million, which was based on the share price of our common stock on the date of execution. The 2022 ASR was recorded as a reduction to additional paid in capital on our condensed consolidated statements of stockholders’ equity. The 2022 ASR settled during the three months ended June 30, 2022 and we received an additional delivery of 837,001 shares of our common stock, which were retired immediately. The 2022 ASR resulted in a total repurchase of 9,399,256 shares of our common stock at a volume-weighted-average price, less an agreed upon discount, $31.9174 per share. We were not required to make any additional cash payments or delivery of common stock to the financial institutions upon settlement.

On December 3, 2021, we entered into an ASR agreement with a financial institution (2021 ASR) to repurchase $300.0 million of our outstanding common stock. The 2021 ASR settled during the three months ended March 31, 2022 and we received an additional delivery of 2,163,219 shares of our common stock.

Table of Contents

Share-based Compensation Expense

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Cost of revenues	Cost of revenues	$	669	$	419	$	1,292	$	781	Cost of revenues	$	653	$	393	$	1,945	$	1,174
Research and development	Research and development	10,006		9,100		21,782		17,059		Research and development	9,172		8,917		30,954		25,976
Sales and marketing	Sales and marketing	4,019		3,655		8,405		6,574		Sales and marketing	2,771		3,051		11,176		9,625
General and administrative	General and administrative	16,393		15,371		32,692		27,231		General and administrative	21,574		12,151		54,266		39,382
Total share-based compensation expense	Total share-based compensation expense	$	31,087	$	28,545	$	64,171	$	51,645	Total share-based compensation expense	$	34,170	$	24,512	$	98,341	$	76,157

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, ~~we capitalized share-based compensation expense of $2.3 million and $4.1 million, respectively. During the three and six months ended June 30, 2021,~~ we capitalized share-based compensation expense of $0.7 million and ~~$1.2~~$4.8 million, respectively.

~~Table~~ During the three and nine months ended September 30, 2021, we capitalized share-based compensation expense of ~~Contents~~

$0.6 million and $1.8 million, respectively.

RSU and PSU Activity

Activity for RSUs and PSUs is as follows:


		RSUs and PSUs Outstanding				RSUs and PSUs Outstanding
		Shares Outstanding	Weighted Average Grant Date Fair Value			Shares Outstanding	Weighted Average Grant Date Fair Value
Balance at December 31, 2021	Balance at December 31, 2021	8,171,462	$	46.36	Balance at December 31, 2021	8,171,462	$	46.36
Granted	Granted	3,905,418	29.71		Granted	4,570,547	28.36
Released	Released	(1,003,448)	65.24		Released	(1,356,059)	63.12
Forfeited	Forfeited	(1,226,520)	41.29		Forfeited	(1,612,877)	39.31
Balance at June 30, 2022		9,846,912	$	38.49
Balance at September 30, 2022					Balance at September 30, 2022	9,773,073	$	36.80

As of ~~June~~September 30, 2022, our total unrecognized share-based compensation expense related to RSUs and PSUs was approximately ~~$265.3~~$238.0 million, which will be recognized over the remaining weighted-average vesting period of approximately ~~2.5~~2.4 years.

Note 12. ~~Subsequent Event~~Income Taxes

~~In July~~During the three and nine months ended September 30, 2022, we ~~completed~~recorded a ~~$6.0~~benefit from income taxes of $167.3 million ~~investment in Knack Technologies, Inc.,~~and $163.0 million, respectively. During the three and nine months ended September 30, 2021, we recorded a ~~privately held U.S. based peer-to-peer tutoring platform~~provision for ~~higher education institutions. The initial accounting for~~income taxes of $0.7 million and $5.8 million, respectively.

During the ~~investment is in process as~~three and nine months ended September 30, 2022, the benefit from income taxes was primarily due to the $174.6 million release of the ~~issuance date~~valuation allowance as a discrete non-cash income tax benefit on certain U.S. and state deferred tax assets. Previously, we maintained a valuation allowance against our deferred tax assets until we expected that it would be more-likely-than not that they would be realized. The release of the valuation allowance is the result of our ~~financial statements~~expectation that our domestic operations will continue to be profitable and ~~therefore we are unable~~is based on a detailed evaluation of all available evidence. The principal indicator leading to ~~make any additional disclosures.~~the release is the recent cumulative earnings of U.S. and certain state jurisdictions and the forecasted earnings in these jurisdictions. We continue to maintain a valuation allowance against our California deferred tax assets and our anticipated capital loss temporary differences. We will continue to quarterly assess the need for such valuation allowance.

Table of Contents

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.

Students subscribe to our subscription services, collectively referred to as our Chegg Services, which can be accessed internationally through our websites and on mobile devices. Our primary Chegg Services include Chegg Study, Chegg Writing, Chegg Math Solver, Chegg Study Pack, Busuu, Mathway and Thinkful. 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 Solver and Mathway subscription services help 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 Solver services, which also includes additional features such as flashcards, concept videos, ~~and~~ practice questions and ~~quizzes.~~quizzes, and instructor-created materials through Uversity. Our Thinkful skills-based learning platform offers professional courses focused on the most in-demand technology skills. Required Materials includes our print textbook and eTextbook offerings, which help students save money compared to the cost of buying new. We offer an extensive print textbook library primarily for rent and also for sale through our print textbook partners.

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, we generated net revenues of ~~$194.7~~$164.7 million and ~~$397.0~~$561.7 million, respectively. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, we generated net revenues of ~~$198.5~~$171.9 million and ~~$396.9~~$568.8 million, respectively.

In April 2022, we entered into definitive agreements with GT such that we will continue to offer our Required Materials offering on our website and maintain relationships with the students, however, GT has purchased our existing print textbook library and will continue to make print textbook investments and provide fulfillment logistics for print textbook transactions. We expect that we will continue to fulfill eTextbook transactions through the end of 2022, at which point GT will fulfill eTextbook transactions. We expect that our partnership with GT provides an opportunity to grow faster with higher margins. As a result of the partnership with GT, revenues from print textbook transactions will consist of a revenue share of the total transactions recognized immediately rather than the total amounts recognized ratably over the rental term, generally a two- to five-month period. Revenues from eTextbook transactions will continue to be recognized at the gross amount ratably over the customer's contractual period, generally a two- to five-month period, through the expected transition period, at which point they will be recognized as a revenue share immediately. After the transition to GT, we will no longer incur significant costs of revenue such as order fulfillment fees primarily related to shipping and fulfillment, publisher content fees for eTextbooks after transition to GT at the end of 2022, and print textbook depreciation and write off expense. We will continue to incur costs of revenue such as payment processing fees and employee related costs as well as ongoing operating expenses such as platform infrastructure maintenance and transition costs.

In January 2022, we completed our acquisition of Busuu Online S.L. (Busuu), an online language learning company that offers a comprehensive solution 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.

Our long-term strategy is centered upon our ability to utilize Chegg Services to increase student engagement with our learning platform. We plan to continue to invest in the expansion of our Chegg Services to provide a more compelling and personalized solution and deepen engagement with students. In addition, we believe that the investments we have made to achieve our current scale will allow us to drive increased operating margins over time that, together with increased contributions of Chegg Services, will enable us to sustain profitability and remain cash-flow positive in the long-term. Our

Table of Contents

ability to achieve these long-term objectives is subject to numerous risks and ~~uncertainties, including~~uncertainties. These include our ability to attract, retain, and increasingly engage the student population, reduced traffic to our services, ~~intense competition in our markets, the ability to achieve sufficient contributions to revenue from Chegg Services,~~ and other factors, such as the COVID-19 pandemic and global macroeconomic conditions, which ~~continues~~continue to evolve and affect our business and results of operations. Further, the education industry ~~is experiencing~~has experienced a slowdown as a result of ~~the COVID-19 pandemic~~decreased enrollments, which have not returned to pre-pandemic levels. Employment opportunities, compensation and macroeconomic conditions, such as inflation, which has resulted in a decline in traffic to education technology services, such as the ones we provide. A combination of increased employment opportunities and compensation hasother factors have led to ~~significantly fewer enrollments than expected. In addition,~~steadily decreasing enrollments. Moreover, those students who have enrolled have been taking fewer and less rigorous classes and receiving less graded assignments. As a result, we are experiencing a deceleration in the growth rates of our services and revenues that may continue. These risks and uncertainties are described in greater detail in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

We have presented revenues for our two product lines, Chegg Services and Required Materials, 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 “Chegg Services” and “Required Materials.”

Chegg Services

Our Chegg Services product line for students primarily includes Chegg Study, Chegg Writing, Chegg Math Solver, Chegg Study Pack, Busuu, Mathway, and Thinkful. Students typically pay to access Chegg Services on a monthly basis. We also work with leading brands to provide students with discounts, promotions, and other products that, based on student feedback, delight them.

In the aggregate, Chegg Services revenues were 97% and ~~94%~~95% of net revenues during the three and ~~six~~nine months ended ~~June~~September 30, 2022, , respectively, ~~and 87%~~ and 85% during both the three and ~~six~~nine months ended ~~June~~September 30, ~~2021, respectively.~~2021.

Required Materials

Our Required Materials product line includes revenues from print textbooks and eTextbooks. Subsequent to April 2022, we no longer recognize operating lease income from print textbooks that we own ratable on a gross basis. In relation to print textbooks owned by GT, we recognize revenues immediately on a net basis, representing the margin earned, based on our role in the transaction as an agent as we have concluded that we do not control the use of the print textbooks, and therefore record only the net revenue share we earn. Additionally, Required Materials includes revenues from eTextbooks, which are primarily recognized ratably over the customer's contractual period, generally a two- to five-month period.

In the aggregate, Required Materials revenues were 3% and 6%5% of net revenues during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and ~~13% and~~ 15% during both the three and ~~six~~nine months ended ~~June~~September 30, ~~2021, respectively.~~2021.

Seasonality of Our Business

Revenues from Chegg Services and eTextbooks are primarily recognized ratably over the term a student subscribes to our Chegg Services or has access to an eTextbook. This 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.

Table of Contents

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 June 30,								Six Months Ended June 30,									Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021					2022				2021				2022				2021
Net revenues	Net revenues	$	194,721	100	%	$	198,478	100	%	$	396,965	100	%	$	396,856	100	%	Net revenues	$	164,739	100	%	$	171,942	100	%	$	561,704	100	%	$	568,798	100	%
Cost of revenues(1)	Cost of revenues(1)	45,684		23		60,708		31		100,769		25		132,092		33		Cost of revenues(1)	45,203		27		67,102		39		145,972		26		199,194		35
Gross profit	Gross profit	149,037		77		137,770		69		296,196		75		264,764		67		Gross profit	119,536		73		104,840		61		415,732		74		369,604		65
Operating expenses:	Operating expenses:																	Operating expenses:
Research and development(1)	Research and development(1)	52,480		27		41,595		20		104,895		27		87,726		22		Research and development(1)	45,426		28		43,269		25		150,321		27		130,995		23
Sales and marketing(1)	Sales and marketing(1)	35,279		18		21,686		11		77,777		20		47,900		12		Sales and marketing(1)	31,803		19		27,239		16		109,580		20		75,139		13
General and administrative(1)	General and administrative(1)	53,935		28		39,719		20		100,805		25		77,589		20		General and administrative(1)	53,742		33		33,971		20		154,547		27		111,560		20

Total operating expenses	Total operating expenses	141,694		73		103,000		51		283,477		72		213,215		54		Total operating expenses	130,971		80		104,479		61		414,448		74		317,694		56
Income from operations		7,343		4		34,770		18		12,719		3		51,549		13
(Loss) income from operations																		(Loss) income from operations	(11,435)		(7)		361		—		1,284		—		51,910		9
Total interest expense, net and other income (expense), net	Total interest expense, net and other income (expense), net	193		—		219		—		4,776		1		(78,918)		(20)		Total interest expense, net and other income (expense), net	95,733		58		7,037		4		100,509		18		(71,881)		(13)
Income (loss) before provision for income taxes		7,536		4		34,989		18		17,495		4		(27,369)		(7)
Provision for income taxes		(60)		—		(2,225)		(1)		(4,277)		(1)		(5,046)		(1)
Income (loss) before benefit from (provision for) income taxes																		Income (loss) before benefit from (provision for) income taxes	84,298		51		7,398		4		101,793		18		(19,971)		(4)
Benefit from (provision for) income taxes																		Benefit from (provision for) income taxes	167,264		102		(747)		—		162,987		29		(5,793)		(1)
Net income (loss)	Net income (loss)	$	7,476	4	%	$	32,764	17	%	$	13,218	3	%	$	(32,415)	(8)	%	Net income (loss)	$	251,562	153	%	$	6,651	4	%	$	264,780	47	%	$	(25,764)	(5)	%

(1) Includes share-based compensation expense as follows:	(1) Includes share-based compensation expense as follows:																	(1) Includes share-based compensation expense as follows:
Cost of revenues	Cost of revenues	$	669			$	419			$	1,292			$	781			Cost of revenues	$	653			$	393			$	1,945			$	1,174
Research and development	Research and development	10,006				9,100				21,782				17,059				Research and development	9,172				8,917				30,954				25,976
Sales and marketing	Sales and marketing	4,019				3,655				8,405				6,574				Sales and marketing	2,771				3,051				11,176				9,625
General and administrative	General and administrative	16,393				15,371				32,692				27,231				General and administrative	21,574				12,151				54,266				39,382
Total share-based compensation expense	Total share-based compensation expense	$	31,087			$	28,545			$	64,171			$	51,645			Total share-based compensation expense	$	34,170			$	24,512			$	98,341			$	76,157

Table of Contents

Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

Net Revenues

The following table sets forth our total net revenues for the periods shown for our Chegg Services and Required Materials product lines (in thousands, except percentages):


		Three Months Ended June 30,				Change				Three Months Ended September 30,						Change
		2022		2021		$		%				2022		2021			$		%
Chegg Services	Chegg Services	$	189,076	$	173,513	$	15,563	9	%		Chegg Services	$	159,264	$	146,790		$	12,474	8	%
Required Materials	Required Materials	5,645		24,965		(19,320)		(77)			Required Materials	5,475		25,152			(19,677)		(78)
Total net revenues	Total net revenues	$	194,721	$	198,478	$	(3,757)	(2)			Total net revenues	$	164,739	$	171,942		$	(7,203)	(4)


		Six Months Ended June 30,				Change					Nine Months Ended September 30,				Change
		2022		2021		$		%			2022		2021		$		%
Chegg Services	Chegg Services	$	373,888	$	335,864	$	38,024	11	%	Chegg Services	$	533,152	$	482,654	$	50,498	10	%
Required Materials	Required Materials	23,077		60,992		(37,915)		(62)		Required Materials	28,552		86,144		(57,592)		(67)
Total net revenues	Total net revenues	$	396,965	$	396,856	$	109	0		Total net revenues	$	561,704	$	568,798	$	(7,094)	(1)

Chegg Services revenues increased ~~$15.6~~$12.5 million, or 9%8% and ~~$38.0~~$50.5 million, or ~~11%~~10% during the three and ~~six~~nine months ended ~~June~~September 30, 2022, compared to the same periods in 2021. The increase was primarily due to an increased global brand awareness and penetration, including our acquisition of Busuu, which closed in January 2022, and increased students subscribing to the Chegg Study Pack. Chegg Services revenues were 97% and ~~94%~~95% of net revenues during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, ~~and 87%~~ and 85% of net revenues during both the three and ~~six~~nine months ended ~~June~~September 30, ~~2021, respectively.~~2021. Required Materials revenues decreased ~~$19.3~~$19.7 million, or ~~77%~~78% and ~~$37.9~~$57.6 million or ~~62%~~67%, during the three and ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same periods in 2021. The decrease was primarily due to lower revenues from print textbooks as ~~we no longer own print textbooks as~~ a result of our partnership with GT beginning in April 2022 and lower unit volumes driven by decreased college ~~enrollments, and various print textbook logistic challenges prior to the partnership with GT during the first quarter of 2022.~~enrollments. Required Materials revenues were 3% and 6%5% of net revenues during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, ~~and 13%~~ and 15% of net revenues during both the three and ~~six~~nine months ended ~~June~~September 30, ~~2021, respectively.~~2021.

As a result of our partnership with GT, we expect Required Material revenues to continue to decrease throughout 2022 due to recognizing a revenue share of the total transaction amount rather than the total transaction amount.

Cost of Revenues

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


		Three Months Ended June 30,				Change				Three Months Ended September 30,						Change
		2022		2021		$		%				2022		2021			$		%
Cost of revenues(1)	Cost of revenues(1)	$	45,684	$	60,708	$	(15,024)	(25)	%		Cost of revenues(1)	$	45,203	$	67,102		$	(21,899)	(33)	%

(1) Includes share-based compensation expense of:	(1) Includes share-based compensation expense of:	$	669	$	419	$	250	60	%		(1) Includes share-based compensation expense of:	$	653	$	393		$	260	66	%


		Six Months Ended June 30,				Change				Nine Months Ended September 30,						Change
		2022		2021		$		%				2022		2021			$		%
Cost of revenues(1)	Cost of revenues(1)	$	100,769	$	132,092	$	(31,323)	(24)	%		Cost of revenues(1)	$	145,972	$	199,194		$	(53,222)	(27)	%

(1) Includes share-based compensation expense of:	(1) Includes share-based compensation expense of:	$	1,292	$	781	$	511	65	%		(1) Includes share-based compensation expense of:	$	1,945	$	1,174		$	771	66	%

Table of Contents

As a result of our partnership with GT, cost of revenues decreased due to lower order fulfillment fees, net change in the gain on textbook library, lower print textbook depreciation expense, and lower cost of textbooks purchased by students. We expect cost of revenues to continue to decrease throughout 2022 and gross margins to improve as we continue the partnership.

Cost of revenues decreased ~~$15.0~~$21.9 million, or ~~25%~~33%, during the three months ended ~~June~~September 30, 2022, compared to the same period in 2021. The decrease was primarily attributable to lower order fulfillment fees of ~~$9.8~~$11.7 million driven by lower unit volumes, lower cost of textbooks purchased by students of $5.6 million, net change in the gain on textbook library of ~~$4.6~~$4.5 million, ~~driven by the sale of print textbooks to GT in April 2022,~~

~~Table of Contents~~

lower transitional logistic charges of ~~$3.0~~$2.7 million, and lower print textbook depreciation expense of ~~$2.7 million, and lower cost of textbooks purchased by students of $1.6~~$2.4 million, partially offset by higher other depreciation and amortization expense of ~~$3.6~~$4.0 million, and incremental cost of tutors, as a result of our acquisition of Busuu, of ~~$2.5~~$2.0 million. Gross margins increased to ~~77%~~73% during the three months ended ~~June~~September 30, 2022, from ~~69%~~61% during the same period in 2021.

Cost of revenues decreased ~~$31.3~~$53.2 million, or ~~24%~~27%, during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the same period in 2021. The decrease was primarily attributable to lower order fulfillment fees of ~~$22.1~~$33.8 million driven by lower unit volumes, net change in the gain on textbook library of ~~$9.2~~$13.7 million, driven by the sale of print textbooks to GT in April 2022 and lower write-downs, lower ~~print textbook depreciation expense of $5.0 million, lower~~ cost of textbooks purchased by students of ~~$4.9~~$10.6 million, lower print textbook depreciation expense of $7.4 million, lower transitional logistic charges of ~~$2.7~~$5.4 million, lower customer support fees of ~~$1.3~~$1.6 million, partially offset by higher other depreciation and amortization expense of ~~$7.7~~$11.6 million, incremental cost of tutors, as a result of our acquisition of Busuu, of ~~$4.7~~$6.7 million and higher web hosting fees of ~~$2.4~~$2.1 million. Gross margins increased to ~~75%~~74% during the ~~six~~nine months ended ~~June~~September 30, 2022, from ~~67%~~65% during the same period in 2021.

~~Decreases related to print textbooks, including order fulfillment fees, net change in the gain on textbook library, print textbook depreciation expense and cost~~

Table of textbooks purchased by students, were primarily attributable to our partnership with GT. We expect cost of revenues to continue to decrease throughout 2022 and margins to improve over time as we continue the partnership.Contents

Operating Expenses

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


		Three Months Ended June 30,				Change				Three Months Ended September 30,						Change
		2022		2021		$		%				2022		2021			$		%
Research and development(1)	Research and development(1)	$	52,480	$	41,595	$	10,885	26	%		Research and development(1)	$	45,426	$	43,269		$	2,157	5	%
Sales and marketing(1)	Sales and marketing(1)	35,279		21,686		13,593		63			Sales and marketing(1)	31,803		27,239			4,564		17
General and administrative(1)	General and administrative(1)	53,935		39,719		14,216		36			General and administrative(1)	53,742		33,971			19,771		58

Total operating expenses	Total operating expenses	$	141,694	$	103,000	$	38,694	38	%		Total operating expenses	$	130,971	$	104,479		$	26,492	25	%

(1) Includes share-based compensation expense of:	(1) Includes share-based compensation expense of:										(1) Includes share-based compensation expense of:
Research and development	Research and development	$	10,006	$	9,100	$	906	10	%		Research and development	$	9,172	$	8,917		$	255	3	%
Sales and marketing	Sales and marketing	4,019		3,655		364		10			Sales and marketing	2,771		3,051			(280)		(9)
General and administrative	General and administrative	16,393		15,371		1,022		7			General and administrative	21,574		12,151			9,423		78
Share-based compensation expense	Share-based compensation expense	$	30,418	$	28,126	$	2,292	8	%		Share-based compensation expense	$	33,517	$	24,119		$	9,398	39	%

Six Months Ended June 30, Change
2022 2021 $ %
Research and development(1)
$ 104,895 $ 87,726 $ 17,169 20 %
Sales and marketing(1)
77,777 47,900 29,877 62
General and administrative(1)
100,805 77,589 23,216 30
Total operating expenses $ 283,477 $ 213,215 $ 70,262 33 %
(1) Includes share-based compensation expense of:

Research and development $ 21,782 $ 17,059 $ 4,723 28 %
Sales and marketing 8,405 6,574 1,831 28
General and administrative 32,692 27,231 5,461 20
Share-based compensation expense $ 62,879 $ 50,864 $ 12,015 24 %


	Nine Months Ended September 30,				Change
	2022		2021		$		%
Research and development(1)	$	150,321	$	130,995	$	19,326	15	%
Sales and marketing(1)	109,580		75,139		34,441		46
General and administrative(1)	154,547		111,560		42,987		39


Total operating expenses	$	414,448	$	317,694	$	96,754	30	%

(1) Includes share-based compensation expense of:
Research and development	$	30,954	$	25,976	$	4,978	19	%
Sales and marketing	11,176		9,625		1,551		16
General and administrative	54,266		39,382		14,884		38
Share-based compensation expense	$	96,396	$	74,983	$	21,413	29	%

The increases in employee-related operating expenses noted below during the three and nine months ended September 30, 2022, compared to the same periods in 2021, are largely driven by incremental employees from our acquisition of Busuu.

Research and Development

Research and development expenses increased ~~$10.9~~$2.2 million, or ~~26%~~5%, during the three months ended ~~June~~September 30, 2022 compared to the same period in 2021. The increase was primarily attributable to higher employee-related expenses, including share-based compensation expense, of ~~$5.1 million, higher technology expenses to support our research and development of $3.6 million, and higher contractor spend of $1.1~~$3.2 million. Research and development expenses as a percentage of net revenues were ~~27%~~28% during the three months ended ~~June~~September 30, 2022 compared to ~~20%~~25% during the same period in 2021.

~~Table of Contents~~

Research and development expenses increased ~~$17.2~~$19.3 million, or ~~20%~~15%, during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021. The increase was primarily attributable to higher employee-related expenses, including share-based compensation expense, of ~~$10.5~~$13.7 million and higher technology expenses to support our research and development of ~~$5.1 million, and higher contractor spend of $1.8~~$5.3 million. Research and development expenses as a percentage of net revenues were 27% during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to ~~22%~~23% during the same period in 2021.

Sales and Marketing

Sales and marketing expenses increased by ~~$13.6~~$4.6 million, or ~~63%~~17%, during the three months ended ~~June~~September 30, 2022, compared to the same period in 2021. The increase was primarily attributable to higher other depreciation and amortization expense of $2.5 million and higher employee-related expenses, including share-based compensation expense, of $2.1 million. Sales and marketing expenses as a percentage of net revenues were 19% during the three months ended September 30, 2022 compared to 16% during the same period in 2021.

Table of Contents

Sales and marketing expenses increased by $34.4 million, or 46%, during the nine months ended September 30, 2022, compared to the same period in 2021. The increase was primarily attributable to increased international marketing spend, including incremental marketing spend from Busuu, of ~~$6.3~~$15.7 million, higher employee-related expenses, including share-based compensation expense, of ~~$2.9~~$8.1 million, and higher other depreciation and amortization expense of ~~$2.6 million. Sales and marketing expenses as a percentage of net revenues were 18% during the three months ended June 30, 2022 compared to 11% during the same period in 2021.~~

Sales and marketing expenses increased by $29.9 million, or 62%, during the six months ended June 30, 2022, compared to the same period in 2021. The increase was primarily attributable to increased international marketing spend, including incremental marketing spend from Busuu, of $16.4 million, higher employee-related expenses, including share-based compensation expense, of $5.9 million, and higher other depreciation and amortization expense of $4.8$7.3 million. Sales and marketing expenses as a percentage of net revenues were 20% during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to ~~12%~~13% during the same period in 2021.

General and Administrative

General and administrative expenses increased ~~$14.2~~$19.8 million, or ~~36%~~58%, during the three months ended ~~June~~September 30, 2022 compared to the same period in 2021. The increase was primarily due to higher employee-related expenses, including share-based compensation expense, of ~~$7.4 million, an impairment of lease related assets of $3.4~~$15.7 million, and higher professional fees of ~~$1.6~~$2.1 million. General and administrative expenses as a percentage of net revenues were ~~28%~~33% during the three months ended ~~June~~September 30, 2022 compared to 20% during the same period in 2021.

General and administrative expenses increased ~~$23.2~~$43.0 million, or ~~30%~~39%, during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021. The increase was primarily due to higher employee-related expenses, including share-based compensation expense, of ~~$16.0~~$31.7 million, higher professional fees of $5.1 million, and an impairment of lease related assets of $3.4 ~~million, and higher professional fees of $3.1~~ million. General and administrative expenses as a percentage of net revenues were ~~25%~~27% during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to 20% during the same period in 2021.

The increases in employee-related operating expenses during the three and six months ended June 30, 2022, compared to the same periods in 2021, are largely driven by incremental employees from our acquisition of Busuu.

Interest Expense and Other Income (Expense), Net

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


		Three Months Ended June 30,				Change				Three Months Ended September 30,						Change
		2022		2021		$		%				2022		2021			$		%
Interest expense, net	Interest expense, net	$	(1,616)	$	(1,701)	$	85	(5)	%		Interest expense, net	$	(1,525)	$	(1,633)		$	108	(7)	%
Other income (expense), net	Other income (expense), net	1,809		1,920		(111)		(6)	%		Other income (expense), net	97,258		8,670			88,588		n/m
Total interest expense, net and other income (expense), net	Total interest expense, net and other income (expense), net	$	193	$	219	$	(26)	(12)	%		Total interest expense, net and other income (expense), net	$	95,733	$	7,037		$	88,696	n/m


		Six Months Ended June 30,				Change				Nine Months Ended September 30,						Change
		2022		2021		$		%				2022		2021			$		%
Interest expense, net	Interest expense, net	$	(3,213)	$	(3,630)	$	417	(11)	%		Interest expense, net	$	(4,738)	$	(5,263)		$	525	(10)	%
Other income (expense), net	Other income (expense), net	7,989		(75,288)		83,277		n/m			Other income (expense), net	105,247		(66,618)			171,865		n/m
Total interest expense, net and other income (expense), net	Total interest expense, net and other income (expense), net	$	4,776	$	(78,918)	$	83,694	n/m			Total interest expense, net and other income (expense), net	$	100,509	$	(71,881)		$	172,390	n/m

*n/m - not meaningful

~~Table of Contents~~

Interest expense, net ~~decreased $0.1 million and $0.4 million,~~remained relatively flat during the three ~~and six~~ months ended ~~June~~September 30, 2022 ~~respectively,~~ compared to the same ~~periods~~period in 2021, and decreased $0.5 million, or 10%, during the nine months ended September 30, 2022, compared to the same period in 2021, primary due to the full redemption of the 2023 notes in 2021.

Other income (expense), net ~~remained relatively flat~~increased $88.6 million during the three months ended ~~June 30, 2022 compared to the same period in 2021 and decreased $83.3 million during the six months ended June~~September 30, 2022 compared to the same period in 2021 primarily due to the $93.5 million gain on early extinguishment of a portion of the 2026 notes and $2.3 million increase in interest income partially offset by the absence of the $7.2 million gain on the sale of the strategic equity investment. Other income (expense), net increased $171.9 million during the nine months ended September 30, 2022, compared to the same period in 2021, primarily due to the $93.5 million gain on early extinguishment of a portion of the 2026 notes, the absence of the $78.2 million loss on early extinguishment of debt of a portion of the 2025 notes, ~~and~~ the $7.1 million net loss on the change in fair value of derivative instruments, ~~partially offset by the absence of the $5.3 million gain on the sale of the strategic equity investment and~~ the $4.6 million gain on foreign currency remeasurement of purchase consideration related to our acquisition of ~~Busuu.~~Busuu, and $1.9 million increase in interest income partially offset by the absence of the $12.5 million gain on the sale of the strategic equity investments.

~~Provision for~~

Table of Contents

Benefit from (Provision for) Income Taxes

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

Three Months Ended
June 30, Change
2022 2021 $ %
Provision for income taxes $ (60) $ (2,225) $ 2,165 (97) %


	Three Months Ended September 30,				Change
	2022		2021		$		%
Benefit from (provision for) income taxes	$	167,264	$	(747)	$	168,011	n/m

Six Months Ended June 30, Change
2022 2021 $ %
Provision for income taxes $ (4,277) $ (5,046) $ 769 (15) %


	Nine Months Ended September 30,				Change
	2022		2021		$		%
Benefit from (provision for) income taxes	$	162,987	$	(5,793)	$	168,780	n/m

*n/m - not meaningful

~~Provision for~~Benefit from (provision for) income taxes decreased ~~$2.2~~$168.0 million ~~or 97%,~~and $168.8 million, during the three and nine months ended ~~June~~September 30, 2022 compared to the same ~~period~~periods in 2021 primarily due to ~~a decrease in our Indian tax rate and a decrease in our estimate of~~ the ~~base erosion and anti-abuse taxes for the year ending December 31, 2022 partially offset by an increase in state taxes.~~

Provision for income taxes decreased $0.8 million, or 15%, during the six months ended June 30, 2022 compared to the same period in 2021 primarily due to a decrease in withholding taxes related to the March 2021 sale of our strategic equity investment and a decrease in our Indian tax rate partially offset by an increase in state taxes.

We continue to maintain a full valuation allowance against our deferred tax assets and quarterly assess the need for such valuation allowance. Given our current and anticipated future earnings, we believe that there is a reasonable possibility that within the next 24 months, sufficient positive evidence may become available that results in a conclusion that all or a portionrelease of the valuation allowance ~~will be released, which would result in the recognition~~against a substantial amount of ~~net~~our U.S. and certain state jurisdictions deferred tax ~~assets~~assets. See Note 12,“Income Taxes,” of our accompanying Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements (unaudited)” of this Quarterly Report on ~~our condensed consolidated balance sheets and a benefit to provision~~Form 10-Q for income taxes in the period the release is recorded. The timing and amount of the valuation allowance release are based on obtaining sufficient positive evidence, including but not limited to, the level of forecasted profitability in future periods.additional information.

Liquidity and Capital Resources

As of ~~June~~September 30, 2022, our principal sources of liquidity were cash, cash equivalents, and investments totaling ~~$1.6~~$1.2 billion, 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 June 2022, our board of directors approved a $1.0 billion increase to our existing securities repurchase program authorizing the repurchase of up to $2.0 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. ~~During the six months ended June 30, 2022 and year ended December 31, 2021, we~~We've entered into accelerated share repurchase programs to repurchase ~~a total~~19,965,836 shares of our common stock for $600.0 million and open market repurchases of 1,146,803 shares of our ~~outstanding~~ common ~~stock.~~stock for $23.1 million. Additionally, ~~in 2021 we~~we've repurchased $500.0 million principal amount of the 2026 notes, $100.0 million principal amount of the 2025 notes, and $57.4 million ~~and $100.0 million of aggregate~~ principal amount of the 2023 notes ~~and 2025 notes, respectively,~~ in ~~privately negotiated~~privately-negotiated transactions for an aggregate consideration of ~~$149.6~~$734.4 million. As of September 30, 2022, we had $642.6 million ~~and $184.9 million, respectively. $1.1 billion remains~~remaining under the 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.

~~Table of Contents~~

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 (2021 equity offering). 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 ~~June~~September 30, 2022, we have incurred cumulative losses of ~~$324.0~~$72.4 million from our operations and we may incur additional losses in the future. Our operations have been financed primarily by our initial public offering of our common stock (IPO), our 2017 follow-on public offering, our convertible senior notes offerings, our 2021 equity offering, and cash generated from operations.

~~There~~Aside from the repurchased $500.0 million aggregate principal amount of the 2026 notes, there were no 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, 2021.

Table of Contents

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 ~~June~~September 30, 2022, 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):


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Condensed Consolidated Statements of Cash Flows Data:	Condensed Consolidated Statements of Cash Flows Data:					Condensed Consolidated Statements of Cash Flows Data:
Net cash provided by operating activities	Net cash provided by operating activities	$	143,755	$	144,501	Net cash provided by operating activities	$	181,716	$	208,123
Net cash used in investing activities	Net cash used in investing activities	(293,819)		(574,784)		Net cash used in investing activities	(237,775)		(742,537)
Net cash (used in) provided by financing activities	Net cash (used in) provided by financing activities	(306,113)		790,344		Net cash (used in) provided by financing activities	(732,949)		768,299

Cash Flows from Operating Activities

Net cash provided by operating activities during the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$143.8~~$181.7 million. Our net income of ~~$13.2~~$264.8 million was increased by ~~the change in our prepaid expenses of $28.8 million. We also had~~ significant non-cash operating expenses including share-based compensation expense of ~~$64.2~~$98.3 million and other depreciation and amortization expense of ~~$41.9~~$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.

Net cash provided by operating activities during the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$144.5~~$208.1 million. Our net loss of ~~$32.4~~$25.8 million was offset by significant non-cash operating expenses including the loss on early extinguishment of debt of $78.2 million, share-based compensation expense of ~~$51.6~~$76.2 million, other depreciation and amortization expense of ~~$30.2~~$46.3 million, print textbook depreciation expense of $9.0 million, the net loss on textbook library of $8.8 million, which was primarily due to increased write-downs, the net loss on the change in fair value of derivative instruments of $7.1 million, ~~print textbook depreciation~~operating lease expense, net of ~~$6.6~~accretion of $4.5 million, and ~~the net loss on textbook library~~amortization of ~~$4.2~~debt issuance costs of $4.5 million, ~~which was primarily due to increased write-downs,~~ partially offset by the gain on sale of our strategic equity ~~investment~~investments of ~~$5.3~~$12.5 million.

~~Table of Contents~~

Cash Flows from Investing Activities

Net cash used in investing activities during the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$293.8~~$237.8 million and was related to the acquisition of a business of $401.1 million, the purchases of investments of ~~$356.6~~$534.0 million, the purchases of property and equipment of ~~$57.3~~$79.2 million and the ~~purchases~~purchase of ~~textbooks~~a strategic equity investment of ~~$3.8~~$6.0 million, partially offset by the maturities of investments of ~~$522.5 million and proceeds from the disposition of textbooks of $2.5~~$783.9 million.

Net cash used in investing activities during the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$574.8~~$742.5 million and was related to the purchases of investments of ~~$984.6~~$1,574.1 million, the purchases of property and equipment of ~~$46.6~~$67.1 million, ~~the acquisition of business of $7.9 million and~~ the purchases of textbooks of ~~$5.0~~$10.7 million and the acquisition of a business of $7.9 million, partially offset by the ~~maturities~~maturity of investments of ~~$455.5~~$893.3 million, proceeds from the sale of our strategic equity ~~investment~~investments of ~~$7.1~~$16.1 million, and proceeds from the disposition of textbooks of ~~$6.7~~$7.8 million.

Table of Contents

Cash Flows from Financing Activities

Net cash used in financing activities during the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$306.1~~$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 ~~$300.5~~$323.5 million and payment of ~~$10.2~~$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.

Net cash provided by financing activities during the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$790.3~~$768.3 million and was related to the net proceeds from our equity offering of $1,091.5 million, proceeds from 2023 notes and 2025 notes capped call instruments of $69.0 million, and proceeds from the issuance of common stock under stock plans of ~~$5.3~~$5.4 million, partially offset by the repayment of a portion of our 2023 notes and 2025 notes of $300.8 million, ~~and~~ payment of ~~$74.6~~$89.3 million in taxes related to the net share settlement of equity ~~awards.~~awards and payment of escrow related to an acquisition of $7.5 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. The current COVID-19 pandemic has caused uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained. Our actual results may differ from these estimates under different assumptions or conditions.

~~There~~Aside from the release of the valuation allowance on deferred tax assets as described in Note 12,“Income Taxes,” 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 have been no material changes in our critical accounting policies and estimates during the ~~six~~nine months ended ~~June~~September 30, 2022 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, 2021.

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.

3233

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no other material changes in our market risk during the ~~six~~nine months ended ~~June~~September 30, 2022, 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, 2021.

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 ~~six~~nine months ended ~~June~~September 30, 2022, 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. We continue to monitor the impact of the COVID-19 pandemic and, despite many of our employees working remotely, have not experienced any changes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3334

Table of Contents

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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, 2021, 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 ~~June~~September 30, 2022.

Purchases of Securities by the Registrant and Affiliated Purchasers

The following table summarizes the securities repurchase activity during the three months ended ~~June~~September 30, 2022 (in thousands, except average price paid per security and total number of securities repurchased):

Period Total Number of Securities Repurchased Average Price Paid Per Security Total Number of Securities Purchased Pursuant to Publicly-Announced Plan Total Dollar Amount Purchased Pursuant to Publicly-Announced Plan Maximum Dollar Amount Remaining Available for Repurchase Pursuant to Publicly-Announced Plan
April 1 - April 30 (1)
837,001 31.9174 837,001 — 65,491
May 1 - May 31 — — — — 65,491
June 1 - June 30 (2)
— — — — 1,065,491


Period	Total Number of Securities Repurchased(2)	Average Price Paid Per Security	Total Number of Securities Purchased Pursuant to Publicly-Announced Plan	Total Dollar Amount Purchased Pursuant to Publicly-Announced Plan	Maximum Dollar Amount Remaining Available for Repurchase Pursuant to Publicly-Announced Plan
July 1 - July 31			—	—	1,065,491
August 1 - August 31	—	—	—	—	1,065,491

September 1 - September 30(1)	1,146,803	20.1032	1,146,803	23,054	642,564

(1) On February 22, 2022, we entered into an accelerated share repurchase (ASR) agreement with a financial institution (2022 ASR) to repurchase $300.0 million of our outstanding common stock. The 2022 ASR settled duringDuring the three months ended ~~June~~September 30, 2022, ~~and we received an additional delivery~~in addition to the $23.1 million repurchase of ~~837,001~~ shares of our common ~~stock. The~~stock, we also repurchased $399.9 million of the 2026 notes in privately-negotiated transactions resulting in total ~~dollar amount purchased pursuant to a publicly-announced plan is zero as we made the upfront payment~~securities repurchases of ~~$300.0 million during the three months ended March 31, 2022.~~

~~(2)~~$422.9 million. See Note 8, “Convertible Senior Notes” and ~~In June 2022, our board of directors approved a $1.0 billion increase to our existing securities repurchase program.~~

~~See~~ Note 11, “Stockholders' Equity,” 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 for additional information on the ~~2022 ASR and~~ securities repurchase ~~program.~~program and the repurchase of the 2026 notes.

(2) In June 2022, our board of directors approved a $1.0 billion increase to our existing securities repurchase program authorizing the repurchase of up to $2.0 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. The repurchase program has no expiration date and will continue until otherwise suspended, terminated or modified at any time for any reason by our board of directors.

Aside from the 2022 ASR, we did not repurchase any of our securities during the three months ended June 30, 2022, other than in connection with the net share settlement of equity awards by holders in exchange for payments of statutory tax withholding amounts on behalf of the holders arising as a result of the vesting of equity awards.

3435

Table of Contents

ITEM 6. EXHIBITS

Incorporated by Reference

Exhibit
No.

Exhibit

Form

File No

Filing Date

Exhibit No.

Filed
Herewith

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

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

32.01**

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

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema

101.CAL

Inline XBRL Taxonomy Extension Calculation

101.LAB

Inline XBRL Taxonomy Extension Labels

101.PRE

Inline XBRL Taxonomy Extension Presentation

101.DEF

Inline XBRL Taxonomy Extension Definition

104

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




**			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.

3536

Table of Contents

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.
~~August 4,~~November 1, 2022	By:	/S/ ANDREW BROWN
		Andrew Brown
		Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

3637


	Six Months Ended June 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	(11,562)	(12)		(300,438)		—		—		(300,450)



Issuance of common stock upon exercise of stock options and ESPP	319	—		4,557		—		—		4,557
Net share settlement of equity awards	635	1		(10,221)		—		—		(10,220)
Share-based compensation expense	—	—		68,303		—		—		68,303
Other comprehensive loss	—	—		—		(63,534)		—		(63,534)
Net income	—	—		—		—		13,218		13,218
Balances at June 30, 2022	126,344	$	126	$	1,211,506	$	(68,868)	$	(323,973)	$	818,791


Period	Total Number of Securities Repurchased	Average Price Paid Per Security	Total Number of Securities Purchased Pursuant to Publicly-Announced Plan	Total Dollar Amount Purchased Pursuant to Publicly-Announced Plan	Maximum Dollar Amount Remaining Available for Repurchase Pursuant to Publicly-Announced Plan
April 1 - April 30 (1)	837,001	31.9174	837,001	—	65,491
May 1 - May 31	—	—	—	—	65,491
June 1 - June 30 (2)	—	—	—	—	1,065,491