CHGG - Earnings call transcript Q3 2017

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Operator

Greetings and welcome to the Chegg, Inc.

Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. An interactive question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. to VP conference of like host, to now Ford, Tracey Investor would turn over the our I Relations. Thank you.

You may begin.

Tracey Ford

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

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

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

and results be reconciliations can in press GAAP Our non-GAAP our GAAP release. earnings to found

review IR We deck sheet slide also data investor.chegg.com. our website, posted the in recommend the on and information included you investor

the turn will Dan. I over call to Now,

Daniel Rosensweig

been vision that the they understood in than are today’s students students digital it Tracey, time, Four on more trillion went the viewed with though even an We but we that and to an been XX% generation experiencing company have a in learning services of subjects, at as all saw to million students of years who all help. misaligned classes, on everyone. all came a services results At and We classes and longer Chegg have ComScore support pick month raised serving industry textbooks, on pressure, the you, their Thank representing to huge GDP been all dramatic, with little print were nearly was welcome and they degree. course, of had of affordable, population increasingly Chegg's as diverse textbook public rental ten according we personalize, building annual to We they on that own by around customers our all career, modern for now expect, delivering no helping more the online, $X just its that much ago, which a million participating Services learning customers. in nearly on years Internet. in Chegg cutting first education in or then we was adaptive of and technology bigger of those from ever, investment all grades, serve to same was was huge amount debt, platform subscribers In time human revenue taking the and basis. get more graduate, our XXXX. saw was significant and focuses U.S. Further, of even history. students start on-demand, have their education manner the by the the to their than if their of have a textbook an master students building backed four jobs industry paying better platform. X% expect address interconnected our then were four a a To taking graduated customers worthy find and we’ve failing expect visitors this, pass

for we new Chegg adjusted And go forecasting company what a year expect to $XX XXXX right today, high million EBITDA This adjusted million using a our will EBITDA turnaround in million Services has EBITDA from cash grown that IPO, $XXX in adjusted a in to learning been each revenue who free successful that just in XXXX. business getting was textbook slow from over a flow. we company high started. now losing guidance a transition feel from million and support now be we to just to go nearly cash in growth we’re over million $XXX company a XXXX. helped growth, $XX $XX It’s Our margin has our us before company given is produces will like

data on powerful brand, proprietary top is and Chegg significant built power of the reach. the platform of leveraging our our Our growth

and Tutors that into services becoming the turn services key students students massive for Writing industry to as point, help pain Study, brand address are Chegg undergoes all disruption. high quality, Chegg learning and is rapid the biggest Our low-cost

capabilities Services gets had formats, us content, once top and more opportunity engagement Chegg. walk our more leading anticipated to results What’s of base. in results. in with to through growing invent Andy on platform, student’s much those the QX becoming evident digital all solving pain Our is clear will model biggest growth Chegg our point year-on-year faster with we metrics, users in detail, clear financial Chegg’s XX% than momentum but a it’s is in bigger the you is higher of the our numbers even and again we subscribers for in across in

for result archive this As Chegg believe answers and more content Chegg breadth Study depth record. this expert in million to created to having million led impressive X more subscribers, has an students. QX a of expect and and us our investments Study archive year-over-year Study an college million than million in expert to in and year. XX engagement indispensable record our increasing a a now led to and number questions solution of we subject, now is has XX questions to in new students' learning for over example, renewals. engagement We The competitive we this believe resulting the Chegg returning have quarter is moat growth add used material giant a an XX% considered X

Math developer Cogeon, that powerful content to in for remedial an universal this the math it Chegg's and and math, discipline existing the Chegg relationship one will extent of To downloaded we we of of the across school. prepared STEM. audiences app and over already, not will the universal math capability. Math we expand couldn't into new XX% primary is our relevant acquisition we to our about has We As X to problem as as application, recently subscribers level products are service adding deepen XX, subjects, into need Adding U.S. time. even which become our as TAM, announced least course. its million U.S. excited every technology take also believe is A.I.-driven of college math XX% suite Math over an students with more at continue and not Study services, end, of more be has for suite and high but increasing reach of only students applications believe adaptive been unfortunately a like

We individual Writing. student's are an technology through can how seeing needs scale at learning already address Chegg

quarter. students Beyond new support most saw spelling. cite accounting. grammar, And learning, citations write, students on per site of to continue are sessions X the help using continue spending throughout which calculus, most and and learning million finance be the help spent services science, an how now platform know sentence to with increase, though use critical will our bibliographies to why our spending to critical the this to learn key tools and learn including we the which nearly their statistics, to process, time invest human computer how Students quarter, now our recently third writing student XX in we we and platform. we and Chegg minutes In Even look minutes beta in components to A.I.-driven to with of structure subjects launch, for in like that average the saw is tutoring XXX semester one-on-one in the can on students foundational session augment the citations Tutors.

network whatever students on is help with more own and they subject evident extensive platform their than learn time interconnected experts, human Our The allows with. Chegg of need as educators power our Writing customers continue rate of Tutor integrate increase. And we our Chegg in come from Services. Chegg as the product attach other into to we expect to tutors see half XXXX, to

unit. the as big also over is including record the popularity subscribers strong quarter our are representing for a Now, Required our of the textbook a Chegg of total we seeing eTextbooks strength with brand Services This Required Chegg of for and one coming our rental. us are for Materials, to in saw momentum XX% reasons Services, we of Materials QX

deepen for the makes VitalSource utilizing We Ingram, from with have and of as the relationship eTextbooks have VST eReader we students VST experience our for with which students ed-tech or easier arm also publishers. on and publishers Standardizing Ingram. the Chegg's eTextbook using standardized is

this continues great, is Our scale efficient opened to reach not also point and iconic marketing quarter, inserts model boxes in-person orange textbook nearly students, in Chegg’s with we with learning low-cost included high-quality, most X.X and is surprising products. as our they boxes. samples business but teach million and student becoming to believe with as had connection students a to we at only the also students direct partners delighting our what big, way provide

our adaptive help, all-digital value online, has created students business philosophy backed services, increased personalized attracted model on-demand, to by human our our an Our shareholders. has of students for millions of and and and transformation

drive continue most one education resources to be And and grow and our for could turn future stages parents, needed of educators be the of will employers about and to we with we help most valuable We one As important students for in will life. Andy. in achieve our the we better not that, student’s team the a of grateful industry, contribution to change more it and the students, over of incredible I excited believe outcomes.

Andrew Brown

ahead Dan, continued the and our Thanks, momentum had all and guidance third afternoon raise great for financials with of us strong metrics give our a key to results and These Chegg XXXX. quarter good everyone. again expectations. confidence

for XXXX our previously meets outlook initial In addition, our that or we financial targets. are providing discussed long-term exceeds

what to platform on the extremely connected accomplished Chegg are years has as IPO, proud Chegg’s We the since increasingly improve of of educational students services integrated team our over relying past outcomes. their are four

For the coming XX.X%, than to our Required gained share model. our in subscription cost prior Required we line revenues of adjusted to expectations. services fall Chegg million, the was of relatively XX.X an with and in margin This growth business. of for expected demonstrating its we incremental margins in Materials million, EBITDA third both above quarter, years. from higher during revenue continued of straight total well the All exceeding fixed to and our all-digital much due with expectations, rates we X.X gross Services led suggest This Chegg indications the our resulted Services rush to revenue in the because Materials structure leverage the see gross line goes reaching

between approximately This, our QX from to fall the between into puts the for and and in XXX of as a now operating between we the significantly XX expect revenue model, million quarter, and our year. strength position grow increasing in bringing revenue Based our million. balance results along QX, of XX we and generates guidance Gross be sheet, XX with power cash are of Services margin and follow-on cash cash, of strengthened to remainder Chegg XXX between which million. investments business. semester we the rush XX the continue adding our million. During momentum on and in to XX% continued offering, million, and EBITDA invest our with XX% us balance for XX total and the XX adjusted the We

CapEx to the our than more and we high-end be to now expectations. would Services in year between achieved with be XXX XX%, For EBITDA the million, full XXX we revenue XX above to to XX is than be and be million, XXXX, between slightly adjusted revenue million, between and total double which be million, XXX previous greater XX expect of gross XXX XXXX, Chegg margin what which

more as than which Q&A mentioned to Dan of of are been first As being to Math requested cash XXX% becomes, free digital we includes expect $XX This earlier, the market invest for a bigger content, now which is our expansion watershed be by matters year has more opportunity subject the students, the the in network approximately as full year flow million. and our XXXX Chegg. revenue. we well

business is Our demonstrate a model. just more operating predictable the few we the and to ago leverage than much in years continue

such, achieving financial XXXX or in we confident laid three are objectives years ago. our As out we exceeding that

now XX% with to Chegg expect than growing be or total XXXX Services for XX% revenue and to margin greater approximately We expectations margin adjusted approximately gross XX% XXX to initial Our are for XX million. of over XXX EBITDA be approximately revenue million. million,

expect to growth due elimination adjusted cadence we the will Services XXXX, be EBITDA Chegg gains textbooks. to the revenue similar to in be quarterly seasonality our and XXXX from our of of While legacy liquidation different

provided IR website. We press the details on investor the these deck release in the and have

a aware, you X, publicly to begins Chegg called have XXX, which ASC recognition of are standard most revenue for companies January new As on traded XXXX. adopt

We in Chegg standard have investor of to the its deck. summary and provided a implications this

on above little it both continue expenses closing, will Math, expect your contemplated reduce in no do beyond. will to but guidance. from Required see like have impact for turn for which operator I'll Materials, the our that, is services expectations, our growth contribute In and and we invest both Services, in call and expect high-end while execution in revenues we delivering on team, services to Chegg out strong Careers XXXX our our XXXX we have to expect to powers While questions. will it to that no we of all and existing over profitability continuing our the the to new content and With building the impact

Operator

At this Paris is from your [Operator question-and-answer first session. with from time, proceed a question we will Please conducting be Our Instructions] Barrington Research. question. Alex

Chris Howe

to to would had quarter. other Chris of Alex. on an thinking on that's is as Howe Congrats Careers? how would going? announced. businesses for in sitting Could back the is, this for first you my just you consider that partnership this update question something My Hi, provide previously your Kaplan be, you such the some that follow-up And like perhaps

Daniel Rosensweig

produce online, creating products. year So, will those integrating so co-branded an It get Prep Chegg’s until from then can this and of by and rate, services. It’s products premier Chris, is Test utilize co-created least Kaplan. would is it don't this on be XX in through Kaplan Kaplan, and Chegg. Chegg On what and you them, history of is, Kaplan Kaplan several been other who years exclusively has the at affordable of Dan. uniquely really allowed December, again for we expensive co-branded working the that you, spent building And know a

launch about this year. later So, we’re on excited very our

is year. else be going we to that and expected all So, we’re consider things? there it So, it who ability all answer of student that is, of And because we we by versus doing the them doing on magic about capable in other would Careers we for are the do nothing in it. of based the are and of are doing records this their some how end at to go of ability them The the except launching millions report the it graph, it's of the access others. way on of uniquely that proprietary their to this does Careers way the then data and plans done and should it’s we what wouldn’t the matching our building is for to nobody do have millions millions students capable to history,

on be So, has players what believe space. to be but huge. everybody we the the opportunity Chegg special to going and and with we in the access met audience, working this unique to all like Obviously, would is

understand just you’re careers, we the this. when with on are before make and sure taking I to and out mean to done their roll we them that brains, just do people’s right we need are dealing with time things people got we’ve We our their as we everything. lives

with take only our we time So, things. these

you some excited are see about we to as very and examples well So, though going that I are in as student XXXX think the side employer of the side.

the is absolutely -- I publishers for So not, for Careers ourselves do we example. textbooks see eTextbooks with things, and as essentially other for an we mean but

students our bring will So, way way we most consider. the outcome, our to best data brand, efficient whatever is better to our reach, leverage is

Operator

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

Brent Thill

question the Good kind tutor next A leg of for business. Dan on afternoon. the just of

at see the couple enfolding follow-ups over could level So I’ve a if that just how you of you quick a year? just And next business high walk-through Andy. of for

Daniel Rosensweig

Sure.

remained business, So, at the we the match what The and are tutor to of platform. is things been those looking the about. building we becomes happening. we're have the working that magic exact ability moment tech Company. We tutor it extraordinarily the since see We’ve the for right out really excited that rebuilt started we’ve exact right

it able to global. to we can We’re the because think rebuilding have then it’s about point scale and to the at platform where it'd getting do to scale to it make matching eventually be sure how be that

like really ability see features now much to won’t advance. new in You schedule except the

year the to on match work Most time, and The the do to the that themselves. get if to are the the are you to we same you're schedule working the tutors this in to for that. to be access So, you able ability if you want question learning tutor, next student is tools college, will tutors faster, better, on more do effectively access you're year even to the the want tutors what specific get schedule bleed or rebuild of with the in build that of working high allow to to and space to the school whiteboard into faster tools which ability a inside student students.

So, we things are on to the track doing want. we that

are integrating extraordinarily ‘XX the to our about which as we And really haven’t had out prepared that of it it. start part Writing product, able and excited we to remarks do into of course yet. We it in rolling been is

Brent Thill

effectively XXXX, on will just Andy, slow of for And thanks. the growth. you mentioned XXX Great, revenue part

‘XX? been of added you're growth, to is think in. the back impact of kind could that XX% type come higher do ‘XX that at rate any CapEx, ‘XX? to mentioned a talk we in as if you I Or on have midpoint if capital in your ‘XX? just those look you that going you at forward bit end million. the low close shift that to when also start about it's a into that should Is $XX little What fade does of you you And run for -- going

Andrew Brown

things. of couple so Yes,

at that and material breakeven the a I think in be annual basis impact million earlier. in X story. on million several we've million super to in End but business small million It on it impact Chegg that will said on units. to no revenue both it’s required the important have and Materials the somewhere you that the no sense mentioned expenses has impact does XXX, look -- X $XX years when of We business, Services. that of million Required impact on itself $XX we $XX understand -- on believe for

anything So, just only. changing changes that, see we accounting don't in

we'll more get things when and February the some as XXXX give the far As around we other details into CapEx XXXX, around of call.

that forward yes, look February. to So, in so

Operator

JP question. question Morgan. Douglas proceed from Please next Our your with with is Anmuth

Douglas Anmuth

got a of Thanks couple for I've the question. guys. taking

seen I couple in in over when First, acquisitions Writing Math. years and you've a recently mean, the then more last

little last just on about higher can adding CapEx give question, just in number, of expand? And is be you if about on you contribution kind into an about color like whether revenue? you’re but ready M&A more It number are there how strictly just specific So, then, any what could you you your where bit could And if talk basically? 'XX for in thinking then, sounds opportunities other that ‘XX? clarify you're not might there? Thanks. think the And Just you talk ’XX? the from 'XX can a give the content to subjects, you study the higher can CapEx

Daniel Rosensweig

I’ll those came tell Dan. most can’t is although of for but this take because call. and and actually the sick, So, been he has he he trooper probably is a in

in chime he'll hopefully. So,

M&A lot the one the on Doug down actually last it we’ve couple of things years. over we’ve the is slowed So, that of actually a side, done

geniuses make to -- to numbers of a be a at cases we didn’t that such opportunities always to next And we a on big team -- order this ago. execute did only a thing small and we’re brand, Math other the we’re a going have integrated to Study -- a it faster other it’s subject, half Chegg know excited a we’re given done lower So, our to reach year. than M&A at and doing Services. And achieve execute it’s always technology do don’t significant we about we this the And grow going our writing we need into to our be in and and ability is things, you businesses and but cost, year because are vertical. in available anything we’ve many in going extraordinarily it’s in the in what look because And year.

moderate what going numbers So, you’ll because the a and be an that answer assumed that our guidance zero is we've it's M&A on The ask expense the would impact year. forward. to into expense next

increase on that opportunities that that we along take onto. it’s around the take grow that to adds when -- broken than what them, we And thing And do had you're is all we slight fourth said the we it's in Math million the said so capital with do a see I this the couple are anytime that bucks. and Company it faster and businesses to students quarter, invest the [ratted], doesn’t acquisition actually using give all and and CapEx, seeing XXX,XXX more In and for of we that much fact questions a what all of they're the Q&A more the more is the us and ways a we different to day. on have. daily the out the it’s asking we've basis things, when questions we've like about So we often guidance, side, if volume organic it

Now, the is into opportunity that's have we the of Chegg Study them new majority that TAM. using verticals because we indexing But the catalog in expands what they're are great. and and been already subjects grow ones do that we that don't want miss interested new for to believe to

be we think won't about what brand you But an charge new content, it. would CapEx grow is be. a expect there significantly than So it It's whenever do in changes year's to not next what that suddenly we've differently it been we as investment doing. like CapEx, see we opportunity

Andrew Brown

said. our respect think And Dan at revenue, bottom would, look would reiterate overall in be Chegg it than I Math CapEx with CapEx, then guidance. group it contribute would growth. that Math. expense, much growth any the included Services anticipate type of When to to XXXX what you line XXXX, our mean you revenue of I is higher to the to will but just M&A contributing but is Yes, isn't

Daniel Rosensweig

the is on business cylinders. And overall, organic is is And hitting in just that's going fact just anticipated. essentially even the said doing They're about what great better They're remarks, growing it's all we excited already. and as the growth And we having faster. prepared seeing be more more just into couldn't transition than Company. that you're next completed the actually year we of The profitable.

So, time for it's big exciting difference. us,

Douglas Anmuth

if up get you follow think on overtime? Can pricing? pricing trends curious Study, growth? pricing power was Now, or at thoughts we on to look balance just your I How what could Chegg with you be on, of that you thing one any

Daniel Rosensweig

of audience the Yes, day question, is as every as on the price use testing testing and time much we will A/B all get messages. that's XX% with a and different sophisticated the price day magic which different different

aware decrease could with be we're So, a growth in of because the stay price choosing seen not And we've we abundantly we are price current what the to actually charging. rate.

even around the though getting bigger Study So is has though it's lot base long Chegg a even it's though lot bigger. time, a been even a

seen We reduction haven't rate. any in significant growth really

come In in fact, really we've seen to own. its it's

high we given see profit the significant test But gross know which power, can price. we do the margins results So, change the to we such you look of don't pricing usage. fact not with a have just the reason only at

and in invest want number they use continue Chegg usage TAM. pages beast, questions much asking use they're the increase many we do in what we as record it and Study what it, for -- and consume, how in. can we often of mean able they have is We as can has they how subjects become they're the of the to a just the terms that to that of be to grow big I asking, as we number as

pricing we but do So pricing we power. point, have at this about have don't to think know we

Operator

Dan Wang strong question. Greendale Ken Our - quarter. for you. First on Ken is next question is with Thank Andy very proceed Corey. a on Analysis. This Please Wang and your with Q from Corey congrats

Daniel Rosensweig

Thank you.

Andrew Brown

wondering, Thank you. - on So, about Q it us additional was can Any Ken Wang just thinking the color you valued? just acquisition. somehow offer Cogeon

Daniel Rosensweig

They’re geniuses. evaluated? that’s we'll in, you cannot basis. become newer for family. on we've vertical, many at chess when all they the we team. over at. valued it global well than as we've else And cannot scale can allows the Math STEM a Math, and don’t be essential. Math a done the us tell technology, it and Yes, technology Math enough, I'll look be on love It’s was NAF has How and the we’ve They we’ve the looked We many others of quality built technology to They many which two in companies math chime categories which if global. I And feels how a years? everybody actually can him champions. only the How be last Andy but are have really underpinning in? is start engaged a

right it types company the us, in the the right clearance for what at sometimes, buy when be. time prices So the like, you the start-up In will was price.

So, it was are not to particularly able we expensive, but secure make we have sure to it. that

at when by capability like didn’t technology Berlin. They’re far office an the have in this was We in best and choices, team. in seen we’ve all others the Berlin. we and felt located So look the already best we

about So, we’re excited offices we’re those really it. combining together and

Ken Wang

quantitative can qualitative. you And kind then, if also it's whether wondering give color or of it’s any additional

number products utilizing? your the on of anything average Just is user

Daniel Rosensweig

don’t number given but in attach out, is give that the increase we have We what rate. the out

attach So, rate everywhere. increase we’re seeing

initially, it was Chegg digital textbook services to So, particularly our Study.

actually Chegg digital time, we Study a year end likely the of the and service believe for such it’s time. a textbook. first Because we’ll do big change it’s than is have this in by subscribers very digital more that’s to period Now, of short our we textbook back customers,

to huge services between attach continue see digital We Chegg Study and tutors.

we only is so, release team had it the but job rate. is the to all do a And increase don’t continues We time. it grow numbers, attach

over of in of name, NPS going integrated tell the and fully the we to can of yet, increase. our better think the being network our XX% story. XX% by But over in writing so that comes of the knowing fact I Chegg XX haven’t We least one people it’s collective just traffic organically, brand

Operator

Mike Northland from Grondahl with proceed is your question. from with question Please Securities. next Our

Mike Grondahl

Sallie Services video the free. were kind and then Mae services of And could update get does how student opportunity there? One, that about in a hat of they with the couple alone Chegg you last kind months for of t update quarter? to Any on things. Chegg secondly, going maybe there any of talked Two that make go

Daniel Rosensweig

Yes, what can in give. both. update we Well, terms limited on of

video, if the just let but I be clear. think last time, articulated On didn’t, we we me

we it the it’s that We expect that. think rolling slowly. get fully to is, we has and only which original what what we should they’re their them, what do positive. it’s We’re it get we can to them XXX videos thousands what currently deployed, matter our XX,XXX tested through about both where length have, to be tutor And will learning which what deployed. where But right feedback then have been which you extraordinarily as XX,XXX have experts out. or we do the end seeing, should And we we’re network, XX,XXX is usage. and ’XX, But of the was XXX they’re We through rolled they excellent by them very Where tens our of to out may because us. about XXX. said, license ourselves videos and the have subject be, recall we available can format

where of those of really which being seeing, particularly up expect So, as on it just just it's they video, testing But of we’re length is devices. video, picked being format as it's things. kinds mobile love you'd

goes the been Sallie That deal through way our year. the Sallie great. has As Mae, all of really Mae middle next

us taken semesters of to that something we happy through it been two really really And know impact were extraordinarily get it's that But works. we’ve where -- with I they fact it on reached to their want the And whether is sort that, they wanted, when two And people just school so, the that first complete. how year. it’s or complete months it’s and is haven't the quarter yet point full upon. see it year who've students we all first one we of think with half of school taken renew, year, next whatever, not the because for started, the quarter or the after four something

and we -- really So, communication feedback I about say it. with that take the know, we with really, rate up don't but both sides the would happy students are andwith

Operator

Our next Please proceed with Capital question Group. your Craig-Hallum is question. from Alex with Fuhrman

Alex Fuhrman

past taking a strong you? for was I a a as why a next year sense bit And as Required just for perspective, business you've expect it it why to that year? to and lower relates I this kind congratulations Materials obviously the question guys guidance great settle bit little you larger rate? to want Thanks to us Chegg know about quarter. Required ask then for on And Materials. much would Great. little give particularly was terms lead sounds did the a the my that. in about and for your guidance very business. picture from of has of be on eventually that I generation spoken today in how like of is a but it's million your on $XX for higher that about And looks like obviously quite important a based becoming going Study. than part year, imagine bit base, to settling Can into it this $XX of smaller channel still important user historically that a million,

Daniel Rosensweig

So, I’ll I'll let take Andy talk most of 'XX. it, but about

great to have the work we great a quarter? a industry. very all, really hard did and they team understand First why have So, we of

things a you the belief is X we up on done. picked it's our Predominately, being just is from which what would the independent watch If that share coming think, based points research it’s you we've traditional students that trends, done worked our happened. great just execution. things used that On much I of these think other extraordinarily top have in And to very channels we of that, made favor books. get

we allowed example, expand in makes get means at the us price, at utilizing because have which deal we historically without that the didn't consignment, lower $XXX necessarily allows haven't our to new a consignment us we price newer because us together. books more or to So business which $XX the do big it gives to catalog we books books any what pay this for which buy cash, with brand because Ingram want no

we get Now, on them consignment.

what have and starting those and deals. catalog the expands So everybody we not

the we or the sign on which consignment that them with One we did many at first were able to help was rules same very publishers a of but work whether the frog-step partnership little which things the thing. over be make years the we were had and was, that on to with we last and worked to the the through, all,

publisher as of we a were because first, the So, shoots partner. we see as out it the

there’ll of services our about, distribution textbooks But You the you've happy them customers. do actually coming Study in for of already of Writing is as Chegg number halo backwards. of more or Services last with to the what we a of which there’s in deals future back since our really work restarting saw asked expansion we’ve the been Tutors of we’ve XX% textbooks third, improved those believe the and Chegg effect because the Chegg the time, said, side to or subscribers traffic independent Chegg And comes Chegg digital pricing. became textbooks, and catalogue be improved that's that

And very to gave reach, unified driving us leads, high in with because but also So, continues is, the what Ingram content to versions you've with been the the things, eTextbooks the partner installed that number have back. really brand, we and on of drive first found don’t data and we and phenomenal with something of publishers the great a a That’s our we more for eTextbooks use it’s experience can working and terms been valuable in which the to be textbooks students time Ingram being there. it’s are working sort the we of and the all have of multiple that in as really, XX%. VitalSource quarter large that publishers, eTextbook those and our in to to it’s get make -- readers it’s brand has of been allows

other because working and we direct-to-student with are lowering the are We Amazon data. the publishers environment than have only more we on pricing the

to really team, able with Ingram. by are. them and prices good execution are with what just we It's smart the So, relationships publishers our the tell

turned ago a students concern so, that benefit a big was and to of wonderful our shareholders. years couple out And really that from it’s to go provide something we

I'll it's the relate October. detail let Andy it into to ‘XX, only mostly get look As but

a year brings just detail. in more you little next for that’s change. the business and XXX down is which and stuff an bit that let bottom accounting even affect But line textbooks, top I'll the though a Andy away all, is far subscription doesn’t So, at line particularly give

Andrew Brown

to as mentioned gaining about remarks, got impact the coming think of of -- we’re the our To that’s anticipating over this indicate in and declines think we’re just that next impact again. consider college that were is I what and much on biggest people prepared has which what that, pretty years, right or year. point slight for it’s as textbooks. most would they I’d a is of to business it’s the Alex, see XXX in you've Yes, the when really textbooks. the that almost will and be And And other consider textbooks couple bulk usual keeping understand also last impact in the really continue year pricing overall earlier we Dan’s profitability. important seeing than of few I things But you down share obviously the then no

Operator

Please Street with Markets. next Lake Our question Eric your from proceed Martinuzzi question. with Capital is

Eric Martinuzzi

Yes, I ask retention. wanted subscriber to about

little of I compare wondering But at bit subscriber to retention we’re there given versus sequentially I X.X As dangerous your flat. QX, roughly if the on seasonality a subscribers it’s as here was million, us layer could I the take business. look the you past deeper know on trend?

Daniel Rosensweig

start and summer. as of off will I the one. are relates dangerous. connection to no the remember year coming It’s each quarters the little have with it The It’s not first we Andy Yes, to let go only other time apples-to-frogs. because a

differing quarter. it’s first and the Now, you quarter if made that connection the between fourth

of do college through it’s accounting, year. is year middle August the we year the although the really financial May, So real really

growth calculate you the Andy? in overwhelming clearly and is other rest format, or we’ve Study that more Chegg the questions the one we pretty the is services it's retention wants the generation ask it. value of likely of we what of cover And has over the is to and them whether more more stay. subscription ever they year, Chegg really it's TAM when So the the invest, the Netflix. they we the that been our gets, quality, see earlier And matter price, easy, business more working the seen. becoming it low working the that we is them subject, best that phenomenal, bigger Spotify The fast content, Study This and and big. you the longer let come answer, formula models got more high

Andrew Brown

to got we think it, I yes. cover

Eric Martinuzzi

phenomenal. When you metric What on? been phenomenal it’s measured is say

Daniel Rosensweig

just Well, all the first look results. of

ability they’re if to year-over-year our these the textbooks. if a traffic, get with when and at gives know numbers the they familiar them. if the because if organic the you they growth starting in That you a earlier if the students drive time is margins, first up at product, longer than look tutors. with the look they wanted start reason at us signing look that are look look you rate, revenues, they because if get But look at also they of you profit, good the So, you period the at you had

of on, pause, If all accelerated look you and that then the growth, we’ve monthly rates, that's which they -- things the the you came is number look if back a what drives those of key renewal people to at at seen. are pause

we XX love they it, become millions it a you growth look find content look because good just But of year-over-year, can see struggling to you as example, if if for volume a and relates it’s I it’s if the they as and So, find how honestly XX% Chegg better a become students, really it to metric, look respond And if don't an of shows doesn’t necessary metric. Study it just know at Twitter million I’m at to views that it. just you, product.

Eric Martinuzzi

item. just then one And housekeeping

that? I the but wondering, for raised materials, some Do have a shares of you missed and was in along a Given shares Andy. then August, with it end maybe in kind quarter to outstanding basic have I you of do outstanding the equity diluted and go

Daniel Rosensweig

Yes.

get that you. can I So, for Yes.

I excuse my the So, XXX. top shares outstanding XXX. have me, the up quarter but, end of I average shares don't around it's -- shares were think, basic The actual think outstanding right -- outstanding right were head, I weighted the at that we’re the

Operator

with your is Barrington Research. Our question from next proceed Fuhrman Please Alex with question.

Alex Fuhrman

have And… imagine you You acquired it.

Daniel Rosensweig

have to again. going to start You’re

hear did out. question. the not We broke of the beginning You’ve

Alex Fuhrman

back had first easy it. you acquired to imagine Okay. just No, I thinking when was

customer monetizing process and as share had as monetization it You monetization? its that on kind subscriptions. do how in of reached get the an much I is further just going, not plans you mention potential through full base for to wanted perhaps And have its can update

Daniel Rosensweig

question. what we’re is of another having so on. well did big to And executed Imagine has part own that though even today and expectations. quite Clearly, And great outperformed year not anticipate. they’ve that still believe Yes, that has team executed our Easy even And we a do we here’s it’s brilliantly. that going because

for sessions are allows in same people ad about are comes ad frequency of which in revenue consume that part more it, So they the additional but the creation that pages more of And the inventory consume from the inventory. time, it. using because they

programmatic In inventory. of absolutely that per to the first of addition has party to revenue application only not the advertising increased our but their data data, the amount inventory,

profit above real to as audiences then at has There as is to subscription style. good. the them expected a a with been them towards is getting help with prior path the we And new small interesting just BibMe, this see. we BibMe been our always Math we're with which perform students positive continue on in And out And or makes it each rolling tested spelling, of is business. expectations plagiarism, percentage a we really launching that's the relevant with and day. being which product grammar, the help help them product, even help ability And there that out beta is So see them is on new the is on clear better contextually the a conversion improved which that. ads even the to because product more real the is to doing and the bit more subscription little for side, what's and

education of is like education That out people English anytime. understand people support to put able support their is isn't those financial to But our of it's by when the be our things. or learn in write most be tutoring seniorities help language. people second there will XX% do and and you're U.S. U.S. So, need about XXXX talking environment just of to XX% that feel population demographics the we at of

is at specific slowing the Chegg products buying so thinking but a we cost. getting the the we brought backed and bigger writing which we're we help? so, point can of see that for us low about And scale when And by help math our just our of these that people these capabilities. from human And helps driving and of quite technology actually one markets we Does on learned see really things products a at teach that down, them don't mantra where any is opposite. the all

Eric Martinuzzi

much lot. a helps Dan. Thanks so That

Operator

Raymond next your Aaron Our from James. with question Kessler Please proceed with is question.

Aaron Kessler

couple hi sizing of we Yes, have a on guys time Study a Maybe, questions. it's the of just lot Chegg potentially. question the the

you plus something term XX reasonable think to have what's you. product? longer kind mean number probably you've the today. roughly think the you Chegg you And to the of range I talked Study Thank I million X-X in students. get do

Daniel Rosensweig

Yes.

number Math people Analyst really to our whether participate out XX year easy education an analyst. is to Day. don't for really you're trying the or a space So were most we And million make ago an do that investor put what first the November in understand because we people for really

ISDN. depending different was we we And so, point of what stayed size XX subject said really difficult obligated only it we XX% said of which only didn't the size people were as to were that the only who expand the sort at -- it subscribe TAM textbooks to because were only we on already smallest XX,XXX to And just students ISDNs, we And they Q&A in we'd of TAM. that And to people. be excess if of be XX,XXX was for of that it had possible stayed so are if now number to we'd could an million covered, to has or buy that or we smallest that for reached that market. possible those

And growing last the couple base. and deliver that we we XX% formats greater is more a add. the go subjects we rates on invest higher product, the cover much we that this more the at cover. cover. can on we it which U.S. content, TAM calls grow the do just deeper two in gave you subjects, That that probably the that’s to don’t try in that subjects we And As of it in to the top three is of we times the the the believe number size that original will of will more out. say the that continue same see, Q&A actually alone we the more we've been the content, the other We because, to about

we wide at deeper. now we're So going want first

was and technology ago, that year, which allowing is all high year on believe key So build we're concept school math seniors the freshmen the through these all we is majors we the students not school sophomore math plan. things the us a through AI, to ability high for content And freshman build. way that and were the to have year, the

Study Chegg a capability where add to So, we as it. actually more as student will their see every we scenario to continue want companion,

been the opportunity And that’s don’t more So, we’ve the and pleasantly surprised that to think, slowdown. why we seen gets. invest we we’ve market bigger any

Eric Martinuzzi

And how make comp real Can Andy, should you maybe into that QX? outlook Dan. just Thanks XXXX? stock about go quick. for we the think

Andrew Brown

Yes.

our folks, to when at little you much reminder as So, that's performance had based, originally than year, stock increase when stock it’s execs slightly you just and XX% based those look expense. look expected. we've bit at grants had QX, this we perform the comp on to And the to are stock for higher comp a as a be we better of

get again, As into tuned. forward XXXX, get so into to stay we’ll when once far as more looking February the XXXX, we call,

Operator

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

Henry Chien

for calling Jeff. Chien Henry It’s

had and revenue subscription question the the on growth. growth a Just

or should if that at broadly revenue color more what way growth difference I between could how quarter, on wondering the Thanks. for those was it? two a add And look more bit rates? we about curious Just you the think growth little any products drove you

Daniel Rosensweig

answer one. take one So, first I’ll first and the let Andy second the

that all early fact credit an future we Because Chegg they’ve tutors. all in we’re The how building and it’s and that growth that in before, we see. all talked never is price, don’t are a just three is the Study for than executing. we which better earlier outperformed these, goes we’re anytime of health see we that human what market right. slow and believe big they’re reason to second in very early there. affordable obviously, online and also that near one Writing, so grown, that market at an And And services see. see we the about we those to originally expert that building them built We has they’re particularly team of expected the a can been performing have

So, to Andy you as be other let and it I And I’ll around relates detail. that over of reversed. think revenue, versus it’s used sub-growth it the sort to to question way give

Andrew Brown

take when look the Yes, remind and revenue seen at the you years, because sub-growth -- not not that based. variances all the you a revenue have versus few over I think revenue between subscription in everybody, If look we’ve of last the growth, growth, actually sub-growth Chegg we all Services primarily

that. So, we XX% that. Chegg would -- revenue be growth variances growth least between about our we’ve even and that at and subscriber of see the for and very growth subscription plus longer But that years there anticipate term we’re we’ve will seen we would talked services, model confident see quarters between

Henry Chien

Got it.

much that of how contribute just to Or impact products or expectations of Okay. new how much That you're assuming in makes contribution rate your terms for are XXXX? -- the And any growth curious, in products? from any new to expecting sense. or XXXX, you the

Daniel Rosensweig

Yes, the we’re no anticipating not from new -- we're little to products. contribution anticipating

Study, XXXX think we mentioned we key look and is our Tutors beyond. growth. think this XXXX, the Chegg at XXXX products, those are So, you about you When and really the investments, Chegg growth think of in the that earlier. at will drivers When math, look the I’ve Writing, Careers, much drivers think I for when newer about contribute the

Henry Chien

it. Got

so you Thank Okay. much.

Andrew Brown

more one coming an in predictable, majority been now of businesses way of time, a it’s But businesses from the our benefits hard and it's act lot work. or just great of having subscription to it’s much is that a that revenue exciting

feedback. we but So the appreciate all --

Operator

the the call session. Ladies would like remarks. I closing question-and-answer end to we Rosensweig reached back over Dan now the turn to gentlemen, for and have of

Daniel Rosensweig

for call. So joining thanks, everybody our

high that out mirroring the they better, what results subjects be that education learn, the is financial believe we to apply serving all learning, smallest you in Chegg be the is feel industry if do, committed a have the company platform, gone not things and all-digital that laid they computer As incredibly In A.I. need of an the and that the Internet is which from learning hope a on the to see, an can comfortable and incredible technology student we four need way years inexpensively, last company those on-demand that several and should and education. but has available quality, to are vision modern to team. to the and because in change driving in years, ago, we based they will to need we be in

you look joining sets the our for Thank and very of thank us people for up after next a much them. and night all day outcome and students, improve the quarter’s of XXXX, to over you phenomenal we world working just And I Our it's been forward to up are call. earnings. congratulate the all want all who a to catching great and year-to-date with

Operator

This concludes conference. today's

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

Chegg (CHGG) 30 Oct 172017 Q3 Earnings call transcript