CHGG - Earnings call transcript Q2 2024

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Operator

Greetings, and welcome to Chegg, Inc.

Second Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tracey Ford, thank you.

You may begin.

Tracey Ford

Good afternoon. Thank you for joining Chegg's Second Quarter 2024 Conference Call. Nathan Officer. and are Longo, and call Financial Chief today's Schultz, CEO; President David On of earnings Relations copy available is of A our call on available investor with this on presentation, our our website. our also Investor will website, replay press investor.chegg.com. A be release, along We information website on and important to make routinely on at our chegg.com/mediacenter. post announcements media our intend center website use to encourage make of these you We resources.

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

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

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over turn to the I Nathan. call will Now

Nathan Schultz

students for thanks role at allows build Earnings unparalleled more ago, organization, afternoon, very I've endeavor faster, long In in days effort Thank will a restructuring how I'm which adjusted everyone, so goals to and of you, a joining remain our free CEO investments and our plus proud $XX learning for assuming Call. make in for leaner, million Quarter create cash us non-GAAP of to Chegg's to and XX% Tracey. the XXXX, to efficient significant the allowed XX Good and has term. range up million team's million Second Since $XXX shows move platform. spearheaded $XX an expense restructuring to smarter the of least generate savings flow. program and our to margin committed EBITDA us Chegg

new vision student supports one Additionally, academic XXX of to whole we individualized platform have degrees product outlined the from evolve study that to solutions-based functional and support. a a Chegg with

Our are bring experiences to and the vision talented teams hard life. that products our at building work new

However, with let's QX. start

For QX, in million $XXX.X guidance revenue EBITDA. $XX.X exceeded adjusted in million and we delivering our

and capability the AI instructional season. several programs, upcoming back-to-school solutions, Chegg automated of foundational integrate completing to continue in rollout We the most into importantly, complete for all time Study, conversational

As engagement. trends. like I'd a positive reception result, we as specifically call an out demonstrated X are increase in to by seeing student exciting

instruction. First, engaging subscribers XX% conversational are of in

whopping HX which is increase. year-over-year students asked year-over-year versus Second, are questions. XXXX. a increased by QX asking students questions XX.X XX% 'XX more alone, questions, students million number in of The asked And XXX%

getting product the QX, with are pleased we in started. implemented While we've advancements only

our in innovations leverage that on the shift sites ourselves. generational both are fixed key we which technology in Our differentiators find

-- X minutes few to differentiators. key highlighting which, of X I would like Speaking spend of a

modern how and with user to create learn than students' we needs, student to reflect work into motivations applied and to experience. verticalized decade studying obsessed evolve the We With learning to a experience consistently team science First, from in-house students behaviors, an our insights more we a best. are students. of deep services align

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goal last differentiators start making is the everywhere in us future built for we by drive and positioned we will technology success have headfirst current and as delivered AI. road shift map execute Additionally, decade are. The have through students over the and on ushered Chrome services sure our generational test product extensions, into the our we Discord of to with Chegg

that examples of by rather to take foundation our AI. education mission have built. by you education the AI through With Our build is like support student not I to some to outcomes, we from architecture would delivering in mind, enhanced AI but

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Second, To learning subject our of deliver content takes language foundational symbolic multisource experts learning evolving our fully to Orchestrator innovative proprietary AI architecture our intelligently a approach, ground-breaking and models, vision catalog agnostic to content have possible. industry-leading math proprietary the with deep sophisticated, and computational source our student. realize for and an the built best our solutions selects levering we models, best that engine, matter each our integrating assist approach

and Orchestrator paramount. as using think controller. remain Using approach, quality You an this accuracy can of the air-traffic

developed Chegg will maintaining inevitably advantage the any quality to this while rubric foundational of content possible assesses sources As models. innovations proprietary has that create language our that models brand. such, we have believe enables take that a quality We built all and future

produce innovative driver solutions content always, to our per with As a we quality cost Today, higher creating acquisition scale And human the flywheel. students are know, have of at approach content versus developed now as unit creation mind. reduction we The more XX% lower you in at servicing cost. bottom at alone. is our and primary line we is

I partnership for over want expect regarding talk to to I exciting David, as get a what in we as it turn briefly an set back-to-school product well QX as rush. Before about innovation you can

be approach side, we are innovations. implementing of to product testing will well global a fall, iterative we the product our variety in development. This On underway

is we the simply they're to issue address This not midterm on of have whole feature an an meant writing to whether introduces the important to paper. a standing start, learning Chegg students to Point, a internally for journey. way As example, where knowing which students developed common Starting or referred a for a new leverage

notes developed and X the Point, and Starting to that students new we've tools. them addition turns keeps into track on In organizes applications, that study students' X another

As products support. that Q&A beginning XXX platform into evolution to X to through delivers degrees student we Chegg the from of are get hands iterative of you more development, a see

the On will we of Mexico front, September. the a experience be launching fully by end international localized in

user Study to key localization requirements the of Our meet experience and end-to-end Chegg strategy cultural, markets. international linguistic adapts

our As international market, localization growth that We excited fully about as playbook Mexico first the future opportunities provides. remain expansion will efforts. for the serve localized

X I with subscribers and as of perks a accomplished plan announce others steady streaming the execute partners, through partnership be I'm that way series of library take the Finally, scale Chegg services. thoughtful that will Calm, and of built and that beloved deep off our Tinder, expanding knowledge program of our students our access be vision well students, and value love. With of the a blockbuster it continue U.S. and to original know delivers global a whole durable that, leading quality AI Max through include as we closing, which execution excited Perks to growth. a to company subscription. In our with and student, believe joined exclusive will for to Chegg strategy over our a brand enrich our a and DoorDash, of the time will serve Max back David. differentiators, to our will turn movies implementation unique content The including foundation Max, now other return that able to to building will TV ads. we we're

David Longo

our on experiences the Nathan. progress remain to solid delivering adjusted over I believe healthy. AI-driven QX our We execute quarter new on you, remains will maintain on EBITDA and to Today, our a financial Thank and sheet metrics, focused continued QX. QX we growth made outlook our of revenue our management We will around and and world, adjusted present quarter. second the EBITDA expense both students for profitability. time and performance XXXX revenue for to which key exceeded both support guidance was prudent strong balance

into committed Shareholder key would sharing jump understand and we quarter, the the metrics assist I to related the company. the our in model Before to to investors results restructuring, of Letter that

website understand are metrics on our the These business. presentation we relations earnings metrics QX. review and trends key Our includes to for these of investor the health our

Total revenue $XXX Moving down including in year we year-over-year, to X.X our driven XX a quarter promotional was Subscription Overall, was million. of $XXX and to strong by points was retention down decrease million Services last second million, year-over-year. conversion which year-over-year, Other $XX year-over-year. with revenue was was retention. basis for XX% Skills Study pricing had subscribers we monthly international. up of bolster Chegg primarily subscription from services Pack and remained the and revenue XX% the ARPU X% performance, international on coming quarter, and introduced Study million, X%

above is of as management expense better-than-anticipated navigate to This to revenue of growth. profitability our quarter path represented as margin as cash guidance we $XX back adjusted EBITDA XX%. ongoing and well the Second preserve the to due a flows million

a EBITDA and our full a income be impairment until had large quarter, tax this had not XXXX. We adjusted restructuring an impact charge a specifically items the QX will planned, provision. on GAAP in financial As item few notable savings realized our minimal discrete and the

we completed of our market As impairment capitalization were of resulted continued from a and as result The property test noncash by impairment declines rules, on an and and QX our assets charges equipment. adjusted in million industry EBITDA. accounting intangible our that and $XXX.X required goodwill, test excluded in pressure

costs. $XX impacted increase impairment the the and years goodwill related severance X% U.S. of QX were necessity items. in million the in payable the in by of of $XX.X U.S. to are our to costs million allowance $X.X an QX provision. Free net federal a This addition, the million of tax with asked. negative content the largely capital accounts second deferred quarter, in which expenditures driven cash all income in increase million even our of valuation payments year-over-year were an provision income was which X the In assets, number were losses cumulative recorded timing pretax down $XXX.X flow Capital XX% state quarter, in related noncash which on working Content of restructuring is as tax in triggered the questions was now tax and we included

to we ended numbers many these the XX% margin with like Gross at $X.X adjusted million. $XX and we companies in $XXX to EBITDA $XXX million not a challenges Services XX% the to of where expect balance guidance, them range the net and and the changing $XX and million in between with investments total space, with respect to be, cash of sheet. the Looking want and we million. In million, QX revenue closing, $XXX and million are of We ed-tech million $XXX while landscape. are the dealing be quarter balance revenue Subscription of between cash $XXX million. With between

benefits. As are Nathan back to but for working implement to will see delivering vision us get detailed the before goals. financial growth, some it to to the take we time committed earlier, we the I'm your our confident that, call believe opportunity to operator team over our I Chegg, turn is We a there the questions. ahead significant for and ability in am will our I to and succeed. With

Operator

from Capital Instructions] The question Silber BMO [Operator Jeffrey first comes with Markets.

Ryan Bohren

for Ryan is on This Jeff.

that summer. about I progress you're what was through how we Chegg wondering base? initiatives of cycle enrollment to then as feeling question. poise the a recapture student the fall Just And some

Nathan Schultz

and question. thing to need for us of, out is that and 'XX, it's roll pretty to of or data overall, a understand is external look the Thanks, else, September October Obviously, 'XX we're use arrear at resources comes number of fall the Ryan, Nathan. Thanks the enrollment broader look The how kind for flat. really unfortunate enrollment on through a of to everyone at Expectations through out. about kind the a to kind like scale is as data cycle. going I of an lot we think, and I much

are a those students more headroom into internationally, we're opportunity that's and enrollment of right? So to extend have our reach the value headroom recognize that cycle, about really is of people the do So cycle, of we where our us. we not, freshmen prop how the and do how when current are we brands, the putting think into of I lot in a really we but change focused get lot on domestically,

as about could remarks, students getting Big think ourselves congregating, talked on-campus marketing and you and the where I are that the Steps be platforms going students or Instagram, platforms, on about for prepared our Discord. Small to if like campaign Chegg the to So onto we're TikTok, getting have use in directly Wins probably

can of sure as making we're is funnel we possible onto many to to that and about as relevant as as top the goal get think platform. students Our

Ryan Bohren

just embedding terms the then assumptions in new light on very started guidance? I That's helpful. that guide, of there was disclosing, in follow-up, give what the metrics on you're you And Great. just color my for any line. curious you of can in top the XQ

Nathan Schultz

bit be specific on you a more that? Can

Ryan Bohren

growth, in I apologize. I is top what terms of guidance? of in kind Yes. meant just embedded and XQ retention line subscriber the

David Longo

of over you question. the first the Understood. guidance. done Okay. the quarter us It of Thank blind it's taken to we of QX But what spot, business a trajectory is and the bit last predict. half the we've extended. a for we've building were When a the toughest year for is --

the with and model. we've and at that's enrollments, seen new the that business And to the retention seeing we're customer So that relative then the we continued why rates, being that seen baked we've down year, the you've subscriber into year-over-year, acquisitions are. last rates guide where we

got what had we've some on to work do, really So it's we've visibility year-to-date. based the but

Operator

with next The Bryan comes question from Smilek JPMorgan.

Bryan Smilek

more the and I features in subs recently? pressure your more guess recently? any as guide, around of with and them. that seen industry with top we then about you can think conversational seen now consumer you just the any improvements XQ I XX% out you've to Have softness funnel of And about rolled on elaborate the guess, start just engaging perhaps comments

Nathan Schultz

got Around That's a the for feature. out right actually that's for rolled back-to-school the Okay. now season. conversational in instruction, time subscriber we've

Chegg. I as it's we And going kind around of of a us quarter. to on top funnel that be Wins That's to convert, launch why look see do that on to ourselves get 'XX kind that to into continue into push are students more members' but people seeing a Steps, with subscribers build and really relationship of you helps That's us park spirit create over into renewed with to So potentially we and out the accounts, engaged on as hope on marketing, more conversational our program. the going Big get ways get for driver. an as we with side. do of harder also hands you marketing in dovetailing Small we're us itself innovative experiments, coming less new our not which

David Longo

this And David. is Yes.

So comment industry on was the the I goodwill think the on the impairment. revenue, to pressures specific

top revenue necessarily line a so impairment. didn't from draw goodwill the And straight to we the line

Operator

The from Sachs. Sheridan Goldman next with question is Eric

Eric Sheridan

a you factors AI of lot deeper sort into you restructuring about into those in should well to in countervailing talked be want with some at, as and side about investments the investments as, 'XX, operating put deck or in 'XX. standpoint the guess to about to then 'XX the get yield going how on I'm you it proprietary the you're interacts the of trying other think a think from product leverage eventual the that efforts when get we trying of have and potential a as what how the You of flow build and then evolution for to to start output made what margin I slide place platform stack. that technology some from

David Longo

Yes. David. This is

the As June, that that margin and going XXX% are order of into investments was his and outlined need experience of programs we we've has it -- out vision, the next to we to Nathan in flow. kicked the of build $XX going to shortchange we adjusted as towards taken make. we that off the of for XX% that million business Those restructuring, get free $XX that guiding million cash P&L product non-GAAP year really a consideration to EBIT done during savings. certainly Those of in expenses we're taking to light the referred the need the not to

is doing of we're replatforming back-office functions. that stuff the of Some some our

that us those. season the we've next this And for goal. for So need we'll year will so scenarios how bunch out, different realizing in through the a as have towards can then of of comes ready plays year, the in we will fully enrollment the year to baked half expenses get start operationalize that back we

make that of there. of investments shortchange we to could to we Hopefully, get needing which but helps. we the foresee would ourselves have to none So that a happen need outcomes range

Operator

from with question Josh is The Morgan Baer next Stanley.

Josh Baer

you I little provide down. quarters step the hoping guide was color extra bit in year, guide. the I implies is point low far as a EBITDA know margin big think seasonally, on could pretty as of a the I a it's XX%, QX which but

anything if wondering highlight there's Just there? else to

David Longo

the restructuring quarter those definitely And year. for roughest fully would doing, about the pretty of we the those the we're that really utilize talked technology, that just -- Josh, P&L not it big us. in, quicker. Yes. offices, some work us mentioned But have through for entirety coal replatforming it's kicked through way initially, bit some have throughout those plays the we and -- P&L. And the guided distraction a really base stuff items, of of year. thought we -- will next a little cost fully fixed while the to initially When the take materialize a through efforts our closing their

it So the big of lean that the through for that. year. the until really gives But ones end us to one the time costs take us that office transition comes year. won't fixed happen next to align closures, and down us out and while restructure It a of some -- the to us for

Josh Baer

does in If top that free lighter cash take $XXX a kind fixed Got base cash in order those your XXXX in and million comments, further XX% when line XX% free least action some and some million that EBITDA you flow. in cost it. of the the just around Okay. EBITDA mean then you'll flow? the the of defend for of considering $XXX And comes out to follow-up margin, at look targets expectations, to than

David Longo

right. That's

doesn't into mentioned the We top adjustments we headroom some I a isn't get to as how 'XX, And we're line, into scenarios shakes and necessary with of take visibility then We in question, top XXXX. of subscribers is recalibrate and lot the the the from model actively towards prior X there. some gave a for to get time as throughout just target business ourselves things we'll that many case -- into the was we steps those would entering we then go. by certainly we'll the in target 'XX numbers make leading how 'XX. out -- but and sort -- We'll forget. year static, -- the it's that to the can have So bunch the that the how can more of beginning set and there. as get line But not we manage run, there materialize we've to

Operator

from is Needham Ryan next Company. MacDonald The question with &

Ryan MacDonald

could It down relative quarter saw in past if second was you the and seems a the to I step step sort count larger wondering QX. bit expand of from years upon of sort seasonally year? you QX bit a we the subscriber like look past? at when a down to sort in Can you your just about year any QX this guiding second And relative that's to talk years behaviors to this behavior thoughts of were user changes of if half or QX. there about how subscriber of

David Longo

Yes, is this David.

those, the functionality the before with subscription refill and funnel churn period then refill entering of you number I math add just out, think that that subscribers of got subscribers. a certain we've you to about each when that as base. it's talked to And it

Nathan Schultz

quarters, I'll as the the rate couple add is that of guys is to last what we fully on description the not treating what for we're today. that conversion math, for that have mentioned reacted David we over

we've got investment times on get We've for call, very we some now believe, value the a to And to now. to of rebuild about to But towards the but it get in tough the going We have building time we talked right upcoming path of necessary, marketing got it's we're couple done. It's props kids we're that us them future. treading back got in plan, line to provide vision the we get take top about the and as program right that funnel. to team, product and the just well excited with we've and with semester, the we've predict. a as that stronger We're starting product outlined funnel, a vision. We're that top researched acquire. X

Ryan MacDonald

a as Maybe color. Helpful follow-up.

the think Mexico How this of at On now the XXXX the out additional as X pace of we or move into great localizations going international localizations and being of that sort end we think rolled September the rollout, about first localized about in end to fully have full should September. the to of you're the here? the by app see out

Nathan Schultz

Great of Mexico. Great. one. we've which Good the and Australia, times, South us Korea is on really first we're to key Canada, all Mexico talked down a about United markets, Turkey, question. X that remind of hunkering couple Kingdom,

to clear, on we're as Just to first, then be fully and localizing web natively well. up push the continue we'll

So will stuff this fully user the for more all The is cultural functions. September obviously, done. both we experiences be happening That's and year. then us build first, linguistic experience to that localization as we continue continue with

based you South other So this and to countries or you see half Korea in performance, the out localize guys conversion either done have We've continue Mexico continue past. the second Turkey add marketing funnels what figure the in on to stuff already to back on at the to got we'll experiences. funnels in want on speed

then to So approach take is how capabilities. can certainty this we terms really to playbook is it where a in a this out. -- get want localization an We a and full Mexico of with up step defined roll

Operator

does answer Ryan, your question? that

Ryan MacDonald

Yes.

Operator

next question James. Brian from Raymond The with Peterson is

Jessica Wang

on Jessica This Brian. is for

on marketing have just how following and plan? your that see a strategy how a that I like earlier your is to you influencing question. aspect So bit restructuring little an Do and know you the about there? company up want international influences workforce

Nathan Schultz

think heard in plan workforce... A little but choppy, a I restructuring I

Jessica Wang

has the you for there? outreach influenced strategy restructuring I want your workforce exactly bit to how have the just a and double click international little on

Nathan Schultz

speak our workforce. domestically me first Let

restructuring. important it's think after I

to of to the talent internationally, the something of is be high-level, our platforms we're curriculum, lot of key and doing, a our Chegg. Obviously, between largest gained demonstrate the and into the efficacious X putting technology, and with applying student the that in is sure reason continue and here innovations why high-value technology employees by ton on first at intersection apply and best and initiatives see pretty methodology world to that's top construction this make of One can to put to people a sits domestically to so we amazing of International, we drives presents at continue indebted both platform. better. that mission Chegg, believe we're we single retain what at to to it continue a honestly X will continue our the Whether of results that get the education

Jessica Wang

kind and Great. as evolution how in the to competitive a question against? you Are influence this competing also, your you is of develop out has players you're roll market? AI And continue follow-up platform, your position seeing

Nathan Schultz

important the a when we best is really apply remarks, to possibly that how we're that that trying can. students. students education. do think support apply in in my will make I just education for What's to about really We're we AI way this as AI not to AI prepared said trying way makes better

what from And proprietary not it's it's other of the point set, some competitive models on we a But do from foundational my out models, it's is our can pushing the the apply expanding hands so both is or own we that no, how prop whether it's clearing can into at and derived leverage where coming really really the the how getting the And enhances AI, out education really we value really it. of way is we that, sit students. Once out value from we're all what it's of combination innovations are we're about that students. is that value AI do on in focused be contracted a of that have

Operator

question The KeyBanc Devin from Capital is Au Markets. with next

Devin Au

XX%. the in I I wanted of but in rolling guys like only around the know just curious data, subscription how added ask a near level some between term? U.S. the we are price if the and should out more localization but think U.S. services disclosures. and quarter price of I international that? the X like about gap testing efforts and seems Mexico U.S., that you're in doing is acknowledge is level that international. it's in between differential really XX% price that sustainable to Just It X, you also the I about appreciate ARPU

David Longo

excuse of after. Yes. compared parity the gained But And purchasing at geos fit customers our yes, thankfully, get our even we Devin, historically David. ARPU. better that product at AI, points the the serve U.S. the price in U.S. solutions traction better ARPU Also our retention international in found we going it's I that we the international we U.S., as because and will automated have promotional a as absolutely better better with see conversion lower X in still think definitely rollout lower bringing lower the last we're ARPU we those and profitably do versus dollar. And pricing market to levels, in did -- power can integration year, we a further of U.S. lower me,

a double longer, get international. customers seen paying a have whammy point in it's there price than So you what we historically staying higher where

Operator

There are at today's you. time. no further teleconference. concludes This questions Thank this

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

Chegg (CHGG) 5 Aug 242024 Q2 Earnings call transcript