Chegg Inc is an American educational services company. The Chegg platform provides products and services to support learners with their academic course materials, as well as their career and personal skills development. The company's service and product offerings fall into two categories: Subscription Services, which encompasses Chegg Study Pack, Chegg Study, Chegg Writing, Chegg Math, and Busuu offerings that can be accessed internationally through the company's websites and on mobile devices, and Skills and Other, which encompasses skills, advertising services, print textbooks, and eTextbooks offerings.
Performance Overview
Chegg Inc (CHGG, Financial) reported total net revenues of $163.1 million for Q2 2024, surpassing the analyst estimate of $159.98 million. However, this represents an 11% decrease year-over-year. The company also reported a net loss of $616.9 million, significantly impacted by a $481.5 million non-cash impairment charge.
Subscription Services revenues were $146.8 million, also down 11% year-over-year, with 4.4 million subscribers, a 9% decrease from the previous year. Despite these declines, Chegg's gross margin remained strong at 72%, with a non-GAAP gross margin of 75%.
Financial Achievements and Challenges
Chegg's adjusted EBITDA for Q2 2024 was $44.1 million, reflecting a margin of 27%. This exceeded the company's guidance due to better-than-anticipated revenue and ongoing expense management. Non-GAAP net income was $26.5 million.
Despite the positive EBITDA, Chegg faced significant challenges, including a substantial impairment charge and a large discrete item in its income tax provision. The impairment charge was due to continued industry pressure and declines in market capitalization, resulting in a $481.5 million non-cash impairment charge on goodwill, intangible assets, and property & equipment.
Key Financial Metrics
| Metric | Q2 2024 | Q2 2023 |
|---|---|---|
| Total Net Revenues | $163.1 million | $182.9 million |
| Subscription Services Revenues | $146.8 million | $165.0 million |
| Gross Margin | 72% | 74% |
| Net Loss | ($616.9 million) | $24.6 million |
| Adjusted EBITDA | $44.1 million | $59.8 million |
Income Statement Highlights
Chegg's total operating expenses for Q2 2024 were $602.7 million, a significant increase from $154.1 million in Q2 2023, primarily due to the impairment charge. The company's loss from operations was $485.0 million, compared to a loss of $18.7 million in the same period last year.
Interest expense, net, was $651,000, while other income, net, was $7.1 million. The provision for income taxes was $138.3 million, resulting in a net loss of $616.9 million for the quarter.
Balance Sheet and Cash Flow
As of June 30, 2024, Chegg had cash and investments totaling $605 million, with a net cash balance of $4.5 million. Free cash flow was negative $3.6 million, driven by severance payments related to restructuring and an increase in net working capital.
Capital expenditures were $17.8 million, with $13 million allocated to content costs, which were down 7% year-over-year despite a 74% increase in the number of questions asked by students.
Business Outlook
For Q3 2024, Chegg expects total net revenues to be in the range of $133 million to $135 million, with Subscription Services revenues between $116 million and $118 million. The company anticipates a gross margin between 67% and 68% and adjusted EBITDA in the range of $19 million to $21 million.
Commentary
"Q2 has been transformational for Chegg, completing our restructure, outlining an exciting vision for the future, and completing the rollout of conversational instruction capability and automated solutions just in time for the back-to-school season," said Nathan Schultz, Chief Executive Officer & President of Chegg, Inc.
"We exceeded our Q2 guidance on both revenue and adjusted EBITDA and our balance sheet remains healthy," added David Longo, CFO of Chegg, Inc.
For more detailed information, please refer to Chegg Inc's 8-K filing.
Explore the complete 8-K earnings release (here) from Chegg Inc for further details.
