Chegg Q1 2025 Earnings Report

Chegg EPS Results

• Actual EPS: N/A
• Consensus EPS: $0.01
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Chegg Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $114.77 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Chegg Announcement Details

• Quarter: Q1 2025
• Date: 5/12/2025
• Time: Before Market Opens
• Conference Call Date: Monday, May 12, 2025
• Conference Call Time: 8:00AM ET

Chegg (NYSE:CHGG) is an education technology company that offers a range of digital learning tools and services designed to support students through their academic journeys. The company’s platform connects learners with essential resources, including textbook rentals, digital solutions, and expert guidance. By leveraging subscription-based models, Chegg aims to deliver on-demand academic assistance that complements traditional classroom instruction.

Founded in 2005 as Cheggpost by Illinois Institute of Technology graduates, the company initially focused on renting and selling college textbooks. Over time, Chegg broadened its scope to embrace a comprehensive suite of online education services. A pivotal shift occurred in the early 2010s as Chegg transitioned from a textbook-centric business to a multi-faceted digital platform, culminating in its public debut in 2013.

Today, Chegg’s offerings encompass Chegg Study—providing step-by-step solutions to textbook problems—and Chegg Writing, which includes plagiarism detection and citation tools. The platform also features Chegg Tutors for live tutoring sessions, Chegg Math Solver for problem-solving assistance, and Internship search services that connect students with potential employers. By integrating these services, the company addresses diverse learning needs, from homework support and writing improvement to career preparation.

Headquartered in Santa Clara, California, Chegg primarily serves students in the United States and Canada, while also attracting an international user base. Under the leadership of President and CEO Dan Rosensweig, who joined the company in 2010, Chegg has pursued strategic partnerships and technology investments to enhance its platform’s functionality. The executive team continues to prioritize innovation in the online education sector, positioning Chegg as a key player in digital learning solutions.

Chegg Q1 2025 Earnings Call Transcript

Key Takeaways

• Chegg exceeded its Q1 revenue and adjusted EBITDA guidance, generated $16 million in free cash flow, and expanded institutional pilots from 5 to 15 (targeting 40 by year end) while signing two initial content licensing agreements with language model companies.
• The company’s strategic alternatives process with Goldman Sachs is underway, having held dozens of meetings with strategic and private equity firms, and early feedback indicates positive valuations.
• Busuu achieved 7% year-over-year revenue growth in Q1—driven by AI-enhanced B2C engagement and 29% growth in B2B—and is forecast to reach $48 million in 2025 revenue with adjusted EBITDA positivity by Q1 2026.
• Chegg Skills is gaining traction through pilots with Edify and Noodle in India, planning further Guild expansions in Q2/Q3, and is on track for profitability and positive revenue growth in 2026.
• Despite strong initiatives, Q1 revenue fell 30% YoY with a 31% decline in subscribers amid competitive AI-driven traffic pressures, prompting a 22% headcount reduction and $45–55 million of cost savings in 2025.

Presentation

[Operator]

Greetings, and welcome to the Chegg First Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Tracy Ford, Vice President, Investor Relations for Chegg. Thank you. You may begin.

[Tracey Ford, Vice President-Investor Relations at Chegg]

Good morning. Thank you for joining Chegg's first quarter twenty twenty five conference call. On today's call are Nathan Schultz, President and CEO and David Longo, Chief Financial Officer. A copy of our earnings release along with our investor presentation is available on our Investor Relations website, investor.chegg.com. A replay of this call will also be available on our website.

[Tracey Ford, Vice President-Investor Relations at Chegg]

We routinely post information on our website and intend to make important announcements on our media center website at chegg.com/mediacenter. We encourage you to make use of these resources. Before we begin, I would like to point out that during the course of this call, we will make forward looking statements regarding future events, including the future financial and operating performance of the company. These forward looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. We caution you to consider the important factors that could cause actual results to differ materially from those in the forward looking statements.

[Tracey Ford, Vice President-Investor Relations at Chegg]

In particular, we refer you to the cautionary language included in today's earnings release and the risk factors described in Chegg's Annual Report on Form 10 ks for the year ended 12/31/2024, filed with the Securities and Exchange Commission on 02/24/2025, as well as our other filings with the SEC. Any forward looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non GAAP financial measures. Our GAAP results and GAAP to non GAAP reconciliations can be found in our earnings press release on the investor slide deck found on our IR website, investor.chegg.com.

[Tracey Ford, Vice President-Investor Relations at Chegg]

We also recommend you review the investor datasheet, which is also posted on our IR website. Now I will turn the call over to Nathan.

[Nathan Schultz, President & CEO at Chegg]

Thank you, Tracy. Hello, everyone, and thank you for joining Chegg's first quarter twenty twenty five earnings call. Q1 was a good quarter for Chegg. We surpassed our revenue and adjusted EBITDA guidance, generating approximately 16,000,000 in free cash flow and diversified our revenue in two key ways. First, the expansion of our business institution effort, which has expanded from five pilots to 15 pilots from Q4 to Q1 is well on track to reach our goal of 40 by the end of the year.

[Nathan Schultz, President & CEO at Chegg]

Second, licensing our question and answer payers to language model companies. We signed two agreements and believe this is just the tip of the iceberg for this program. David will address the financial details of these deals. Concerning our strategic review process, we made significant progress. As a reminder, we undertook this effort last quarter with Goldman Sachs to explore the range of outcomes to maximize shareholder value, including being acquired, undertaking a go private transaction or remaining a public standalone company and continue to believe this is the right step to maximize shareholder value.

[Nathan Schultz, President & CEO at Chegg]

To date, we've had dozens of meetings with interested parties ranging from strategic tech and education companies to private equity firms. Early indications are positive and we are encouraged by the conversations and the value these organizations see in our business. Here's what's capturing potential acquirers attention. First is our core product Chegg Study, a verticalized and personalized student support platform. As you may have seen, we keep innovating on the behalf of students with a recently released Solution Scout, which allows students to compare multiple language models against Chegg's proprietary content.

[Nathan Schultz, President & CEO at Chegg]

And our practice service now has a new AI powered feature called Create that empowers students to generate customized content directly from their own class materials, delivering a highly customized and personalized study experience. Next is Busuu, our language learning service, which continues to perform very well. Q1 revenue increased 7% year over year, driven by growth in both the B2C and B2B businesses. The B2C business is seeing the benefits of AI driven product enhancements such as speaking practice, which is driving deep engagement and strong performance in customer acquisition and retention. The B2B business maintained strong double digit growth in Q1 achieving 29% year over year revenue increase driven by a strategic focus on retaining and growing large enterprise clients.

[Nathan Schultz, President & CEO at Chegg]

We expect Busuu to achieve approximately 48,000,000 in revenue in 2025 and to be adjusted EBITDA positive by the first quarter of twenty twenty six. Our reinvented skills product is set up for what I believe will be a breakout year in 2025. Chegg Skills provides skill building for the modern workforce, including foundational digital skilling and broad based AI training and is trending toward the highest outcomes we've seen to date. In Q1, we entered into a pilot program with Edify online and Noodle to provide AI programs that support a higher education initiative in India. In Q2 and Q3, we expect to further expand our Guild business and add additional partners.

[Nathan Schultz, President & CEO at Chegg]

We believe that Skills is on a path to profitability and positive revenue growth in 2026. And finally, there's significant value in our library of proprietary and high quality questions and answer pairs and our network of subject matter experts. We continue to make improvements in our content operations with a new quality control rubric as we prepare for the content licensing opportunity I mentioned earlier. As we have said many times, content is the heart and soul of our Chegg Study business and these improvements in our QC Rubric will serve both students and our new content licensing initiative. While we exceeded expectations in Q1 and see great value in the areas of the business I just went through, we believe the macroeconomic trends will continue to put pressure on our company and business trends will worsen before they get better.

[Nathan Schultz, President & CEO at Chegg]

Google and their expansion of AI overviews continues to keep traffic traffic captive in the Google search experience and migrate search to Gemini. Additionally, language model companies are turning to academia for validation with OpenAI recently giving college students free access to GPT plus and Anthropic launching a free education offering. As a result, we are once again taking proactive measures to align costs with our business outlook. We executed two restructurings in 2024 and today we are announcing further cost reduction plans. This restructuring will include expense reductions across our business, including closing physical offices in The U.

[Nathan Schultz, President & CEO at Chegg]

S. And Canada by the end of the year, limiting our upper funnel marketing, reducing new product development efforts and finally cutting our general and administrative expenses. Chegg Skills and Busuu are not affected as we are encouraged by the progress these businesses have made and we are investing in their growth. As a part of this, we regrettably will be parting ways with approximately 22% or two forty eight of our talented team members, which is a challenging decision and one I'm saddened by. The impact is concentrated in The US and Canada and predominantly affects Chegg Study and Corporate Services, which will result in a 66% reduction in these areas of our business.

[Nathan Schultz, President & CEO at Chegg]

The actions today will drive 45,000,000 to 55,000,000 in savings in 2025 with full year savings of 100 to 110,000,000 in 2026. This is on top of the 120,000,000 of 2025 savings we are on track to fully realize from our 02/2024 restructuring initiatives. These decisions continue to be challenging and we do not make them lightly. I wanna personally thank each talented team member for their contributions to Chegg. To conclude, I wanna reinforce the key points for what I shared today.

[Nathan Schultz, President & CEO at Chegg]

Our strategic alternatives process is going well and is the best way to maximize shareholder value and keep Chegg's student first mission thriving. We believe the strategy for Chegg Study providing true learning outcomes for students is enduring. And while our direct to student penetration normalizes, we're diversifying our revenue through two key opportunities in question and answer pair licensing and institutional direct contracts. We continue to make the hard decisions to align our revenue decline and take steady with our operating expenses as challenging as they are. And finally, we excited about the performance of Busuu and the opportunity for skills, both of which are prime for a breakout year and expected to be adjusted EBITDA positive in 2026. With that, I'll turn it over to David.

[David Longo, CFO at Chegg]

Thank you, Nathan, and good afternoon. Today, I will be presenting our financial performance for the first quarter of twenty twenty five, along with the company's outlook for the second quarter. We delivered a good first quarter, surpassing our guidance on both revenue and adjusted EBITDA and generated $16,000,000 in free cash flow. Despite ongoing industry headwinds, we remain committed to our student first strategy and prudent cost management in line with our business outlook. As part of this commitment, we announced a restructuring today, which I will elaborate on shortly.

[David Longo, CFO at Chegg]

Additionally, during the quarter, we took further steps to enhance our capital structure by repurchasing $65,000,000 of our 2026 convertible notes at a discount. In the first quarter, total revenue was $121,000,000 a decrease of 30% year over year. This includes subscription services revenue of $108,000,000 We had 3,200,000 subscribers during the quarter, representing a year over year decline of 31%. Skills and other revenue was $14,000,000 in the quarter, which includes our new revenue stream from content licensing. So far, we have executed two content licensing deals with two of the top 10 technology companies in the world, generating $4,000,000 of revenue in Q1, and we expect an additional $7,000,000 in Q2.

[David Longo, CFO at Chegg]

These deals represent less than 5% of our content library and are nonexclusive, allowing us the opportunity to license the content to other companies. We are in discussion with other companies to expand licensing efforts even further. In the first quarter, gross margin was 56%. During the quarter, we streamlined our product offerings and discontinued certain content and internal use software assets, resulting in a onetime charge of $16,200,000 of accelerated depreciation recorded in cost of revenues. This negatively impacted gross margin by 13 percentage points.

[David Longo, CFO at Chegg]

Non GAAP operating expenses were $80,500,000 in the quarter, a reduction of approximately $20,000,000 or 20% year over year, driven by the execution of the restructurings we announced last year. We are on track to achieve the full year savings of $120,000,000 from these actions. The complete savings would be realized throughout this year. Our first quarter adjusted EBITDA was $19,000,000 representing a margin of 16%. Free cash flow for the quarter was $15,800,000 despite incurring approximately $8,000,000 in cash outlays related to employee severance from our restructurings.

[David Longo, CFO at Chegg]

Capital expenditures for the quarter were $9,000,000 down 69% year over year as we are now fully realizing the benefits of our investments in AI. As mentioned earlier, in the first quarter, we opportunistically repurchased $65,200,000 in aggregate principal amount of our twenty twenty six convertible notes at a $7,800,000 discount to par. Our twenty twenty five convertible notes matured in March, and we repaid the full principal amount of $358,900,000 Looking at the balance sheet, we concluded the quarter with cash and investments of $126,000,000 and a net cash balance of $64,000,000 As Nathan outlined earlier, we are executing an additional restructuring plan to continue to align our cost structure with our revenue as we navigate the continued industry challenges and the negative impact on our business. This restructuring will impact two forty eight employees or approximately 22% of the company. This restructuring will result in non GAAP expense savings of 45,000,000 to $55,000,000 in 2025 and 100,000,000 to $110,000,000 in 2026, stemming from employee departures, cost rationalizations and real estate savings.

[David Longo, CFO at Chegg]

We have negotiated a penalty free agreement with our landlord to exit our Santa Clara lease prior to the expiration date as we seek a smaller office workspace. We expect to incur charges of approximately 34,000,000 to $38,000,000 related to this restructuring, representing mostly severance payments. Of this charge, we expect 31,000,000 to $35,000,000 will be incurred in cash, with the remaining amount representing noncash charges. We expect that a substantial portion of the cash and noncash charges will be incurred in the second and third quarters. We anticipate completing these activities and substantially all charges by 12/31/2025.

[David Longo, CFO at Chegg]

The cost savings from the two fully implemented restructurings announced in 2024, coupled with the restructuring announced today, will result in a combined non GAAP savings of $165,000,000 to $175,000,000 in 2025. Looking ahead, industry challenges continue to cause a notable decline in traffic and subscriber acquisitions. These conditions are a source of continued pressure on our business and are impacting our financial outlook. For Q2 guidance, we expect total revenue between 100,000,000 and $102,000,000 with the subscription services revenue between 85,000,000 and $87,000,000 gross margin to be in the range of 64% to 65% and adjusted EBITDA between $16,000,000 and $17,000,000 In closing, while ongoing industry challenges impacting Chegg's Study continue to affect our financial performance, the opportunity to support and serve students remains. We are taking the right steps to align the cost structure.

[David Longo, CFO at Chegg]

At the same time, we continue to evaluate a range of strategic alternatives to ensure we are maximizing value for our shareholders and are encouraged by the interest we have received. With that, I will turn the call over to the operator for your questions.

[Operator]

Thank Our first question comes from the line of Ryan MacDonald with Needham and Company. Please proceed with your question.

[Ryan Macdonald, Senior Analyst at Needham & Company]

Hi, thanks for taking my questions. Nathan, maybe to start, I wanted to get a little bit more color on the licensing deals that you were able to sign during the quarter. Obviously, generating some nice incremental revenue in first and second quarter here. But can you give us a sense of sort of the terms in terms of timeframe of how long these licensing agreements are typically lasting? And then how are you thinking about the total size of this licensing opportunity when you look at across all of the sort of large model companies out there that you could license this to?

[Nathan Schultz, President & CEO at Chegg]

Ryan, thanks very much for the question. Appreciate it. Let's start off by just reminding everyone what we're licensing. So, what we're talking about here is the question and answer pairs. The 125,000,000 question and answer pairs within the Chegg archive and obviously, constantly growing.

[Nathan Schultz, President & CEO at Chegg]

These are questions that are being created, obviously, through both our human and our genetic systems. They are then verified by humans, which is, you know, comes back to the question. Why is this content so interesting? As we've already talked about, we we sit on some of the highest quality created by qualified experts and trusted by millions of students data. That is very valuable to line with companies as they seek to continue to train their models.

[Nathan Schultz, President & CEO at Chegg]

We're, as David pointed out, I pointed out in my prepared remarks, we are really early days in this. We've licensed very, very, very small set of our content at the moment as we kind of just pilot, I would call pilot these agreements into some of the biggest tech companies in the world. I do think that there's a nice business model here, and we're just really just getting started with this this program.

[Ryan Macdonald, Senior Analyst at Needham & Company]

Got it. Then maybe as a follow-up, you know, great to see that the pilots with universities are continuing to grow and you've got an expected F40 by year end. You just talk about sort of what the feedback you're getting from university partners thus far and then sort of the willingness to pay and purchase the content library as a point of access for students? Thanks.

[Nathan Schultz, President & CEO at Chegg]

Yeah, absolutely. And we're very encouraging a lot of lot of growth, obviously, from Q4 last year to Q1 this year, getting up to 15 pilots and just having the momentum where we can see 40 for this year. Just good to remind everyone that what this is, is it is about institutions delivering our experience directly to the student, which we think is really great, obviously, for Chegg, but even better for students. It's done through a seat based license model. So, obviously, the schools are buying a number of seats.

[Nathan Schultz, President & CEO at Chegg]

Honestly, this is one of those areas where we just, we see the inevitable, which is schools having to spend more time think about persistence. Know, probably all know this almost 40% of students don't graduate college that causes a kind of a massive hole in tuition. So. We see this as a significant opportunity as college is simply getting to kind of zero win on student success as a means of really financial necessity. So very encouraged by what we see so far and getting getting very positive feedback from the schools looking to take some of those pilots, which will kind of run for the next few months and then turn them into full contracts.

[Ryan Macdonald, Senior Analyst at Needham & Company]

Thanks for color.

[Operator]

Thank you. Thank you. We've come to the end of our question and answer session. And this concludes our call today. We'd like to thank you for your interest and participation. You may now disconnect your lines.

Participants

Executives

• Tracey Ford, Vice President-Investor Relations
• Nathan Schultz, President & CEO
• David Longo, CFO

Analysts

• Ryan Macdonald, Senior Analyst at Needham & Company