CHEGG, INC Q3 FY2025 earnings call

• The company split into 2 units: Chegg Skilling (growth business, expected sustainable double-digit growth) and legacy academic services (focus on generating cash).
• Restructured to address AI impact and traffic loss, reducing non-GAAP operating expenses by 46% Y/Y. Chegg Skilling is positioned as a larger, more profitable B2B SaaS business, ending 2025 with strong momentum, expecting 14% Y/Y growth and $70 million full-year revenue.
• Legacy academic services affected by traffic loss but has high-quality product with 90% of questions in its database, expected to generate cash for several years, and is transitioning to B2B.

In the third quarter, total revenue was $78 million, a decrease of 42% year-over-year. Non-GAAP operating expenses were $49 million, a reduction of approximately $41 million or 46% year-over-year. Third quarter adjusted EBITDA was $13 million, representing a margin of 17%. The skilling business (Busuu and Chegg Skills) is expected to have $18 million of revenue in Q4, an increase of 14% year-over-year. Total revenue for Q4 is expected to be between $70 million and $72 million, gross margin in the range of 57% to 58%, and adjusted EBITDA between $10 million and $11 million.

• Q4 total revenue expected to be $70 million to $72 million, with skilling revenue at $18 million (14% Y/Y growth).
• Aim to reduce non-GAAP expenses to under $250 million by 2026. 2025 CapEx expected at approximately $27 million, with targeted 60% reduction in 2026 while maintaining high-quality experience.
• Expect to generate meaningful free cash flow in 2026, though temporarily affected by $15 million to $19 million in cash expenditures for employee transition and severance costs.

• Impact of AI leading to 50% drop in Google traffic affecting legacy business.
• Restructuring impact on a large number of employees.
• Dependence on singular channels for skilling business, such as the reliance on Guild, with a need to develop other distribution channels.

Q: Talk through strategic product priorities for skilling and resource allocation across legacy and skilling.

A: All growth resources go to skilling. Legacy focuses on generating cash. Skilling targets frontline workers, language learning, and AI-related skills.

Q: What support for legacy academic business?

A: Legacy has high-quality product with 90% of questions in database, expected to generate cash for several years, and is transitioning to B2B.

Q: Skilling channels and traffic headwinds?

A: Working on new partnerships, building B2B sales force. Skilling not affected by legacy traffic headwinds as it's focused on growth.