CHEGG, INC Q4 FY2025 earnings call

• Chegg has reorganized into two business units: Chegg Skilling as the growth engine and legacy academic learning services to generate free cash flow. • Chegg Skilling had $18 million in Q4 revenue, with double-digit growth expected in 2026. • Legacy business Chegg Study serves over a million students and is focused on cash generation. • New partnerships like with DHL GI Group and Wolfe University have been announced. • Karine Alouch joined to run European language learning and skills operation. • Significant cost-cutting: non-GAAP operating expenses were $44.8 million in Q4, a 47% year-over-year reduction, and targeting total non-GAAP expenses under $250 million in 2026.

In the fourth quarter, Chegg Skilling delivered $18 million in revenue, which is positioned for double-digit growth in 2026. The legacy business, Chegg Study, had academic services revenue of $55 million. Chegg Skilling's $18 million revenue represents a portion of the overall financial performance, while the legacy business contributes $55 million.

• Q1 guidance: Expect $17.5 million to $18 million of revenue from Chegg skilling business. • Total revenue expected between $60 and $62 million in 2026. • Gross margin to be in the range of 57% to 58%. • Adjusted EBITDA between $11 million and $12 million in 2026. • Capital allocation strategy focused on optimizing free cash flow, strengthening cash position, and eliminating debt.

• Received a delisting notice from the NYSE, but has multiple avenues to regain compliance including a potential reverse stock split. • General risks related to factors that could cause actual results to differ from forward-looking statements as outlined in the earnings release and SEC filings.

Q: Great. Thanks for taking the questions, and good to see the skill in progress Daniel, can you just help us understand the key drivers of the skilling growth and focus between VUSU and other skilling credentialing areas? And then secondarily, more on the core business as well. Can you just elaborate on what you're seeing in the early price test and plan mix across the legacy business?

A: Yeah. Great questions. I just want to reverse the way we think about it, which is the core business now is skilling. So the historic business is the academic services business. Let me start with that one, and then I'll talk about the key KPIs that we look at with skilling. So we're probably about 40% through the quarter on the learning business. And it's pretty much where we talk it would be with the exception of the retention continues to be a little bit stronger than we thought. And that's very good for free cash flow generation. So what we know is when Google doesn't block our traffic or when the traffic gets through, that we continue to convert well and retention continues to actually achieve the highest levels that I've seen, not since I've been back, but even before that. So that gives us a runway to be able to reinvent that product, which we have several ideas and we're sort of excited about them of where Chegg Study can go in the future. But in the interim, the price testing the key for us is all they do a month in, which is retention. And so far, they're performing actually quite well. So you know, it's too early to declare, you know, one way or the other, but we're very pleased with the fact that retention continues to be so high. On the skilling business, so we used to be a B2C business. On whether it was Busu or whether it was on Chegg Skills. Both those businesses over the last twenty-four months have been converted into B2B businesses. Skills is exclusively B2B. And by the end of this year, Busuu will be more B2B than B2C. And so the key metrics that we're looking at are some of the things that we began to talk about, which is how do we expand the number of distribution partners that we have, and we announced one, and we expect to announce more over the course of the year, which we're excited about. And then second is how do we continue to expand the curriculum we have to sell more into the businesses or the channels that we already have. And so we'll just be focused on number of channels and expanding curriculum. And over time, we'll talk about sort of the average volume of a transaction. It's too early to do that. But at the moment, it's more channels of distribution and more curriculum to be able to sell into the existing and to the new channels. And both of those things are up to a slightly faster start than I would have expected, you know, only nine weeks back on the job. So I'm actually excited about it.

Q: Hi. Thanks for taking my questions. Daniel, maybe to ask you about the state of the skilling market. Obviously, a lot of change that's about to happen with the Coursera Udemy merger, obviously, two of the biggest players in the space. And so as I think about Chegg skilling and sort of how you gain share within the marketplace in B2B, you know, you talk about expanding the number of distribution partners, expanding the curriculum you have. What opportunities do you think present themselves from this impending merger of areas where you can look to either take mindshare from a distribution partner or expand content by bringing on maybe new content creators as this transition occurs over the next year or so?

A: Thanks. Yeah. It's a very interesting question, and that merger is sort of fascinating. In terms of how the two companies are performing. But the significant difference is they are marketplaces. For other people's content mostly and one has a B2B they both have a version of B2B and B2C. And so rather than looking at how do we how do we take share, can actually think the other way, which is can we work with them? Because our content continues to outperform the places we put it. And the definition of outperform for us is not just conversion, but completion. And renewal with those companies that are inside those channels. And we are and we mentioned it in the prepared remarks that we continue to hear from the partners that we have that we continue to outperform the other partners in the channel. And it's because we have a basis for actually teaching. That we've been able to apply over into this world. So we don't see Coursera and Udemy as competitors. We actually see them as potential partners to work with going forward. And our view is if we continue you know, if you look at how value gets created, we think it's now the person that's creating the content and can actually serve the student, educate the student, and that those businesses are gonna be more higher margin businesses. So than just the channels and distribution. So we see ourselves looking to we don't have to take share from them. We could take share potentially by working with them by also providing our content through their channels and other channels. So it's different than what we would've looked at before.

Q: Really helpful clarification there, Daniel. I appreciate the color on that. Maybe as a follow-up. Obviously, we're starting to see a lot of the, let's call it, AI strategies at the board level start to be implemented within enterprise organizations broadly. Are you seeing that now translate into greater usage or consumption of AI learning content on your platform through your partnerships that you have?

A: Absolutely. Yes. So when we first started this several years ago, I mean, we went from zero to the size that we plan to be this year in just three and a half years. So we're seeing actually real good growth. And this will be the first time that we've expanded beyond our partnership with Gil to add new partners. So we're you know, we see double-digit growth ahead for the next several years because we're really just at the beginning of this thing. But when you ask what the demand is for, the original deals that we did were for frontline workers, who needed just basic technology skills. Now the demand is shifting rapidly towards how do we make sure that every single employee, not just frontline workers, but workers across the board, actually begin to understand how to utilize AI. So, you know, a different way to think about it is rather than say what should I build, everybody needs to learn the tools that I can use to build. And that's the role that we're playing, and we think that's a very big growth market which is why we're sort of accelerating the kinds of classes that we're teaching. And, honestly, the relationship that we now announced with Wolfe is also a very big opportunity going forward. It's very early to be able to size it. But this is the first time Chegg is gonna be offering courses through a partner where our courses can count towards a degree. And so you can imagine the demand from students about wanting to have courses that they can take that also contribute to their college degree where they can put on their resumes that they actually understand how to use the tools around AI. And so these are all really fun and interesting and high growth areas for us.