Chegg, Inc.

Greetings. Welcome to CHEG Inc. Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Tracy Ford, VP of Investment Relations and ESG. You may begin.

Good afternoon. Good afternoon. Thank you for joining Chegg's fourth quarter 2021 conference call. On today's call are Dan Rosenzweig, co-chairperson and CEO, and Andy Brown, chief financial officer. A copy of our earnings press 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. We routinely post information on our website and intend to make important announcements on our Media Center website at chegg.com slash Media Center. 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. 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-K filed with the Securities and Exchange Commission on February 22, 2021, 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 on our earnings press release and the investor slide deck on our IR website, investor.cheg.com. We also recommend you review the investor data sheet, which is also posted on our IR website. Now, I will turn the call over to Dan.

Thank you, Tracy, and welcome everyone to our 2021 Q4 earnings call. When we reported in early November, there was a great deal of uncertainty around the back-to-the-school season and the continuing impact of COVID-19. Fortunately, while enrollments were lower, we saw that schoolwork could eventually pick up so the need for CHEG increased throughout the quarter, helping us exit the year on a higher note. During these complicated times, the CHEG team has continued to execute extremely well, with CHEG study packs, take rates outperforming our expectations, and retention rates reaching all-time highs, both of which positively impacts subscriptions, ARPU, and margins for CHEG services. Our continued investment in content quality, subject matter expansion, personalization, and discovery keep adding more value for students around the world and create even bigger opportunities for Chegg. Students depend on Chegg and is an important part of their learning journey, and the momentum we experienced in Q4 is continuing into Q1. This is why we feel comfortable providing 2022 guidance, which Andy will walk you through shortly. As education evolves, so do the learning pathways, which means there are going to be more students which will require even more help. That is why we are expanding our learning support to reach these students, regardless of the path they choose, to improve their outcomes through learning. So for 2022, our priorities are, one, to expand and improve the discoverability and quality of our content. the subjects that we cover, and further personalize the user experience to make Chegg even better and more valuable for learners. Two, invest in our international expansion, including our newest and exciting edition of Busuu, entering us into the $17 billion digital language business. Three, invest in and grow our skills business by offering more courses through partnerships and through our direct channels.

Four,

add even more value to our existing customers and new customers through bundling, pricing, and new offerings. We believe this will enable Chegg to re-accelerate growth and meet our financial expectations. As you can see, we have an exciting future ahead of us, and we made some important investments last year to position us for continued growth. We added new subjects, higher quality content, and introduce personalization through the successful launches of Learn with Chegg and Uversity. Together, they help us improve and expand our content while building better relationships with faculty at the most prestigious institutions around the world. In fact, since Uversity launched, faculty from over 1,300 schools have uploaded almost 80,000 pieces of learning material, including study guides, lecture notes, and quizzes. And we have just added new tools to allow faculty to create and upload video content to meet the growing demand from students. The response to Uversity has been so positive that we expect to double the amount of learning material created by professors on our platform by the time we roll it out to students in the fall. And as part of our deepening relationship with faculty, we continue to invest in honor shields, both domestically and now globally. to allow faculty to protect the integrity of their exams for hybrid and remote learning environments. Diversity is just one part of our investment in Learn with Chegg, our new personalization platform, that has already dramatically increased student engagement. And by combining our proprietary student data and AI technology, we are better able to predict students' needs without them having to ask. Learners are automatically pushed relevant content whether flashcards, videos, quizzes, math, or writing support, to give them an individualized learning experience based on their needs. We have built a huge moat at CHED, including the power of our brand, tens of millions of direct relationships, and we have built our own enormous library of content that, between all of CHED's services, now exceeds over 100 million pieces of learning material. So we are better able to serve our students. We believe we have a unique ability to know more about the students' needs to learn, what they need to learn, and therefore we can deliver it the way they learn it best. Our international expansion continues to be an exciting growth opportunity for us. In fact, we exceeded 1.5 million international subscribers during the year, well ahead of our target. In 2022, we will make more investments in new countries with new subjects, in new local languages, and with local pricing. And with the acquisition of Busuu, international is becoming an even more significant part of CHED's growth. For those of you who are not familiar with Busuu, we closed the transaction in mid-January. And I want to share why we are so excited about this addition to CHED. The fast-growing $17 billion learning digital language category is a market that has significant overlap between college students and young professionals around the world.

In fact,

26% of Busuu's customers selected education as their motivation for language learning, and 55% of U.S. college students report needing help learning a foreign language. On the skills front, we have dramatically increased our TAM through our partnership with Guild. This partnership gives us access to the largest corporations in the world who are seeking skills-based learning content for their employees, and these companies are asking Chegg to create content uniquely for them. The pandemic has been hard on everyone, and what became evident to us was that students have needs well beyond academic and skill support. Students trust Chegg, which is why we launched Chegg Life, to support more of their needs. Our initial areas of focus will be personal finance, soft skills, mental health and wellness, which are universal issues for students. We believe offering the support will help us serve them even better. The challenges of the last few years have had a dramatic impact on all of us, particularly students. There is an increasing need for students to learn on their own, so it is no wonder they are seeking academic and professional support, but it's clear they need more help as they take on the rest of life's challenges. Chegg is investing to be there with them on their entire journey, and we are very excited about the next chapter of our growth. and so grateful for all of you that have been part of our journey. And with that, I will turn it over to Andy. Andy?

Thanks, Dan, and good afternoon, everyone. Today, I will discuss our financial performance for the fourth quarter and full year 2021, as well as our outlook for 2022. Despite the complexity of the virus and the industry-wide slowdown at the end of the year, the business performed well during a difficult time and 2021 was another good year for our company. Total revenue grew greater than 20%, and our adjusted EBITDA margin expanded more than 200 basis points. As we take stock of how far CHEG has come and the opportunity ahead of us, the past two years have been truly remarkable. Since 2019, CHEG services revenue, adjusted EBITDA, and free cash flow have more than doubled. This, all while investing in future growth, growth initiatives such as Learn with Chegg, Uversity, Chegg Live, plus expanding into skills-based learning and into international markets. Additionally, through acquisition, we have made key assets such as Mathway in 2020, and more recently, our acquisition of Doosu, allowing us to expand into new subject matters and geographies. Looking more specifically at our 2021 performances, total revenue grew 20% to $776 million, despite the fact that required materials revenue declined 14%. This growth was driven by an almost $150 million year-over-year increase in check services revenue, which grew to $670 million, with subscriber growth of 18% to a record $7.8 million for the year. International represented 11% of total revenue in 2021, And while we expect continued domestic growth, international revenue is expected to grow faster, driven by continued organic expansion, as well as the addition of busu, which is currently primarily international. This resulted in adjusted EBITDA margin of 34% or $266 million, up 28% year-over-year, with free cash flow of $177 million, or 67% of adjusted EBITDA. Both are records for our company. As we survey the broader learning landscape, it's clear we have best-in-class margins. Our free cash flow margin of 23% is an extreme outlier among education peers, and even among the broader software and tech sectors, which gives us the opportunity to invest in future growth initiatives while continuing to deliver superior results. Looking at Q4, total revenue grew to $207 million, driven by better-than-expected check services revenue growth of 6% to $187 million, which led to better-than-expected adjusted EBITDA of $78 million. Looking at the balance sheet, we ended the year with cash and investments of $2.3 billion. This was bolstered by the aforementioned free cash flow of $177 million, primarily offset by a $300 million accelerated share repurchase, or ASR, we entered into in early December and completed two weeks ago, retiring approximately 10.6 million shares. We entered into the ASR as we believed there was an overreaction to the temporary headwinds that affected our industry, which caused a dislocation in our share price. We believe this was a good use of our capital, good corporate hygiene, and increases shareholder value. Moving to guidance for 2022, the momentum we experienced in late Q4 has continued into the spring rush. We have seen a reacceleration of growth in subscribers, and our retention rates are at an all-time high. With respect to required materials, student usage continues to decline as textbooks have become less relevant. And, as you can tell from our prior financials and our guidance, that has become a drag on both growth and margins. While we continue, while we expect to continue to offer this service, we are evaluating strategic alternatives to provide it through partners. And finally, our full year MQ1 2022 guidance now include the financial expectations for our acquisition of Busu. Also to assist you in modeling all of these changes, We have added a slide to the investor deck on our investor relations website that includes expected revenue and adjusted EBITDA seasonality. Specifically for 2022, we expect total revenue to be in the range of $830 to $850 million, with check services revenue in the range of $770 to $790 million, and check services organic revenue growing in the 8% to 10% range. Gross margins to be in the range of 70% to 72% as Chegg Services' revenue continues to grow and be a larger overall contributor. Adjusted EBITDA to be in the range of $260 to $270 million, with BUSU being diluted to adjusted EBITDA by $15 to $20 million as we invest to scale the service. We are investing in BUSU now to accelerate growth, and we expect it to be breakeven by 2024. And finally, as we have stated in the past, we continue to have healthy free cash flow conversion, which we expect to be in the range of 50% to 60% of adjusted EBITDA. Moving to Q1 2020, we expect total revenue between $200 and $205 million, with check services revenue between $183 and $188 million, gross margin between 71% and 72%, and adjusted EBITDA between $56 and $58 million. We believe the future of CHEG is much brighter than the many successes we have experienced in the past. Over the past few years, we have become a clear leader in the education space and already have many of the assets to extend our leadership position. We also have an operating model and a capital structure to invest in and add assets that few, if any, in the sector can. But the biggest and most valuable assets we have are our dedicated employees, driving our student-first mission, without which none of this is possible, giving us great confidence as we enter 2022. With that, I'll turn the call over to the operator for your questions.

Thank you, and at this time, we will be conducting a question and answer session.

If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please, while we poll for questions. Our first question comes from the line of Jeff Silber with BMO Capital Markets.

Please proceed with your question. Thanks so much.

I appreciate it. I wanted to first focus on what you mentioned about required materials. I know that's where the company initially started, and you held on to it. You kept on saying it was more kind of a marketing strategy to get your name out. You obviously don't need that anymore. Why just not cut the cord and get out of that business totally?

Well, good question. This is Dan. Mostly because millions of students still use it. And to be frank with you, our concern is if we don't do it, then publishers will raise the prices again on students. But our expectation is that we won't own the business anymore. We'll simply offer it through partners so that students can continue to get their textbooks on us and we can use our audience to make sure that the prices stay low. So, you know, we never believed we'd be in it for this long, to be honest with you. That's why we transferred to a digital company years ago. But the value of textbooks in the college marketplace are declining, and so we don't see any reason to be in it any longer than we need to be, and so we're working on those opportunities now. We'd just like to make it available to students, but if that doesn't work out, then we may end up exactly where you said.

Okay, that's fair enough. I understand. Let me shift over to Chegg Services, and I wanted to ask about competition. You have this great slide in your deck where you talk about the unated brand awareness, and Chegg's always come out on top. It's still very strong. But when I compare this to what we saw, I think, in prior quarters, you've got a couple companies like Quizlet and Khan Academy that have moved up Quizlet pretty dramatically. Are you seeing more competition in the marketplace? And if so, what are you doing about it?

Yeah, the answer is we're really not. Look, Quizlet serves the high school market, and we serve the college market. So we don't really see overlap. In fact, we're an advertiser on Quizlet because they help drive plenty of customers to us. So when we look at our own internal research and overlap between Quizlet and other companies, all the other companies, we do not find there's significant overlap between our customer and theirs. And You know, what we provide is high-quality, expert. You can be certain that the solutions are correct. And that's why students value us, and I think that's why you saw us sort of resurrect our growth, because when academics became important again, check went up, and that's what we expect. And so we're seeing growth at their expense, not the other way around. And Khan Academy is just video-based really for high school students that are trying to master certain subjects, but more importantly, for test prep. And that's not what we do. So they're very insignificant in terms of competitors to us at the moment. And so there are people that can use Quizlet and use Chegg, but they usually use the free version of Quizlet.

Okay, that's really helpful. Thanks so much for the callers.

You bet.

Our next question comes from the line of Ryan McDonald with Needham & Company. Please proceed with your questions.

Hi, thanks for taking my questions and congrats on a nice quarter here. Dan, I'm curious what you saw in fourth quarter. We obviously see, you know, an incremental nearly 300,000 subs on the platform. I'm just curious, does that come primarily from just real strong success internationally or did you see a shift in seasonality of when maybe students within the U.S. came on and were using the platform more actively?

Yeah, great question. Look, if If I were Monday morning quarterbacking us, what I would say is in November, we knew what we knew. We didn't know where the bottom was. The bottom, thank goodness, was not nearly as low as we thought. And the bounce back came much sooner than we thought. And all of that is good. But essentially, enrollment didn't change. What changed was there was a sudden reinvigoration of the focus on academics. And when that happened, we picked up. So you can call that seasonality. You can call it that. students going back from COVID and going to all the football games and getting used to seeing each other again and the work started later. Can't tell you exactly what the reason was from that perspective, but our internal numbers show that there was just a dramatic increase somewhere, obviously, after the last report, which was November 1st, so some part first week of November or so, as you start to get it towards midterms and finals. And thank goodness that momentum is absolutely carried over into Q1, which is why we felt comfortable about giving guidance, and our guidance is stronger than I think anybody expected, including us.

Maybe just to follow up, you know, a question around Busuu. Obviously, a nice, interesting expander of your TAM and moving into the language learning market. Traditionally, you've really, when you bought something, you kind of left it alone, let it operate, and sort of get used to operating the business model or operating in new markets. Can you talk about when you're thinking about the assumptions for 2022 for Busuu, are you continuing to do that sort of first year, let it operate on its own, learn the business a bit more, or does that assume some beginning of some cross-selling of Busuu into the core check base? Thanks.

What we have in the forecast assumes Busuu is Busuu. Now, what we do for integration is, is obviously the first things you have to do are integrate finance, data, security, all those issues. And those come first because you want to protect the customers. You want to make sure that we can report on all those things. And then our expectation is the first area of revenue synergy will start to come probably in the U.S. because 55% of our audience say they want to learn or need to learn language. And we have free access to our own customer list. And so you can expect that we will start working on that. Remember, the deal only closed mid-January, and we haven't been able to even fly over there because of COVID or them come to us. So we're going to make sure that we don't interfere with any of the success they're already having. They really started to invigorate their own growth a couple of years ago, and we couldn't be more excited about them being part of our family. And I think they would say the same thing. So I think what you see in the current forecast is simply what Busuu is.

Thanks for the cover. Congrats again. You bet. Thank you.

Our next question comes from the line of Doug Ameth with JP Morgan. Please proceed with your question.

Thanks for taking the questions. Maybe just first, Dan, you highlighted the outperformance in study pack take rates and also retention. I was hoping you could just give us a sense of where you are. in terms of StudyPak adoption and maybe what the mix of subs looks like currently, and then also how to think about retention rates and some of the drivers that are taking them higher. And I just have a follow-up for Andy as well.

Yep. Thanks, Doug. And how are you? So everything, look, when we launched StudyPak, it was obviously before COVID. We didn't know where it was going to go. Without giving any specific numbers, I would say that It's probably twice as successful early on than we thought. So the first thing was to let new customers know that it existed. The second was to make sure that they were utilizing it. Third is to make sure that they start to renew anywhere near the rates that our tech study customers have historically been doing, which goes up every month, which is wonderful. And we've seen all of that success continue. So that's been a really big boost, and that's why you see constant increase in ARPU, particularly with the U.S. customer base. What's also been really positive is that internationally, the take rate for Chegg Study Pack is very similar to the U.S., which we didn't expect, and renewal rates are climbing there. So what we saw in the fourth quarter, which is great for our shareholders, it's great for us, and it really does represent just how valuable ARPU Chegg is in the minds of students and how much the investment we're making in content and university and personalization is having an impact is we saw a low cancels, which is wonderful, which meant that people just stayed on because they continue to see the value and they expect to roll over. We had the highest renewal rates, as Andy pointed out. We had record renewal rates. And we're seeing record take rates in the U.S. So everything that we have been doing in terms of improving the quality of the product, The discovery within the product, the amount of content that we have, have all been positively impacting the numbers. And so over the next several years, you're going to see constant increase in ARPU because a higher percentage of our new customers, a higher percentage of the renewals will all be paying $19.95 versus $14.95. So this is all really positive and better than we would have expected at this point.

Got it. That's helpful. And then, Andy, just as a follow-up on Busu, you gave some numbers, I think, when the deal was announced a few months ago. Can you just help us kind of understand how those, like, roll into the 22 guidance, how you think about, you know, deferred revenue impact, and then also, you know, I think you talked about 500,000-plus paying subs. Do those just kind of

automatically go into your sub number what's this going to look like yeah so uh so several questions there first thing is on the deferred revenues uh there's there's a new stand accounting standard out there uh which allows us actually to capture all of the deferred revenues uh and so the numbers we put out there in november um uh you know basically hold and so we're we're forecasting the same um So, that's in our guidance right now. You can see that. With respect to the subscriber number, yes, we'll start reporting out the subscriber numbers in our Q1 report. The 500,000 was an annual number. So, once again, we'll be reporting out on a quarterly basis, but those will be included in our subscriber numbers when we report Q1 because that's the first quarter we've owned the assets.

Okay, and just to clarify, it's similar to your business, right? I mean, the annual number just bigger than any given quarter, essentially, you're saying?

Yeah, exactly. So when we report out our subscriber number, whether it's an annual basis or whether it's a quarterly basis, it's during that period of time how many unique subscribers were on the platform. And obviously, it gets deduped across the service lines, but that's exactly how we report it out, Doug.

Okay. Thank you. Helpful. Our next question comes from the line of Brian Peterson with Raymond James.

Please proceed with your question.

Hi, gentlemen. Thanks for taking the question, and congrats on the quarter. So first, just higher level on enrollment. You know, I'd be curious, what are the longer-term expectations there going forward? And, you know, obviously there may not be much of a change in 2022, but just kind of curious to get your thoughts on how that trend line will look longer term.

Yeah, I'm sorry. Did you say on enrollment?

Yeah, just on the enrollment trends. I know that came up last quarter, obviously, that that wasn't a swing factor overall, but I'm looking to, I guess, get your thoughts, Dan, on how you're thinking about framing the enrollment trends, you know, I guess, domestically and internationally longer term.

Yeah, look, longer term, and we put some of it in our prepared remarks, I think it's probably helpful if I explain to people that we see academic support services, which are Chegg Study, Chegg Study Pack, obviously math and writing, but those two in particular can evolve to any pathway that any student is taking. So the traditional pathways, the for-profit pathways, two-year schools, boot camps, doesn't matter. Our expectation is that more students are going to be enrolled in something. It just may not be the traditional college experience. So we expect that in the United States we'll continue to see growth. Obviously, internationally we're seeing substantially more growth, as you heard from the numbers. You know, we expected to do over a million when we started last year, and we did over a million-five. So clearly what we said about CHEG resonating around the world holds true. In our guidance, you know, we don't assume any change in enrollment for the second half of this year because we just don't know. So anything that goes up in the U.S. will obviously be – beneficial to Chegg and to our shareholders. And I just think that we don't know enough because of COVID and because of the economy. And, you know, when the economy is robust, fewer people go to school. When it's less robust, more people go to school. And so I don't think the economy we're seeing is likely to sustain itself. So I imagine enrollment will be better over the next several years, but we just can't predict it in our guidance yet. So we're being very prudent in the second half of the year.

Understood. And maybe a follow-up on Bosu. You mentioned some investments. I know there's an opportunity with new types of content and then leveraging international and taking their content and selling it domestically. Any help on how you're ranking those investments and maybe where we should start to see some of those synergies from those investments? Thanks, guys.

Yeah, great question. So Bosu has been growing really nicely outside the U.S., but they have always been a company of incredibly high standards and quality of content and how they teach, but never really have been funded. And so we want to make sure that we fund their growth, what they would call their domestic market, which is Europe, and make sure that it's being funded at a level that they hadn't been able to fund it in the past because they have so much momentum. And other companies that we know in the U.S. are not there yet. And other companies in Europe don't have anywhere near the funding and had to pull their IPOs. So we want to make sure we allow them to put the foot on the gas in a way that they haven't been able to do it. And then priority two will, of course, be introducing Busuu with offers and opportunities to the U.S. audience because all of it will be incremental to what their plan is. So those would be the two biggest areas that we will be helping them with in terms of investing in their futures. As Andy pointed out, you know, CHEG services, CHEG Corps, has incredible margins that just keep going up. So we're using that to invest in the growth of Busuu at this point, because we think there's just a huge opportunity in the $17 billion language market.

Thanks, Nathan. Our next question comes from the line of Stephen Sheldon with William Blair.

Please proceed with your question.

Hey, thanks. It looks like the guidance assumes some modest organic revenue growth acceleration in core JIG services during 2022, like relative to the first quarter guidance. Is that a fair takeaway? And if so, how should investors think about the factors that could support at least modest acceleration? Would that mainly be easier comps or are there other items or factors that you'd call out?

Yeah, yeah, Stephen. So, yeah, so we started to see that, like we've mentioned in the prepared remarks, We started to see that later in the semester, and so we saw that in our results for Q4. That has continued clearly into Q1, so it certainly gives us the confidence that, you know, what we were seeing early in Q4, you know, clearly didn't sustain it, but it sustained as we got into Q1. So that gives us the confidence, particularly for the first, you know, more confidence clearly in the first half of the year. And then we're taking somewhat of a measured approach in the second half of the year for all of the variables that we've mentioned earlier. But overall, we're very confident in how things are looking from an organic perspective.

Got it. That's helpful. And then I guess it would just be great to get an update on where you're at in terms of providing local market pricing for your subscriptions to drive even stronger international subscriber growth. Has that started, and how are you thinking about the financial tradeoffs between lower revenue per sub with making it affordable to more people?

Yeah, this is Dan. Really interesting question. So we are testing now in the larger countries outside the U.S. And in countries that can afford to pay, and have demonstrated that, because you can see by our numbers, it's not like we're not growing outside the U.S., we are. In those countries, we will present it in local currency, but it will still be the same price U.S., give or take. So no trade-off there. In countries where it's obvious that there's huge demand because we can see it on the top of the funnel, but the conversion is low because either it's not in local language, the ads are not in local language, or the prices are presented in the U.S., or they're too high. Those are the countries that we're testing to try to grow market share over revenue per customer there. But all of that will be incremental revenue and incremental profits to the company because we have so much margin in that check services business because it's right one to use many times. So in countries that you can imagine, large countries or countries that are focused on education like the Philippines or Indonesia or Mexico or other places in South America, there's Huge populations, India. We're going to play the price game there because it would all be incremental revenue to us and all the incremental profits to us. It just won't be incremental ARPU from those countries. But we're testing all of those now to make sure that we have the right discount structure and that we can watch that behavior month after month after month. Because we're not interested in doing that for a single month. We want the same kind of behavior we've seen in the U.S. where renewals go up, cancels go down, engagement increases. And we're super excited about all that. It's just taken a while to build because we grew so quickly outside the U.S. We weren't ready for it, but we spent a lot of time and energy in our engineering departments and product departments and commerce departments. So we're doing all of that work now, and you'll start to see some of that probably in the second half of the year will be more visible.

Great. Thank you. Yep. But it's going to be big. I mean, I'm excited about it.

All right.

And our next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.

Andy, good afternoon. I wanted to fall back on Doug's question on BOSU. I just wanted to be clear, and I think maybe they come across as clear. When you think of the guide for 22, I think the last comment you mentioned on the last call was BOSU is growing 45 million over 20% in 21. So if you apply slightly differently lower growth or same growth, you get somewhere between 50 to 55 million. Is that the range if we had to tie it to a specific number? Is that what you're asking us to put into the model for the year?

Yeah, yeah. Absolutely. When you do the math, we put it into the – we gave you the organic guidance, and if you do the math on that, it's in that 50 to 50 – call it 50 to 55 million range. Yeah, very specifically.

Okay, great. Thanks for clarifying. Okay. And then for Dan, when you talked about what had happened on the strength that you saw throughout the quarter, I'm just curious how you're seeing that carry forward into this current quarter. And are you seeing similar trends as students have come back and they're obviously getting back into their routine, that they're becoming more serious, they're coming back? Can you give us a sense of behaviorally what you're seeing even as this quarter has started out?

Yeah, look, we're already five weeks into the quarter, and the variables that we just didn't know in January was, would the schools start? Would they start on time? Would they start online? Would they start hybrid? Would they start in person? As we said before, it doesn't matter whether a student physically is. What matters is their work to do. And so I think people confuse other companies with what actually happens in our world. What we have seen Again, which is why we can give 22 guidance and give growth guidance in Q1 over Q4, which is not the norm. That's an indication that we're seeing strong momentum carry over from Q4. So it's not just the carryover, but the behavior has remained the same, which is students have not only renewed and fewer have canceled, but new customers are coming in earlier in the semester.

That's all good news. Great. Thank you. Yep. Our next question comes from the line of Marvin Romani with Piper Sandler.

Please proceed with your question.

Hi, thanks for taking my question. You know, I know this has been asked before, but I wanted to ask it a little bit differently. You know, there's certainly been a change in student behavior. You know, on your never-burnings call, you were quite bearish on some of the student behavior, but, you know, some of the data that we crunched through Q4, there was a remarkable pickup in q4 and even with tough comps we were quite surprised to see the significant uptick in um in kind of the kind of the app downloads and web traffic uh can you kind of outline with the specific areas where you saw strength you know was there like particular subject areas the particular um kind of seniors like what i mean how should we really think of the strength you know i'm just trying to get a sense of uh how much flow through we should expect in the first half of this year from that increased interest in Chegg from students?

Yeah, look, here's what I would say. I appreciate the question, of course. Difficult for us to be that level of specificity. But I think what we take away from it is that the value of Chegg, as we've added more subjects, improved the quality, increased personalization, is real and having a really positive impact on our overall business on every key metric. Fewer cancels, higher renewal rates, more people taking the bundle, the bundle renewing at higher rates. Those are all things that we positively affected through excellent execution up and down the line of the CHEG employees who have really fought through to make sure the students are getting served. As you think about the flow through, You know, we have been very specific about thinking about our guidance, which is to say we have greater visibility in the first half of the year, certainly into Q1. And at the second half of the year, we are not yet prepared to be, you know, more aggressive, if you will, because who knows what's going to happen over the course of the year. But what this should tell you is when things start to approach normality, Chegg grows. And it not only grows, it's very profitable. And as I think Andy pointed out in his prepared remarks, There is not another company in the education space that is growing, that is profitable, that produces free cash flow. We have $2 billion in our balance sheet. I think the takeaway here is that as things improve, TEG improves, which is some companies, it was only the pandemic that improved them. That's not our case. The more people study, the more important they take it, the more that they have to learn, the more they're dependent, they need help. The fact is the schools don't have the budget. They don't have the money to provide services and support. And you can see through the strength of university just how many amazing professors there are willing to help their students learn on demand online. I mean, I'm surprised we didn't get more questions about the fact that we already have over 80,000 pieces of content. We haven't even launched it to the consumer yet. And we only announced it at the end of last year. I mean, this just shows you that the real professors understand how important it online learning support is.

Yeah, that's super helpful. And then the follow-up I had to that is when we crunch our data, we crunch it separately both from a web traffic level and then from a mobile downloads level. When you think of these two buckets, web traffic and mobile downloads, How is Chegg being used? Are you able to kind of give us a split or qualitatively say how many people are accessing Chegg via web versus mobile downloads?

Yeah, look, what I would say is it depends on the country, of course, and it depends on the service. So Mathway was much more used on mobile than Chegg was, for example. But I... What we are striving for and what we see is that once a student downloads, they use this on both. The truth is a big screen is helpful when you're doing homework, when you have to read things. For math, it really was the input was used by the phone because the easiest thing to do is just snap a photo of the equation. So what I would say is you're going to continue to see Chegg app downloads be more significant over the next bunch of years. because we're investing now in that product and service. It was a surprise to us for the longest period of time that most people use this on their laptop. It's not a desktop. It's a laptop. But increasingly, you know, mobile devices are becoming an integral part of not only how they input but how they're getting data out. And if you can see our new designs and our new personalization make that even easier to do, and we are pushing more towards app downloads than we have in the past. So I think you'll see that improve.

Perfect. Thank you very much. Thank you for your questions.

Our next question comes from the line of Josh Baer with Margaret Stanley. Please proceed with your question.

Thanks for the question, and great to see the really strong international numbers this quarter. I wanted to ask kind of a follow-up to the last two on just student behaviors and toward the end of Q4 and into Q1, just wondering, like, how you're thinking about Omicron and any impact that that might have had on the student behaviors.

Yeah, I can tell you the impact it had on my behavior. I caught it December 22nd, and nobody in my family had any symptoms, but I had them all. So not a fan. And actually, you know, but I know the question seriously is, you know, how does it affect our business? One thing that I want to tell you our data shows us consistently is that where the student physically is does not matter. Because we're an on-demand service that can be used on your phone, on your laptop. It doesn't matter. If you need help, we are there for you, whether you're either a hybrid student, a remote student, or a fully in-class student. And every survey that we provide tells us the behavior. The conversion rates, the renewal rates, the engagement rates are almost identical. So that's an area that other people ask about, they think, because if you're off campus, you're going to use this more. That's not been our experience in terms of observing and communicating with the students. Where it has made a difference is when the actual academics start. So if they're delayed, were delayed, is what we learned in the fourth quarter. So if, remember, before Omicron started, CHEGS services started to pick up. Then it hit sort of end of, what, November, on and around Thanksgiving time. And so our business had already started to reaccelerate before then. And, you know, right now I think we're seeing a decline in most states, a decline in most cities. And we've seen, as Andy pointed out in the prepared remarks, that momentum continues, thank goodness. So this to us, the message to us, our belief is that, It doesn't matter where the student is. It matters when the student starts to study.

Great. That's clear. And then one on EBITDA margins and the guidance. I know the margin lower in 22, most of that is from BUSU and adding that to the model and the investments there. I think there's still some compression versus 21 making that adjustment. And just wondering if you could kind of review the longer-term framework for margin expansion. Obviously, margins have consistently improved for many years. Just wondering if there's any change to that, just given the opportunity ahead and the investments that you're making across the board.

No, and in simple terms, as we continue to scale and grow, without getting into specific margins beyond 22, because we're not going beyond 22, but we would anticipate that margins would expand over time. If you think about the core of our business, it's high leverage, right? um you know if you think about chegg study as a prime example you know the content is reusable and reusable and reusable and therefore you know you know incremental subscribers you know 90 cents or more in the certainly in the short term drop to the bottom line so yeah we believe that uh we will continue to expand margins over time um clearly busu is having a small impact on us but we think it's absolutely the right investment and like i said earlier you know when you look at chegg in its entirety and for the past several years. We have best-in-class margins in the sector. I would point out to you that nobody has our types of margins, whether it's the EBITDA margin or, more importantly, free cash flow. I mean, our free cash flow margin is better than most companies' EBITDA margins. So we'll continue to grow that, but we're really proud of what we've accomplished over the last several years with respect to growing our profitability.

Yeah, look, I think Andy made it crystal clear, but one of the things that we did was break out Chegg without Busuu because it really does highlight the fact that our EBITDA margins are going up from last year. And that includes the fact that textbooks probably lose a little bit of money now, whereas in the past they either were breakeven or made a little bit of money. So I think I think the way to think about it is Chegg itself before Busuu, continued growth and continued improvement in margins and continued improvement in free cash flow. And that's baked into this guidance that we're getting at the beginning of the year, which is really only the beginning of the year.

So the business just keeps getting more powerful and more fun. And our next question comes from the line of Jason Salina with KeyBank. Please proceed with your question.

Hey, Andy. Hey, Dan. Thanks for fitting me in. Maybe just two quick ones. Maybe first on skills. You know, in the past, you've used M&A to build out these new areas. And obviously, you've just acquired Busuu. But as you think about building out your presence and skills, how much will partnerships play relative to maybe how you use partnerships in the past?

Yeah, fair question.

When we first entered the skills market, we knew how big it was, and it is. What's happened during the period of COVID is the direct-to-consumer model sort of grew and sort of froze. You could see that on, you know, Corsair and Udemy and others. And then their B2B markets picked up, but those B2B markets, at least from our experience, have yet to be profitable, and we're not sure if and when they get profitable. So we chose a different path. We said, let's take the assets we have, our core strength of being a content creator, user experience creator, an academic support company that can teach you something and support you and partner with Guild in this case as our primary partner, but not necessarily our exclusive partner. Because if you follow them, they have done a spectacular job of growing their customer base. So they have the largest corporations in the world from Walmart to Target to They just named several in the medical field. And where they're working with partners to supply the academic degree programs, Chegg is actually supplying the skills programs. The really cool part of that is that the corporations are working with Guild and with Chegg to say this is what we would like to teach our employees. So it's not just a marketplace of stuff. It's no very specifically this is what we would like our employees to know. We build it. We can use it for those companies or any other companies. And over time, it's going to take several years to build because corporations move slow. And, you know, Guild's got to sign the business, then we've got to build it, then they've got to promote it. But you can imagine it being a very high-growth, very high-margin business because we don't have any cost in marketing. It goes directly through Guild, directly to the customer. And many of these skills can be used in our own network, either directly to our audience or with other companies. That is the primary area of focus that we have right now in the skills space is to build out our catalog of incredible content and work with Guild and these largest corporations in the world to teach their employees what the companies want them to know. And those will all be profitable for us as we scale. So it's really a powerful model for us and one that we worked over a year to negotiate as we began to see the dynamics of the other skills market just change. And you can see that in all those companies' numbers, which is their consumer business sort of slowed or declined, and they're not profitable yet. That's not the way Ted Rung is. We focus on growth with profitability.

Okay. Interesting. And quickly on international, you know, the new disclosures, you know, very helpful. You know, 11%, you know, international subs, 1.5 million. You know, that's 50% more than what we thought, at least initially this past year. Framing this maybe into more anecdotal comments, but maybe can you speak to how that business grew or maybe stepped up over 2020?

Yeah, you're fading there at the end, but I think what you asked is how the business sort of got this big and it sort of stepped up. What Chegg does, which is support students that are putting their hand up and saying, I need to know this, I have to know this, I want to know this, and I need help. That is universal around the world, particularly for students who are learning business or STEM, which is what our initial content primarily focused on. So for obvious reasons, English-speaking countries became bigger faster. But this is an effort that countries around the world are really promoting their young people, their students, to learn STEM and to learn business. And that has really helped us grow within each country that we're in, but then adding many more countries. So I can't point to one country over the other. I could just tell you that as we get discovered, the same virality of our brand recognition in the US begins to take place in other countries. And so the numbers were even bigger than we had imagined. So we had a very difficult time in November. But you can see that we've recovered a lot faster and a lot stronger than people thought. And it's because the U.S. has returned. International continues to do extraordinarily well. The quality of our product, the amount of content that we have has improved renewals and engagement and reduction in cancels and take rates. So we feel very good about our future right now, coming from a place where we were just on stage and everything that happened in November.

Okay, perfect. Thank you. Yep. And our next question comes from the line of Alex Furman with Craig Hallam Capital Group.

Please proceed with your question.

Hey, great. Thanks very much for taking my question. Just lastly, if I could sneak one in here, you know, certainly sounds like the business recovered nicely as, you know, the academic calendar started to heat up closer to final exams. I'm curious if you saw a similar acceleration outside of the U.S. and especially in markets that maybe have a little bit of a different calendar, if it was something about, you know, that was happening globally or if it was really confined more to places where final exams and midterm exams started to happen.

Yeah, it's a terrific question. And what I would say is I don't know that we know that yet because we really went from zero to a million and a half in three years. And so we have to discover the patterns. You know, we have to get our data and analytics the same quality that we have in the U.S., which is when do they come on? What year are they? How long do they stay on? Which subjects are they in? We're doing all that work now. But that's extraordinary growth from zero to one and a half in just a few years. And so we will know the answers to those questions as we go on. We don't have that with the same clarity that we have it in the United States right now. But what I can tell you is that all metrics over time, similar to the U.S., get better. And because one of the things about owning your customer and owning the data and owning the channel of distribution and owning your content, which I'm not sure there's another company that owns all of that, allows you to monitor what the student wants, monitor what they use, improve it, add more, get rid of the things that they don't need. And all of those are the reasons that we continue to improve engagement and improve renewals and improve the take rate. So, you know, we just, international is early stages for us, but it's already doing great as exemplified by the numbers that Andy reported. So I don't have the level of specificity outside the U.S. that I have inside the U.S., but we will shortly.

Great. That's helpful. Thank you very much. You bet.

And we have reached the end of the question and answer session. I'll now turn the call back over to Dan for closed remarks.

Okay. Thank you, operator, and thank you, everybody, for joining. I think this is between the webcast and the call, the most people we've had. So we're very enthusiastic about the number of people that are taking a look at Chegg again for the second time, maybe more. But as you can see, what we offer matters. And the number of students that need help is only increasing. The amount of budgets that states have or schools have to provide support to their students, unfortunately, is diminishing. And so online learning, online learning support is only going to get bigger. And our investments in content and quality and subject matters and personalization and our continuing focus on the student is what continues to differentiate us as a service, which is why we compete extraordinarily well. which is why I have this massive database of content of high quality. We're improving our relationships with institutions and professors at a higher rate than we expected. And that, you know, we like others were surprised with what happened in Q3, Q4 time period, but we feel like we passed that and we're back on our way to building a very huge company. And we couldn't do it without our extraordinary employees who've stayed with us through COVID and who have focused on the students, and we're incredibly grateful for them. We have a mission. We want to help students improve the outcomes of their life through education, and we're just going to get back to work. So thank you, everybody, very much. Really appreciate you all for dialing in. Thank you. Thank you, operator.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.