Chegg, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Chegg, Inc. fourth quarter 2022 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Tracy Ford, VP of Investor Relations and ESG. Please go ahead.

Good afternoon. Thank you for joining Chegg's fourth quarter 2022 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.cheg.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 cheg.com. 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. 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 statement. 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 Exchange Commission on February 22, 2022, 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 and the investor slide deck found on our IR website, investor.shegg.com. We also recommend you review the investor data sheet, which is also posted on our website. Now, I will turn the call over to Dan.

Thank you, Tracy, and welcome everyone to our 2022 Q4 Earnings Call. CHEG ended the quarter and the year on a strong note, beating the high end of our guidance with services revenue growing 10%, finishing the year with over 8 million subscribers, and generating over $150 million in free cash flow. The last few years, we saw significant headwinds in higher education, including the loss of nearly 1.5 million students during COVID. Through it all, the Chegg team executed very well, positioning us for a much bigger future. In the second half of the year, we saw significant improvements in new subscriber growth, increased take rates for Chegg Study Pack, which is now 40%, and retention for CSP is now nearly equal to that of Chegg Study. In addition, we also saw increased demand over the year for Chegg Skills through our partnership with Guild. We believe that this positive momentum will continue and lead to accelerating revenue growth in the second half of 2023. After the initial wave of the COVID pandemic, as students returned to campus, we saw fewer of them enroll and those that did took fewer classes. There was also less of an emphasis on academic rigor from both students and professors. This created a reduction in the demand for higher education support services and ultimately a substantial loss in our subscriber base, particularly in the first half of 2022. Since August, higher education has begun to normalize, which has helped us start to climb out of the COVID hole and helped us increase our new subscriber growth. This shift, along with the strong execution from our team, led to better performance and predictability. As a result, we see new opportunities for growth. Domestically, we have continued to expand our content offerings with initiatives like Uversity, which adds professor-created content in new subjects and formats to our platform, allowing us to be relevant to millions of students that we historically haven't served. We also invested in improving the quality of our existing experiences with our new structured Q&A platform, which enables our experts to create better and clearer learning solutions for students. Early feedback has been very positive. Students tell us they prefer this format and believe it is more helpful to understand the topic and learn the concepts so they can solve the problems on their own. Our new Ask and Learn platform provides students with richer and more personalized learning experience from Chegg. We will continue making smart investments in content, technology, and AI to improve our value, quality, and relevance to even more students around the world. Internationally, we've also made progress localizing our content. We've created new apps for Turkey and one in Spanish, initially targeting students in Mexico. We launched local pricing in four countries, and we are currently testing and optimizing pricing in nine other countries. All of these efforts make our services more personalized and accessible to learners everywhere, and we are expanding into new markets to reach more students. To expand into new growth categories, we invested in our language learning platform, Busuu. We are making great strides with the launch of our freemium version for the United States. and have already seen increased registration and engagement, which we believe will lead to future revenue growth. We also invested in one of the hottest growth areas in education, skills-based learning. We expanded our partnership with Guild, growing significantly faster than we expected, which suggests that this is a big opportunity for Che. Outside of the U.S., we launched a pilot program in Africa with Nexford, as the demand for skilling frontline workers is now global. As the opportunity grows, we are expanding our range of courses from technology fundamentals to cybersecurity. We are also excited for all that is ahead, and in 23, we will continue making strategic investments for that growth. The opportunity to better serve learners continues to evolve and expand, and now includes helping students solve some of their biggest non-academic challenges. That is why we now provide free access to Calm, the world's number one app for sleep, meditation, and relaxation through Chegg. And we just announced a partnership with DoorDash to offer Dash Pass for students for free to our subscribers. These offerings help students deal with their mental health and help them save money. We believe these partnerships not only increase our TAM, but will also increase conversion and retention. allowing us to improve ARPU over time. These types of initiatives are designed to deepen engagement, accelerate growth, strengthen brand loyalty, and importantly, help learners by delivering overwhelming value. Our ability to partner with these companies also validates how valuable our audience is to some of the biggest brands. The hot topic right now is AI and machine learning. We've all seen that large language models such as ChatGPT have captured the attention of many people. We believe AI will have a significant effect on human capabilities and humanity overall. But AI and machine learning models are not new to Chegg. We have been leveraging these technologies within our platform for years, and we believe these continued advancements will benefit Chegg and students. As an example, We've been using GPT-2 inside of our writing products, improving our ability to provide support with grammar, paraphrasing, and sentence structure. We also use it to increase speed and quality while reducing the cost of content development. We will continue to build and leverage AI tools, including those from OpenAI and others. allowing us to expand our content capabilities, increase the number of ways students can learn through our platform, and increase our efficiency. Importantly, we believe the best learning experience for students will leverage AI, will use a combination of vertical experts who utilize data, ML models, and AI on a user platform designed specifically for learning. The last several years have been very challenging for everyone. However, the best, most innovative companies come out of difficult times and are able to improve their market position. We are very excited about the next chapter for Chegg and are energized by the scale of the opportunity in front of us. We believe there is significant growth ahead for our business, both domestically and internationally, and that we are in the best position to drive some of the most transformative trends to shape our industry. The investments that we've been making and our priorities in 2023 are all designed to return Chegg to double-digit growth. And with that, I'll turn it over to Andy.