Chegg, Inc.

Greetings and welcome to the Chegg's third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tracy Ford, Vice President of Investor Relations and ESG. Please go ahead.

Good afternoon. Thank you for joining Chegg's third quarter 2023 conference call. On today's call are Gavin 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 certainties 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 21st, 2023, 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.cheg.com. We also recommend you review the investor data sheet, which is also posted in our IR website. Now, I will turn the call over to Dan.

Thank you, Tracy, and welcome everyone to our 2023 Q3 earnings call. CHEG had a good quarter, delivering better than expected results as we saw stabilization in new accounts and increases in overall retention and in the take rate of CHEG Study Pack. In addition to our academic services, we continue to invest in skills where we are seeing very strong growth, all of which is good for the future of CHEG. Six months ago, leveraging the breakthroughs of artificial intelligence, we began to completely reinvent what we offer, how we offer it, and to whom we offer it. New technology platforms create a lot of hype and noise, but as the hype gives way to facts, we believe Chegg is in a great position to build the most impactful, scalable, AI-enabled personal learning assistant, which will expand our opportunities to serve more students in more ways and at a lower cost per customer. The history of the Internet has shown us that verticals win. Leading companies with a strong brand, category expertise, scale, and resources can invigorate growth and create new opportunities when they move quickly and embrace change. In the world of AI, tech is particularly valuable and proprietary assets for education and learning, including our student-first brand, a reputation for quality and accuracy, and our unique content and data set. Chegg also has a proven track record for improving student outcomes. And now, by combining the best of what Chegg has to offer with the advancements in artificial intelligence, we are creating new opportunities to better serve our students. It has been nearly a year since ChatGPT launched. We have all learned a lot and are experiencing how AI is impacting our lives. We know that students are using ChatGPT, but what is interesting is that they are using it for a variety of things in addition to education. Because Chegg is verticalized for learning, what isn't surprising is that when students try us and compare us to more general AI solutions, Chegg outperforms. That has led to incredibly high retention rates, and we are maintaining high customer satisfaction, such as 91% of students report that when they use Chegg, they get better grades, 89% say Chegg helps them learn their course material and 90% say they work more efficiently when using Chegg to understand their coursework. And we are now introducing new AI capabilities and features, which we expect will do even more for students. We are excited about what we are building and we are moving quickly and rolling out the first phase of our new user experience. In September, we started to show our first cohort of users the updated capabilities with a new, simple interface and a unified asking experience. This means Chegg can provide answers from our proprietary database, our more than 150,000 subject matter experts, and now with gendered AI. We are focused on usage, quality, accuracy, and speed, and are on track to introduce our own large language learning models trained on CHED's unique data. In the coming months, you will see us offer more features, including multi-turned chat, which will create a simple and conversational experience, and introduce personalized AI-enhanced learning aids, such as practice tests, assessments, study guides, and flashcards. We also plan to let students connect to each other and share content. Over time, all of this is designed to expand our TAM and increase our relevancy to millions more students than we serve today. It's truly an exciting time to change. We are executing well against our plan, and we are on track to roll out even more features to more students in Q1 of 2024. We have only one agenda, to serve the student. What we do is incredibly hard to replicate, giving us a powerful note. The combination of our successful learning taxonomy, our over 100 million solutions generated by Chegg subject matter experts, and now the ability to leverage artificial intelligence means we can do what generic AI platforms cannot do. Our vision for a truly personalized learning system is coming to life. Make it easier for you to see what we are building. We've created a video for you that is available on our IR website where you can see how the product is evolving. We believe this will give you a sense of just how powerful CHEG can become, including our ability to blend our academic support and skills efforts by integrating career pathways into the student experience. We are beginning to see the investments we've made in skills pay off. By leveraging the latest advances in AI to accelerate our program development, we are able to create relevant, customized, high-impact programs faster and at a lower cost. We will also be releasing a suite of AI training programs over the coming months. Through our B2B partnership and direct-to-student efforts, we continue to see Chegg skills grow and expect it to become a meaningful contributor in the years ahead. We are widening the aperture for Chegg, and we hope to reach a much larger audience of learners. one that historically we have been unable to serve before. This is where much of the future growth will come from, and our plan is to continue to execute each quarter towards this vision. And before I turn it over, I want to acknowledge Andy as he plans to retire once we hire his replacement early next year. I am deeply grateful for the incredible contributions Andy has made during his 12-year tenure at Chegg. Under his leadership, We have grown from a physical textbook rental business to a global online learning platform that has supported more than 22 million students over the last decade. He guided us through our transition to a fully digital business, and in doing so, grew our digital revenue from zero to over $700 million annually. In fact, when Andy took on the role of CFO, he said it was unprofitable. But today, Chegg is profitable and is expected to generate nearly $220 million in adjusted EBITDA and approximately $170 million in free cash flow this year. These are remarkable accomplishments, and none of them would have been possible without Andy's leadership and vision. On a personal note, I want to thank Andy for his partnership, guidance, and friendship over the last decade. He has truly left an indelible mark on this company and will forever be part of the Chegg and Rosenzweig families. And with that, I will turn it over to Andy.