Chegg, Inc.

your host, Tracy Ford, Vice President, Investor Relations for Chegg.

Thank you. You may begin. Good morning. Thank you for joining Chegg's first quarter 2025 conference call. On today's call are Nathan Schultz, President and CEO, and David Longo, Chief Financial Officer. A copy of our earnings 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. The year ended December 31, 2024, filed with the Securities and Exchange Commission on February 24, 2025. 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 on 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 on our IR website. Now, I will turn the call over to Nathan.

Thank you, Tracy. Hello, everyone, and thank you for joining Chegg's first quarter 2025 earnings call. Q1 was a good quarter for Chegg. We surpassed our revenue and adjusted even the guidance, generating approximately $16 million in free cash flow and diversified our revenue in two key ways. First, the expansion of our business institution efforts. which has expanded from five pilots to 15 pilots from Q4 to Q1, and is well on track to reach our goal of 40 by the end of the year. Second, licensing our question and answer pairs to language model companies. We signed two agreements and believe this is just the tip of the iceberg for this program. David will address the financial details of these deals. Concerning our strategic review process, we made significant progress. As a reminder, we undertook this effort last quarter with Goldman Sachs, to explore the range of outcomes to maximize shareholder value, including being acquired, undertaking a go-private transaction, or remaining a public standalone company, and continue to believe this is the right step to maximize shareholder value. To date, we've had dozens of meetings with interested parties ranging from strategic tech and education companies to private equity firms. Early indications are positive, and we are encouraged by the conversations and the value these organizations see in our business. Here's what's capturing potential acquirers' attention. First is our core product, Chegg Study, a verticalized and personalized student support platform. As you may have seen, we keep innovating on behalf of students with a recently released Solution Scout, which allows students to compare multiple language models against Chegg's proprietary content. And our practice service now has a new AI-powered feature called Create, and empowers students to generate customized content directly from their own class materials, delivering a highly customized and personalized study experience. Next is Busuu, our language learning service, which continues to perform very well. Q1 revenue increased 7% year over year, driven by growth in both the B2C and B2B businesses. The B2C business is seeing the benefits of AI-driven product enhancements, such as speaking practice, which is driving deep engagement and strong performance in customer acquisition and retention. The B2B business maintains strong double-digit growth in Q1, achieving 29% year-over-year revenue increase, driven by a strategic focus on retaining and growing large enterprise clients. We expect Busuu to achieve approximately $48 million in revenue in 2025 and to be adjusted EBITDA positive by the first quarter of 2026. Our reinvented skills product is set up for what I believe will be a breakout year in 2025. Chegg Skills provides skill building for the modern workforce, including foundational digital skilling and broad-based AI training, and is trending towards the highest outcomes we've seen to date. In Q1, we entered into a pilot program with Edify Online and Noodle to provide AI programs that support a higher education initiative in India. In Q2 and Q3, we expect to further expand our Guild business and add additional partners. We believe that Skills is on a path to profitability and positive revenue growth in 2026. And finally, there's significant value in our library of proprietary and high-quality questions and answer pairs in our network of subject matter experts. We continue to make improvements in our content operations with a new quality control rubric as we prepare for the content licensing opportunity I mentioned earlier. As we have said many times, Content is the heart and soul of our Chegg study business, and these improvements in our QC rubric will serve both students and our new content licensing initiative. While we exceeded expectations in Q1 and see great value in the areas of the business I just went through, we believe the macroeconomic trends will continue to put pressure on our company and business trends will worsen before they get better. Google and their expansion of AI overviews continues to keep traffic captive in the Google search experience and migrate search to Gemini. Additionally, language model companies are turning to academia for validation, with OpenAI recently giving college students free access to GPT+, and Anthropic launching a free education offering. As a result, we are once again taking proactive measures to align costs with our business outlook. We executed two restructurings in 2024, and today we are announcing further cost reduction plans. This restructuring will include expense reductions across our business, including closing physical offices in the US and Canada by the end of the year, limiting our upper funnel marketing, reducing new product development efforts, and finally cutting our general and administrative expenses. Chegg Skills and Busuu are not affected as we are encouraged by the progress these businesses have made and we are investing in their growth. As a part of this, we regrettably will be parting ways with approximately 22% or 248 of our talented team members, which is a challenging decision and one I'm saddened by. The impact is concentrated in the US and Canada and predominantly affects Chegg Study and corporate services, which will result in a 66% reduction in these areas of our business. The actions today will drive $45 to $55 million in savings in 2025 with four-year savings of $100 to $110 million in 2026. This is on top of the $120 million of 2025 savings we are on track to fully realize from our two 2024 restructuring initiatives. These decisions continue to be challenging, and we do not make them lightly. I want to personally thank each talented team member for their contributions to CHECK. To conclude, I want to reinforce the key points from what I shared today. Our strategic alternatives process is going well and is the best way to maximize shareholder value and keep Chegg's student-first mission thriving. We believe the strategy for Chegg study providing true learning outcomes for students is enduring, and while our direct-to-student penetration normalizes, we're diversifying our revenue through two key opportunities in question-and-answer pair licensing and institutional direct contracts. We continue to make the hard decisions to align our revenue decline and take steady with our operating expenses, as challenging as they are. And finally, we are excited about the performance of BUSU and the opportunity for skills, both of which are primed for a breakout year and expected to be adjusted even to positive in 2026. With that, I'll turn it over to David.