Chegg Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 5, 2025

Key Takeaways

  • Neutral Sentiment: We are conducting a strategic review to explore options including acquisition, going private, or remaining independent, engaging with select parties to maximize shareholder value.
  • Positive Sentiment: In Q2, Chegg exceeded guidance with $105 million in revenue and $23 million in adjusted EBITDA, and identified an additional $17 million in expense savings for 2026 while on track for $165–175 million in non-GAAP cost reductions in 2025.
  • Positive Sentiment: Busuu grew revenue 15% year-over-year (with B2B up 39%) and improved retention by 22 points, aiming for $48 million in 2025 revenue and adjusted EBITDA profitability in 2026.
  • Positive Sentiment: The Skills business saw a 16% quarter-over-quarter increase in enrollments and is positioned for positive double-digit growth and profitability in 2026, backed by AI programs and B2B expansion.
  • Negative Sentiment: Subscription revenue declined 36% year-over-year (to $90 million) with subscribers down 40%, reflecting lower traffic partly due to Google AI overviews despite improved ARPU and retention.
AI Generated. May Contain Errors.
Earnings Conference Call
Chegg Q2 2025
00:00 / 00:00

There are 6 speakers on the call.

Operator

Greetings, and welcome to Chegg Inc. Second Quarter twenty twenty five 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. As a reminder, this conference is being recorded.

Operator

It is now my pleasure to introduce your host, Tracy Ford. Thank you. You may begin.

Speaker 1

Good afternoon. Thank you for joining Chegg's second quarter twenty twenty five conference call. On today's call are Nathan Schultz, President and CEO and David Longo, 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.

Speaker 1

We routinely post information on our website and intend to make important announcements on our media center website at chegg.com/mediacenter. 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.

Speaker 1

In particular, we refer you to the cautionary language included in today's earnings release and the risk factors described under Chegg's Annual Report on Form 10 ks for the year ended 12/31/2024, filed with the Securities and Exchange Commission on 02/24/2025, as well as our other filings with the SEC. Any forward looking statements 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 release on the investor slide deck on our IR website, investor.chegg.com.

Speaker 1

We also recommend you review the investor datasheet, which is also posted on our IR website. Now I will turn the call over to Nathan.

Speaker 2

Thank you, Tracy. Hello, and thank you for joining Chegg's second quarter twenty twenty five earnings call. Today's call will be structured in two areas. First, an update on strategic review process, and second, deep on-depth on our transformation to profitable growth, specifically within skills and busu, which we believe will be the growth as in for Chegg going forward. As part of the strategic review process in conjunction with our advisors, we have undertaken comprehensive evaluation of both our internal operations in the broad market landscape to drive the best possible outcome for our stockholders and maximize long term shareholder value.

Speaker 2

As a reminder, we are exploring a range of outcomes include including being acquired, undertaking a go private transaction, or remaining a public standalone company. We continue to engage with a select group of parties. Q2 was a good quarter for Chegg. We surpassed our guidance and delivered $105,000,000 in revenue and $23,000,000 in adjusted EBITDA. I'm pleased by our continued focus on disciplined expense management having identified an additional 17,000,000 in CapEx and expense savings that will be realized in 2026.

Speaker 2

Additionally, I'm encouraged by the revenue growth in Busu and the reinvention of Chegg Study into a personalized learning assistant that continues to get less expensive to run, thanks to AI. We remain firmly on track to achieve the targets outlined in our previously announced restructuring efforts, reduce our non GAAP expense by a 165 to a 175,000,000 in 2025 and now expect the total non GAAP expense savings in 2026 to be between a 110 and 120,000,000. As we look towards 2026, Chegg is evolving into a skills focused organization, investing in two large growth areas, language learning and workplace readiness and upskilling. These businesses, BUSU and Skills respectively, represent the future of our company and will serve as a primary growth engines while our core academic product Chegg Study will remain a valuable valuable service for millions of students and during generate meaningful cash that will support our investments in Busuu and Skills. Busuu is our language learning business that caters to adults who need to learn a new language to better their life or career.

Speaker 2

This is an enormous market of 78,000,000 success seeking learners with a 3,200,000,000.0 market opportunity. Our recent investments are paying off. And if you haven't tried this through yet, now is a great time. We encourage you to explore the new AI powered features, including our new speaking bytes product. Vuzu continues on a strong path, achieving a 15% year over year revenue increase in q two with good performance in both the b to c and B2B segments.

Speaker 2

B2C revenue increased 6% year over year and in the second half of the year, B2C focus will be on product innovation with continued emphasis on AI as a driver for personalization. Boozoo's b to b business achieved an even more impressive 39% year over year revenue growth, continuing a robust double digit growth trajectory, including retention improving by 22 percentage points year over year. Throughout h two, we will continue our rollout with guilds into the language language learning vertical and expand our offering with learning pathways, which offers personalized courses focused on key language and professional skills for specific roles and industries. We've had a significant b to b traction in the Dock Region as well with new partners such as HSF, Fenster and Turin, and Hubert Berta Media. We remain confident that Busuu will achieve 48,000,000 in revenue in 2025 and will be adjusted EBITDA positive in the 2026.

Speaker 2

Our skills business focuses on the $40,000,000,000 market serving workplace readiness and upscaling for professional adults looking to move ahead in their careers. We spent the last twelve months modernizing our product offering and prioritizing three growth areas, AI programs, career fundamentals, and professional upskilling. We're really excited to see exactly what we want. Enrollments have increased 16% quarter over quarter and 11% increase in monthly active users across our new programs quarter over quarter. Looking ahead to q three, we'll continue to invest and expand our go to market strategies for skills.

Speaker 2

So here are the priorities. We're focusing on growing our direct b to b presence as well as deepening our relationship with distribution partners such as Guilt. We are also pursuing ACE credit recommendations for several of our skills programs for to count for college credits, helping to support those seeking degrees and creating a bridge for us to monetize students as they transition from our academic services to our career services. Finally, we are continuing to strengthen and broaden our programs, expanding our reach into the enormous upscaling market opportunity. For a complete view of our skills catalog, please reference our investor deck.

Speaker 2

We're optimistic about the potential for our skills business and believe it is on a path to profitability and positive double digit growth in 2026. Chegg Study continues to serve millions of students and our investments in AI to transform Chegg Study into a personalized learning coach that helps students succeed and improve their opportunity to graduate. Earlier this year, we launched SolutionScout and AI powered practicing flashcard generators. We're getting really positive feedback with students reporting a 23% lift in the statement Chegg helped me learn today and a 17% lift in students who intend to use Chegg in the next thirty days. Most importantly, our monthly retention rate is up a 117 basis points in q two.

Speaker 2

For the rest of 2025, we'll continue to push the differentiated and personalized nature of our product. Research from the Pew Center confirms that the freshman class of 2025 is expected to be the biggest, most diverse ever. This September, we'll introduce two new core capabilities into the existing user interface, pushing Chegg Study into into a personalized learning search for the modern learner. First, we are building a smart planning tool to help students set learning goals, organize their work, and stay on track with personalized step by step guidance. Second, we are introducing a voice interface when combined with visual aids and a thoughtful AI agent will deepen learning across topics and disciplines.

Speaker 2

Voice managed for learning because it improves comprehension and memory, clarifies thinking, and increases engagement. Finally, our business institution pilot program continues to expand moving from five active pilot programs at the start of the year to now 23. With many pilots in place, we are now focused on efficacy studies validating what we have always known. Students who use Chegg perform better academically. We believe there's a tremendous opportunity to support a broad range of students in achieving their academic goals while increasing persistence in graduation rates.

Speaker 2

To wrap this up, we continue to make progress towards the strategic alternatives process and are pleased with the positive trends we are seeing in Busu and Skills and the technology investments we've made in Chegg Study to allow the business to run efficiently and be the investment vehicle for the company in 2026. That, I'll turn it

Speaker 3

over to David. Thank you, Nathan, and good afternoon. Today, I will be presenting our financial performance for the 2025 along with the company's outlook for the third quarter. We delivered a good second quarter exceeding our guidance on both revenue and adjusted EBITDA. We continue to prioritize disciplined cost management in line with our business outlook.

Speaker 3

We are on target to fully realize the non GAAP expense savings objectives we previously announced of 165,000,000 to $175,000,000 in 2025 and 100,000,000 to $110,000,000 in 2026. As Nathan highlighted earlier, we are not stopping there. We have identified an additional $10,000,000 of operating expense savings and $7,000,000 in CapEx savings in 2026. Expense discipline is now in our DNA, and we are committed to unlocking each and every opportunity to strengthen cash flow and create shareholder value. In the second quarter, total revenue was $105,000,000 a decrease of 36% year over year.

Speaker 3

This includes subscription services revenue of $90,000,000 We had 2,600,000 subscribers during the quarter, representing a year over year decline of 40% as we continue to feel the impact of lower traffic largely due to Google AI overviews. Despite the traffic trends, retention and ARPU increased year over year, demonstrating that when students find Chegg, they value the service and are retaining as well as ever. Skills and other revenue was $15,000,000 in the quarter, which includes approximately $7,000,000 of revenue from content licensing. As we outlined last quarter, these content licensing agreements are nonexclusive and for a small percentage of our content. Non GAAP operating expenses were $64,000,000 in the quarter, a reduction of approximately $31,000,000 or 33% year over year, driven by the execution of our multiple restructurings.

Speaker 3

Our second quarter adjusted EBITDA was $23,000,000 representing a margin of 22. Capital expenditures for the quarter was $7,000,000 a decrease of 60% year over year. We anticipate full year 2025 CapEx of approximately $30,000,000 with a targeted further reduction of approximately 50% in 2026. Through innovative use of AI, we are on track to reduce content and software development CapEx by over $50,000,000 in 2026 versus 2024 while still delivering a high quality experience that our students expect from us. Free cash flow for the second quarter was negative $12,000,000 which was impacted by severance payments of $12,500,000 related to our restructuring as well as our annual prepayment for hosting expenses.

Speaker 3

Looking at the balance sheet, we concluded the quarter with cash and investments of $114,100,000 and a net cash balance of $52,000,000 Looking ahead for Q3 guidance, we expect total revenue between $75,000,000 and $77,000,000 with subscription services revenue between $67,000,000 and $69,000,000 gross margin to be in the range of 56 percent to 57% and adjusted EBITDA between 7,000,000 and $8,000,000 In closing, we have adapted our business in response to evolving consumer expectations and ongoing market turbulence. We are especially encouraged by the momentum we are seeing in Busu as well as the strong potential of Skills and for both to be significant growth drivers in our portfolio. We are investing in these platforms to accelerate growth and ensure they remain key drivers of long term shareholder value. At the same time, we continue to align our cost structure to support our priorities of generating cash flow and maximizing value for shareholders. Finally, I am pleased to announce that we have successfully cured our stock price deficiency during the quarter and regained compliance with the NYSE's price listing requirements.

Speaker 3

With that, I will turn the call over to the operator for your questions.

Operator

Thank you. Will now be conducting a question and answer session. The line the question tone indicate The first question we have is from Ryan MacDonald of Needham. This

Speaker 4

is Matt Shea on for Ryan. Maybe starting with Busuu. Nice to see the strong growth there, particularly in the b two b segment. As we think about the durability of the b two b segment within Busuu, it seems like partners are key to driving further growth. Do you guys think you can continue to grow at this rate with your current set of channel partners?

Speaker 4

Or how do you think about adding incremental partners versus going deeper with existing as you put together that growth algorithm?

Speaker 2

Hey, Matt, thanks for the question. Missing Ryan's voice, but nice see the question. Around the BV side, I want to clarify a couple of things on this. Our efforts around BV and why we continue to grow is definitely a two sided element there. There is our own direct in our Salesforce, which we've really proud of over the last twelve months, really growing that, getting that, I think, coming, getting the metrics going, getting the sales team cranking.

Speaker 2

So that's really driving a lot of that. And then it's also the great relationship that we have with Guild at the moment, growing from the foreign language category and now into the English language category. So we're not beholden to a reseller market to grow. We own a lot of our own destiny within our own sales structure. So really proud of what the team has done over there, and we're going to continue to see that growth.

Speaker 2

So do we think this growth is going to continue? Absolutely. The lever really is continuing to drive dive into the traditional kind of enterprise sales metrics, making sure those those sales reps continue to drive in new leads and continue to convert those leads and continuing to convert renewals at a higher rate. So we own a lot of our own destiny in that. We're really excited to see what the future does there.

Speaker 4

Okay. Great. Yeah. It sounds like a lot of optimism there. And then maybe on the Chegg study side, nice to see the traction in the business to institution pilots increasing from that five to 23 programs now.

Speaker 4

As you look to the fall, is there potential for incremental partners to join before the fall back to school season? Or how do you think about incremental adds ahead of that? And then longer term, how do you anticipate these pilots evolving into more meaningful relationships? And what might a timeline for something like that look like?

Speaker 2

Yeah, we're pleased with the success of growing from five to 23. The secret to unlocking the institutional market is to prove your value. So with the '23 we have now, yeah, we're going to continue to add some logos as we go throughout the year. But the focus really is proving out what we believe we've always known as students that use Chegg perform better in school. And the more we get schools behind us, the more that wave builds and builds and builds.

Speaker 2

And so, turning this into a business that drives significant revenue in '26 and '27 really depends on us working with these schools. We've focused on getting these ethics to reports, which we plan on doing throughout the second half of this year. And so, by the time we get into '26, we've got really, really verified and viable statistics around our performance and helping students to connect to the classroom and ultimately perform better from a persistence and graduation rate. And so that's the key to locking more predictable growth within the, within the B2B market.

Speaker 4

Got it. Thanks for all the color.

Speaker 2

Appreciate it.

Operator

The next question we have is from David Au of KeyBanc Capital Markets. Please go ahead.

Speaker 5

Hi, Nathan. Hi, David. Thanks for taking my questions. I also want to ask about Busu as well, maybe on the B2C portion of the business. It seems like that's been kind of holding up nicely.

Speaker 5

Could you just talk about what's been driving that steady performance? Have you seen perhaps broad consumer sentiment improved quarter over quarter? Or was the strength mainly driven by some of the new features you've been launching in the past couple of quarters?

Speaker 2

Yes, it's two things I'll talk about. One is focusing on the right persona. We've talked about this a couple of times, I believe in some past calls around this persona, we call it success seeker. These are people who need to learn a language, not are just dabbling and interested in a language. They need to learn a language for their jobs, their life.

Speaker 2

And by focusing on who should really be buying our products versus trying to go on after everyone in the general market and language learning has allowed us to identify the right people, drive them into the right conversion funnels and convert, frankly. So that's a big driver. The second is our product enhancements. We've really focused on integrating AI to take away some of the fear that people have about speaking a language, because the best way to learn a language is to actually practice and to engage with speaking that language. AI gives us a great ability to do that in a non threatening environment versus having to talk to another person who is a native speaker in that tongue.

Speaker 2

AI allows people to practice, make it very interactive. And it has been a great kind of driver. We call that the speaking bites and speaking practice within the product. We actually encourage everyone to go try it because we're really proud of it. And so it's those two categories.

Speaker 2

It's those two factors really driving it on who should be buying our product and identifying them and then going and tracking them and getting them to the right conversion funnels. And the innovation that the team has produced leveraging AI to make the product a lot stickier and get people into the again, to get to a point of like, of knowing why they should buy the product.

Speaker 5

Got it. Appreciate the context. It seems like it's doing well for sure. I want to switch gears a little bit and ask about skills just because there's news of some of the big tech and hyperscalers kind of stepping up their initiatives around AI education. I know it's still kind of early efforts by these large corporations, but curious to hear, how do you view your skills business kind of position in that marketplace to maybe capture some of the spend coming down in the future?

Speaker 5

Thank you.

Speaker 2

Yes, great follow-up. You saw in some of our prepared remarks, we're very optimistic about the skills business. We took a twelve month period of time to really think about what skills business should be for us and transition it from traditional boot camps. If you recall that market was red hot at one moment, it's a red hot these days. And now we're into the world of upscaling or rescaling that we're doing.

Speaker 2

We took that time to really transition the platform from one that was, I would call it long form in nature, really long hours, the real on courses to one that is more aligned to what people want today, which is kind of these micro learning moments. And so whether that is the fundamentals that we're working on, or any of the other categories that we're building out, we think we really feel the package that we've built in the container that we built for our courses is something that's very modern and something that very much meets the demand that's going to be in the market. So we're very excited to see where this is going to go in 2016 and beyond.

Speaker 5

Great, thank you.

Operator

Thank you. We have no further questions at this time. And with that, this concludes today's conference. Thank you for joining us. You may now disconnect your lines.

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