DISCUSSION AND ANALYSIS OF THE FINANCIAL AND BUSINESS RESULTS OF CHEGG, INC. (Form 10-Q)

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You should read the following discussion of our financial condition and results
of operations in conjunction with our condensed consolidated financial
statements and the related notes included in Part I, Item 1, "Financial
Statements (unaudited)" of this Quarterly Report on Form 10-Q. In addition to
historical consolidated financial information, the following discussion contains
forward-looking statements that reflect our plans, estimates, and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements. See the section titled "Note about Forward-Looking
Statements" for additional information. Factors that could cause or contribute
to these differences include those discussed below and elsewhere in this
Quarterly Report on Form 10-Q.

overview

Millions of people Learn with Chegg. We strive to improve educational outcomes
by putting the student first. We support students on their journey from high
school to college and into their career with tools designed to help them learn
their course materials, succeed in their classes, save money on required
materials, and learn the most in-demand skills. Our services are available
online, anytime and anywhere.

Students subscribe to our subscription services, which we collectively refer to
as Chegg Services. Our primary Chegg Services include Chegg Study, Chegg
Writing, Chegg Math Solver, Chegg Study Pack, Mathway, and Thinkful. Our Chegg
Study subscription service provides "Expert Questions and Answers" and
step-by-step "Textbook Solutions," helping students with their course work. When
students need writing help, including plagiarism detection scans and creating
citations for their papers, they can use our Chegg Writing subscription service.
Our Chegg Math Solver subscription service helps students understand math by
providing a step-by-step math solver and calculator, and we expect to
incorporate Mathway into Chegg Math Solver. We also offer our Chegg Study Pack
as a premium subscription bundle of our Chegg Study, Chegg Writing, and Chegg
Math Solver services. Our Thinkful skills-based learning platform offers
professional courses focused on the most in-demand technology skills.

Required Materials includes our print textbook and eTextbook offerings, which
help students save money compared to the cost of buying new. We offer an
extensive print textbook library primarily for rent and also for sale both on
our own and through our print textbook partners. We partner with a variety of
third parties to source print textbooks and eTextbooks directly or indirectly
from publishers in the United States, including Cengage Learning, Pearson,
McGraw Hill, Sage Publications, and John Wiley & Sons, Inc.

During the three and nine months ended September 30, 2021, we generated net
revenues of $171.9 million and $568.8 million, respectively, and in the same
periods had net income of $6.7 million and net loss of $25.8 million,
respectively. During the three and nine months ended September 30, 2020, we
generated net revenues of $154.0 million and $438.6 million, respectively, and
in the same periods had net loss of $37.1 million and $32.3 million,
respectively.

Our long-term strategy is centered upon our ability to utilize Chegg Services to
increase student engagement with our learning platform. We plan to continue to
invest in the expansion of our Chegg Services to provide a more compelling and
personalized solution and deepen engagement with students. In addition, we
believe that the investments we have made to achieve our current scale will
allow us to drive increased operating margins over time that, together with
increased contributions of Chegg Services, will enable us to sustain
profitability and remain cash-flow positive in the long-term. Our ability to
achieve these long-term objectives is subject to numerous risks and
uncertainties, including our ability to attract, retain, and increasingly engage
the student population, reduced traffic to our services, intense competition in
our markets, the ability to achieve sufficient contributions to revenue from
Chegg Services, and other factors, such as the COVID-19 pandemic, which
continues to evolve and affect our business and results of operations. The
COVID-19 pandemic subjects our business to numerous risks and uncertainties,
most of which are beyond our control and cannot be predicted, including when
colleges will resume in-person classes or how well they will overcome the
impacts of the COVID-19 pandemic on enrollment and other factors. These risks
and uncertainties are described in greater detail in Part I, Item 1A, "Risk
Factors" in our Annual Report on Form 10-K for the fiscal year ended December
31, 2020.

We have presented revenues for our two product lines, Chegg Services and
Required Materials, based on how students view us and the utilization of our
products by them. More detail on our two product lines is discussed in the next
two sections titled "Chegg Services" and "Required Materials."

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Chegg Services

Our Chegg Services product line for students primarily includes Chegg Study,
Chegg Writing, Chegg Math Solver, Chegg Study Pack, Mathway, and Thinkful.
Students typically pay to access Chegg Services on a monthly basis. We also work
with leading brands to provide students with discounts, promotions, and other
products that, based on student feedback, delight them.

In the aggregate, Chegg Services revenues were 85% of net revenues during both
the three and nine months ended September 30, 2021, respectively and 77% and 79%
of net revenues during the three and nine months ended September 30, 2020,
respectively.

Required material

Our Required Materials product line includes revenues from print textbooks and
eTextbooks. Revenues from print textbooks that we own are primarily recognized
as the total transaction amount ratably over the rental term, generally a two-
to five-month period. Revenues from print textbooks owned by a partner are
recognized as a revenue share on the total transactional amount immediately when
a print textbook ships to a student. Additionally, Required Materials includes
revenues from eTextbooks, which are primarily recognized ratably over the
contractual period, generally a two- to five-month period.

In the aggregate, Required Materials revenues were 15% of net revenues during
both the three and nine months ended September 30, 2021, respectively, and 23%
and 21% of net revenues during the three and nine months ended September 30,
2020.

Seasonality of Our Business

Revenues from Chegg Services, print textbooks that we own, and eTextbooks are
primarily recognized ratably over the term a student subscribes to our Chegg
Services, rents a print textbook or has access to an eTextbook. This has
generally resulted in our highest revenues and profitability in the fourth
quarter as it reflects more days of the academic year. Our variable expenses
related to cost of revenues and marketing activities remain highest in the first
and third quarters such that our profitability may not provide meaningful
insight on a sequential basis.

As a result of these factors, the most concentrated periods for our revenues and
expenses do not necessarily coincide, and comparisons of our historical
quarterly results of operations on a sequential basis may not provide meaningful
insight into our overall financial performance.

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Results of Operations
The following table summarizes our historical condensed consolidated statements
of operations (in thousands, except percentage of total net revenues):
                                                                Three Months Ended                                                   Nine Months Ended
                                                                   September 30,                                                       September 30,
                                                      2021                              2020                              2021                              2020
Net revenues                               $ 171,942            100  %       $ 154,018            100  %       $ 568,798            100  %       $ 438,617            100  %
Cost of revenues(1)                           67,102             39             62,370             40            199,194             35            148,284             34
Gross profit                                 104,840             61             91,648             60            369,604             65            290,333             66
Operating expenses:
Research and development(1)                   43,269             25             44,041             29            130,995             23            123,956             28
Sales and marketing(1)                        27,239             16             24,625             16             75,139             13             60,621             14
General and administrative(1)                 33,971             20             40,784             26            111,560             20             98,221             22

Total operating expenses                     104,479             61            109,450             71            317,694             56            282,798             64
Income (loss) from operations                    361              -            (17,802)           (11)            51,910              9              7,535              2
Total interest expense, net and other
income (expense), net                          7,037              4            (18,272)           (12)           (71,881)           (13)           (36,924)            (8)
Income (loss) before provision for income
taxes                                          7,398              4            (36,074)           (23)           (19,971)            (4)           (29,389)            (6)
Provision for income taxes                       747              -              1,066             (1)             5,793             (1)             2,875             (1)
Net income (loss)                          $   6,651              4  %       $ (37,140)           (24) %       $ (25,764)            (5) %       $ (32,264)            (7) %

(1) Includes share-based compensation
expense as follows:
Cost of revenues                           $     393                         $     262                         $   1,174                         $     644
Research and development                       8,917                             8,433                            25,976                            23,044
Sales and marketing                            3,051                             2,431                             9,625                             7,053
General and administrative                    12,151                            10,403                            39,382                            28,668
Total share-based compensation expense     $  24,512                         $  21,529                         $  76,157                         $  59,409



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Three and Nine Months Ended September 30, 2021 and 2020

Net income

The following table sets forth our total net revenues for the periods shown for
our Chegg Services and Required Materials product lines (in thousands, except
percentages):
                                        Three Months Ended                     Change
                                          September 30,
                                       2021           2020                  $            %
               Chegg Services       $ 146,790      $ 118,895            $ 27,895        23  %
               Required Materials      25,152         35,123              (9,971)      (28)
               Total net revenues   $ 171,942      $ 154,018            $ 17,924        12



                                        Nine Months Ended                       Change
                                          September 30,
                                       2021           2020                   $            %
               Chegg Services       $ 482,654      $ 345,258            $ 137,396        40  %
               Required Materials      86,144         93,359               (7,215)       (8)
               Total net revenues   $ 568,798      $ 438,617            $ 130,181        30



Chegg Services revenues increased $27.9 million, or 23%, and $137.4 million or
40%, during the three and nine months ended September 30, 2021, respectively,
compared to the same periods in 2020, primarily due to our efforts to reduce
account sharing, increased global awareness and penetration and the introduction
of enhanced offerings, including our acquisition of Mathway, which closed in
June 2020. Chegg Services revenues were 85% of net revenues during both the
three and nine months ended September 30, 2021, respectively, and 77% and 79% of
net revenues during three and nine months ended September 30, 2020,
respectively. Required Materials revenues decreased $10.0 million, or 28%, and
$7.2 million, or 8% during the three and nine months ended September 30, 2021,
respectively, compared to the same periods in 2020 primarily due to lower unit
volumes. Required Materials revenues were 15% of net revenues during both the
three and nine months ended September 30, 2021, respectively, and 23% and 21%
during the three and nine months ended September 30, 2020, respectively.

As students returned to school, we started to see a slowdown in the education
market, which resulted in a decline in traffic to education technology services,
such as the ones we provide. As a result, we are experiencing a decline in the
growth rates of our services and revenues that we believe will continue into
fiscal year 2022.

Cost of Revenues

The following table shows our cost of sales for the specified periods (in thousands, except in percent):

                                                         Three Months Ended
                                                           September 30,                       Change
                                                         2021           2020                 $          %
 Cost of revenues(1)                                 $   67,102      $ 62,370            $ 4,732        8  %

 (1) Includes share-based compensation expense of:   $      393      $    262            $   131       50  %



                                                                 Nine Months Ended
                                                                   September 30,                                Change
                                                              2021               2020                      $                %
Cost of revenues(1)                                       $ 199,194          $ 148,284                $ 50,910              34  %

(1) Includes share-based payment expenses of: $ 1,174

  $     644                $    530              82  %



Cost of revenues increased $4.7 million, or 8%, during the three months ended
September 30, 2021, compared to the same period in 2020. The increase was
primarily attributable to higher other depreciation and amortization expense of
$5.4 million, higher net loss on textbook library of $5.2 million primarily due
to increased write-downs, higher web hosting fees of $2.4 million, transitional
logistics charges of $2.3 million incurred in conjunction with the transition of
our print textbooks to a new third party logistics provider, partially offset by
lower order fulfillment fees of $8.8 million and lower cost
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of textbooks purchased by students of $1.5 million. Gross margins increased to
61% during the three months ended September 30, 2021, from 60% during the same
period in 2020.

Cost of revenues increased $50.9 million, or 34%, during the nine months ended
September 30, 2021, compared to the same period in 2020. The increase was
primarily attributable to higher other depreciation and amortization expense of
$16.4 million, higher net loss on textbook library of $10.8 million primarily
due to increased write-downs, transitional logistics charges of $6.5 million
incurred in conjunction with the transition of our print textbooks to a new
third party logistics provider, higher web hosting fees of $5.1 million, higher
cost of textbooks purchased by students of $4.3 million, higher payment
processing fees of $4.0 million, higher employee-related expenses, including
share-based compensation expense, of $3.1 million, and higher customer support
fees of $2.5 million, partially offset by lower order fulfillment fees of
$1.8 million. Gross margins decreased to 65% during the nine months ended
September 30, 2021, from 66% during the same period in 2020.

Operating expenses The following table shows our total operating expenses for the specified periods (in thousands, except in percent):

                                                                     Three Months Ended
                                                                        September 30,                                Change
                                                                   2021               2020                      $                %
Research and development(1)                                    $  43,269          $  44,041                $   (772)             (2) %
Sales and marketing(1)                                            27,239             24,625                   2,614              11
General and administrative(1)                                     33,971             40,784                  (6,813)            (17)

Total operating expenses                                       $ 104,479          $ 109,450                $ (4,971)             (5) %

(1) Includes share-based compensation expense of:
Research and development                                       $   8,917          $   8,433                $    484               6  %
Sales and marketing                                                3,051              2,431                     620              26
General and administrative                                        12,151             10,403                   1,748              17
Share-based compensation expense                               $  24,119          $  21,267                $  2,852              13  %



                                                        Nine Months Ended
                                                          September 30,                        Change
                                                       2021           2020                  $           %
Research and development(1)                         $ 130,995      $ 123,956            $  7,039        6  %
Sales and marketing(1)                                 75,139         60,621              14,518       24
General and administrative(1)                         111,560         98,221              13,339       14

Total operating expenses                            $ 317,694      $ 282,798            $ 34,896       12  %

(1) Includes share-based compensation expense of:
Research and development                            $  25,976      $  23,044            $  2,932       13  %
Sales and marketing                                     9,625          7,053               2,572       36
General and administrative                             39,382         28,668              10,714       37
Share-based compensation expense                    $  74,983      $  58,765            $ 16,218       28  %



Research and Development

Research and development expenses decreased $0.8 million, or 2%, during the
three months ended September 30, 2021 compared to the same period in 2020,
remaining relatively flat. Research and development expenses as a percentage of
net revenues were 25% during the three months ended September 30, 2021 compared
to 29% during the same period in 2020.

Research and development expenses increased $7.0 million, or 6%, during the nine
months ended September 30, 2021 compared to the same period in 2020, which was
primarily attributable to higher employee-related expenses, including
share-based compensation expense, of $8.1 million. Research and development
expenses as a percentage of net revenues were 23% during the nine months ended
September 30, 2021 compared to 28% during the same period in 2020.

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Sales and Marketing

Sales and marketing expenses increased by $2.6 million, or 11%, during the three
months ended September 30, 2021, compared to the same period in 2020. The
increase was primarily attributable to increased marketing spend, including
expansion in international markets, of $1.6 million and higher employee-related
expenses, including share-based compensation expense, of $0.7 million. Sales and
marketing expenses as a percentage of net revenues were flat at 16% during the
three months ended September 30, 2021 and 2020.

Sales and marketing expenses increased by $14.5 million, or 24%, during the nine
months ended September 30, 2021, compared to the same period in 2020. The
increase was primarily attributable to increased marketing spend, including
expansion in international markets, of $7.5 million and higher employee-related
expenses, including share-based compensation expense, of $4.8 million. Sales and
marketing expenses as a percentage of net revenues were 13% during the nine
months ended September 30, 2021 compared to 14% during the same period in 2020.

General and administration

General and administrative expenses decreased $6.8 million, or 17%, during the
three months ended September 30, 2021 compared to the same period in 2020. The
decrease was primarily due to a 2020 impairment charge on our investment in
WayUp of $10.0 million partially offset by higher employee-related expenses,
including share-based compensation expense, of $1.4 million. General and
administrative expenses as a percentage of net revenues were 20% during the
three months ended September 30, 2021 compared to 26% during the same period in
2020.

General and administrative expenses increased $13.3 million, or 14%, during the
nine months ended September 30, 2021 compared to the same period in 2020. The
increase was primarily due to higher employee-related expenses, including
share-based compensation expense, of $13.2 million and higher professional fees
of $4.5 million, partially offset by a 2020 impairment charge on our investment
in WayUp of $10.0 million. General and administrative expenses as a percentage
of net revenues were 20% during the nine months ended September 30, 2021
compared to 22% during the same period in 2020.

Interest expense and other income (expense), net

The following table shows our interest expenses and other income (expenses), net, for the periods shown (in thousands, except in percent):

                                                              Three Months Ended
                                                                 September 30,                                 Change
                                                            2021               2020                      $                %
Interest expense, net                                   $  (1,633)         $ (17,468)               $ 15,835                 n/m
Other income (expense), net                                 8,670               (804)                  9,474                 n/m
Total interest expense, net and other income (expense),
net                                                     $   7,037          $ (18,272)               $ 25,309                 n/m



                                                               Nine Months Ended
                                                                 September 30,                                 Change
                                                            2021               2020                      $                 %
Interest expense, net                                   $  (5,263)         $ (44,320)               $  39,057                 n/m
Other income (expense), net                               (66,618)             7,396                  (74,014)                n/m

Total interest expense, net and other income (expense), net

                                                     $ (71,881)         $ (36,924)               $ (34,957)                n/m


________________________________________

* n / m – not meaningful

Interest expense, net decreased $15.8 million and $39.1 million during the three
and nine months ended September 30, 2021, respectively, compared to the same
periods in 2020, due to the reduction in non-cash interest expense related to
the debt discount as a result of the adoption of ASU 2020-06 on January 1, 2021.

Other income (expense), net increased $9.5 million during the three months ended
September 30, 2021, compared to the same period in 2020, due to the $7.2 million
gain on the sale of our strategic equity investment and absence of the
$3.3 million loss on early extinguishment of debt related to the partial
exchange of the 2023 notes. Other income (expense), net, decreased $74.0 million
during the nine months ended September 30, 2021, compared to the same period in
2020, primarily as a result of the $78.2 million loss on early extinguishment of
debt related to the 2025 notes, $7.1 million net loss on the change in fair
value
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of derivative instruments, and $5.2 million of lower interest income earned on
our investments partially offset by the $12.5 million gain on the sale of our
strategic equity investments and absence of the $3.3 million loss on early
extinguishment of debt related to the partial exchange of the 2023 notes.

See Note 7, "Convertible Senior Notes," of our accompanying Notes to Condensed
Consolidated Financial Statements included in Part I, Item 1, "Financial
Statements (unaudited)" of this Quarterly Report on Form 10-Q for additional
information on changes to interest expense, net related to the adoption of ASU
2020-06 and other income (expense), net related to the losses on early
extinguishment of debt and the change in fair value of derivative instruments.

Provision for income taxes

The following tables show our provision for income taxes for the periods shown (in thousands, except in percent):

                                             Three Months Ended
                                                September 30,                        Change
                                              2021            2020                $           %
           Provision for income taxes   $    747            $ 1,066            $ (319)      (30) %



                                 Nine Months Ended
                                   September 30,                       Change
                                 2021          2020                 $           %
Provision for income taxes   $    5,793      $ 2,875            $ 2,918       101  %



Provision for income taxes decreased $0.3 million, or 30%, during the three
months ended September 30, 2021 compared to the same period in 2020 primarily as
a result of releasing a portion of our foreign uncertain tax position reserve.
Provision for income taxes increased $2.9 million, or 101%, during the nine
months ended September 30, 2021, compared to the same period in 2020 primarily
due to an increase in foreign profits and the withholding taxes related to the
March 2021 sale of our strategic equity investment.

Liquidity and capital resources

As of September 30, 2021, our principal sources of liquidity were cash, cash
equivalents, and investments totaling $2.6 billion, which were held for working
capital purposes. The substantial majority of our net revenues are from
e-commerce transactions with students, which are settled immediately through
payment processors, as opposed to our accounts payable, which are settled based
on contractual payment terms with our suppliers.

In November 2021, our board of directors approved a $500.0 million increase to
our existing securities repurchase program authorizing the repurchase of up to
$1.0 billion of our common stock and/or convertible notes, through open market
purchases, block trades, and/or privately negotiated transactions or pursuant to
Rule 10b5-1 plans, in compliance with applicable securities laws and other legal
requirements. The timing, volume, and nature of the repurchases will be
determined by management based on the capital needs of the business, market
conditions, applicable legal requirements, and other factors. Through
September 30, 2021, we have repurchased $57.4 million and $100.0 million of
aggregate principal amount of the 2023 notes and 2025 notes, respectively, in
privately negotiated transactions for an aggregate consideration of
$149.6 million and $184.9 million, respectively. $665.5 million remains under
the repurchase program, which has no expiration date and will continue until
otherwise suspended, terminated or modified at any time for any reason by our
board of directors.

In February 2021, we completed an equity offering in which we raised net
proceeds of $1,091.5 million, after deducting underwriting discounts and
commissions and offering expenses (2021 equity offering). In August 2020 and
March/April 2019, we closed offerings of our 2026 notes and 2025 notes,
generating net proceeds of approximately $984.1 million and $780.2 million,
respectively, in each case after deducting the initial purchasers' discount and
estimated offering expenses payable by us. The 2026 notes and 2025 notes mature
on September 1, 2026 and March 15, 2025, respectively, unless converted,
redeemed or repurchased in accordance with their terms prior to such dates.

As of September 30, 2021, we have incurred cumulative losses of $361.5 million
from our operations and we may incur additional losses in the future. Our
operations have been financed primarily by our initial public offering of our
common stock (IPO), our 2017 follow-on public offering, our convertible senior
notes offerings, our 2021 equity offering, and cash generated from operations.
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We believe that our existing sources of liquidity will be sufficient to fund our
operations and debt service obligations for at least the next 12 months. Our
future capital requirements will depend on many factors, including our rate of
revenue growth, our investments in research and development activities, our
acquisition of new products and services, and our sales and marketing
activities. To the extent that existing cash and cash from operations are
insufficient to fund our future activities, we may need to raise additional
funds through public or private equity or debt financing. Additional funds may
not be available on terms favorable to us or at all. If adequate funds are not
available on acceptable terms, or at all, we may be unable to adequately fund
our business plans and it could have a negative effect on our business,
operating cash flows and financial condition.

Most of our cash, cash equivalents, and investments are held in the United
States. As of September 30, 2021, our foreign subsidiaries held an insignificant
amount of cash in foreign jurisdictions. We currently do not intend or foresee a
need to repatriate some of these foreign funds; however, as a result of the Tax
Cuts and Jobs Act, we anticipate the U.S. federal impact to be minimal if these
foreign funds are repatriated. In addition, based on our current and future
needs, we believe our current funding and capital resources for our
international operations are adequate.

The following table shows our cash flows (in thousands):

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