Background and Basis of Presentation

9 Months Ended

Sep. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Company and Background

Chegg, Inc. (Chegg, the Company, we, us, or our), headquartered in Santa Clara, California, was incorporated as a Delaware corporation in July 2005. Millions of people all around the world Learn with Chegg. Our mission is to improve learning and learning outcomes by putting students first. We support life-long learners starting with their academic journey and extending into their careers. The Chegg platform provides products and services to support learners to help them better understand their academic course materials, and also provides personal and professional development skills training, to help them achieve their learning goals.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated financial statements include the results of Chegg, Inc. and its wholly-owned subsidiaries. Significant intercompany balances and transactions have been eliminated. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, including normal recurring adjustments, necessary to present fairly our financial position as of September 30, 2022, our results of operations, results of comprehensive income (loss), and stockholders' equity for the three and nine months ended September 30, 2022 and 2021 and cash flows for the nine months ended September 30, 2022 and 2021. Our results of operations, results of comprehensive income (loss), stockholders' equity, and cash flows for the nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year.

We have a single operating and reportable segment and operating unit structure. The condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the Annual Report on Form 10-K) filed with the SEC.

There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report on Form 10-K.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities; the disclosure of contingent liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience, knowledge of current business conditions, and various other factors we believe to be reasonable under the circumstances. These estimates are based on management’s knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ from these estimates, and such differences could be material to our financial position and results of operations. There have been no material changes in our use of estimates during the nine months ended September 30, 2022 as compared to the use of estimates disclosed in Part II, Item 8 “Consolidated Financial Statements and Supplementary Data” contained in our Annual Report on Form 10-K for the year ended December 31, 2021.

Condensed Consolidated Statements of Operations Details

Other income (expense), net consists of the following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Gain (loss) on early extinguishment of debt(1)	$	93,519	$	—	$	93,519	$	(78,152)
Loss on change in fair value of derivative instruments, net	—		—		—		(7,148)
Gain on sale of strategic equity investments	—		7,158		—		12,496
Gain on foreign currency remeasurement of purchase consideration(2)	—		—		4,628		—
Interest income	3,737		1,485		7,246		5,385
Other	2		27		(146)		801
Total other income (expense), net	$	97,258	$	8,670	$	105,247	$	(66,618)

(1) For further information, see Note 8, “Convertible Senior Notes.”

(2) For further information, see Note 5, “Acquisition.”

Impairment of Lease Related Assets

Right of use (ROU) assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. During the nine months ended September 30, 2022, we announced the closure of our San Francisco office and determined that the carrying amount of the ROU asset was not recoverable. As a result, we recorded an impairment charge of $3.4 million, consisting of a $2.0 million impairment of a ROU asset and $1.4 million write-off of leasehold improvements, included in general and administrative expense on our condensed consolidated statement of operations. Our intent and ability to sublease the office as well as the local market conditions were factored in when measuring the amount of impairment.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

There were no accounting pronouncements issued during the nine months ended September 30, 2022 that would have an impact on our financial statements.

Recently Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, Business Combinations-Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Accounting Standards Codification (ASC) Topic 606 as if the acquirer had originated the contracts. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted. We early adopted ASU 2021-08 on January 1, 2022 and applied it to our acquisition of Busuu. The most significant impacts were an increase in contract liabilities, contained within deferred revenue, and goodwill.

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 aims to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange based on the economic substance of the modification or exchange. Early adoption is permitted and the guidance must be applied prospectively to all modifications or exchanges that occur on or after the date of adoption. The guidance is effective for annual periods beginning after December 15, 2021. We adopted ASU 2021-04 on January 1, 2022 under the prospective method of adoption and there was no impact to our results of operations as we did not modify or exchange any freestanding equity-classified written call options.