Chegg Stock

Greetings, and welcome to the Chegg, Inc. Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Tracey Ford, VP of Investor Relations for Chegg. Thank you, Tracey. You may begin.

Good morning. Thank you for joining Chegg's Third Quarter 2026 Conference Call. On today's call are Dan Rosensweig, 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. 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.

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 for the year ended December 31, 2025, filed with the Securities and Exchange Commission 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 on the investor slide deck found on our IR website, investor.chegg.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 Dan.

Thank you, Tracey, and thanks, everyone, for joining Chegg's Third Quarter 2026 Earnings Call. Over the last year, our focus was rearchitecting our cost structure, accumulating cash, eliminating our debt and positioning Chegg to return to growth. I'm happy to report that the balance sheet reset is complete. In Q3, we had revenue of $46.5 million, adjusted EBITDA of $5.4 million and ended the quarter with $43.6 million in cash and no debt.

Core to our reinvention, we have repositioned Chegg from being a homework help company to an employability company focused on helping students find internships, assess and learn relevant job skills and find full-time employment. Our mission is simple: to help people get the jobs they want and build the careers they deserve. David will take you through the financials in more detail, but I want to walk you through what we are building.

Higher education is going through a dramatic transformation. But one thing that will never change is that students go to college to get a job. Economic uncertainty and anxiety around AI have made the path to a first job even more daunting for students and the need for what we are building even more urgent. In September, we launched our new employability platform on internships.com, a comprehensive experience that gives students personalized job matching, resume tailoring, one-click apply, interview prep, skills assessment and curated network connections, all in one place.

We have rapidly expanded the platform's capabilities and will soon be adding 70,000 early-career listings as we move beyond internships into entry-level roles. Since launch, we have had over 100,000 visitors to the site, a clear signal that employability is top of mind for students and their families. We recently rolled out our first marketing campaign for internships.com, both as a stand-alone product and bundled with Chegg, and the early results are encouraging.

At the same time, we are seeing our first institutional momentum. Since September, we have signed pilot programs with the College of Charleston, Salem College, Radford University, and we have several more schools set to sign in coming weeks. The reason is straightforward as institutions, colleges and universities increasingly know that their own success is measured on whether or not their graduates get jobs.

We are in active conversations with a meaningful number of schools, and we believe that the B2I channel is just getting started. Every time Chegg has evolved to serve students' most critical needs, it has entered a new growth chapter. This is that moment. We will continue to expand our offering through 2027 and beyond, but the foundation is live and the momentum is real.

As we expand how we serve students on the path from learning to earning, we continue to invest in our skills platform, which, thanks to AI, we are able to develop and launch more programs and more capabilities rapidly for more partners at a much lower cost.

Our multichannel approach continues to build, and we believe we are on a path to consistent growth in that business. We have signed 11 new distribution partners since the start of the year, including our recent announcement of PowerTrain. In Q3, we made significant product enhancements on how we build and deliver skills programs for our B2B clients. We can now scale tailored learning programs directly from a company's own systems, documents and objectives, grounded in our proven instructional design methodology. And, critically, we measure actual demonstrated proficiency. This is what enterprise buyers need and what sets us apart.

And I'm genuinely excited that our language learning product in both B2B and B2C channels is returning to growth. The new capabilities we have added create a better, more powerful experience for learners that combines language courses and workplace skills content delivered through adaptive AI, expert human coaching and real-world practice. Learners build both the language and the communication skills they need to perform in the moments that matter most. In Q3, our workplace skills content went live for English-speaking premium subscribers and is now expanding to Spanish, French, German and Italian. The goal is a performance platform designed around real-life outcomes, not lesson completions.

The last year has been both complicated and exhilarating -- complicated because AI hit our business hard, and we had to reinvent the company financially, structurally and across product offerings -- and exhilarating because we see all the opportunities ahead of us. We have been operating knowing that our traditional academic services business would wind down over time. And while it did, we would generate significant cash. That continues to play out as we anticipated and that, and that cash has allowed us to pay down our debt and invest in the future of the company.

As I said on the top of the call, we are on our way to being a very different company focused on employability. And as we look ahead, we will be strategic and targeted in how we think about growth across the company with both organic and inorganic opportunities. We are reviewing companies with strong IP and customer bases that could benefit from our new employability platform to help them grow faster at much lower cost. We will be judicious, but the pipeline is real. With a clean balance sheet and a market opportunity that is only getting bigger and the positive signals we are seeing in our most recent product launch on internships.com, we are excited about what's ahead, and I look forward to updating you on our progress next quarter.

And with that, I'll turn it over to David.

Thank you, Dan, and good morning. Today, I will review our financial performance for the third quarter of 2026, along with the company's outlook for the fourth quarter. We delivered a strong third quarter, exceeding our expectations while making meaningful progress in reshaping our business and balance sheet, executing on our strategic priorities and delivering free cash flow. Over the past year, we have significantly reduced our cost structure, repaid our remaining convertible debt and established a stronger financial foundation that expands our ability to invest in future growth.

We are now focused on building our employability business, helping learners develop workforce-ready skills while enabling employers to build and maintain a more skilled workforce. We believe this represents an attractive opportunity to create long-term value. As we execute our strategy, we remain focused on identifying additional cost savings, improving operational performance and leveraging AI across the business.

In the quarter, total revenue was $46.5 million, exceeding our expectations. Our legacy homework help business continued to decline as expected, while we focused investment on the areas we believe offer the greatest long-term opportunity. We entered into new skilling distribution partnerships, enhanced our language offering and continued to build our employability platform, which we expect to contribute more meaningfully in 2027.

Turning to expenses, Q3 non-GAAP operating expenses were $31.2 million, down 36% year-over-year. This reduction reflects the impact of our cost management initiatives and the use of AI to streamline operations and improve productivity across the organization. Adjusted EBITDA for the quarter was $5.4 million, representing a margin of 12%. Third quarter CapEx was $1.7 million, down 71% year-over-year.

For the full year 2026, we are targeting a greater than 60% reduction in CapEx. Free cash flow in the quarter was $5.5 million, reflecting our continued focus on cash generation and disciplined financial management.

Looking at the balance sheet, we ended the quarter with $43.6 million in cash and investments and fully repaid our remaining convertible debt. Eliminating our debt was a key objective for 2026 and marks an important milestone in strengthening our balance sheet.

Moving to guidance, looking ahead to the fourth quarter, we expect total revenues between $38 million and $40 million, gross margin in the range of 46% to 48% and adjusted EBITDA of approximately $1 million. With our debt eliminated, our capital allocation strategy remains focused on generating free cash flow, maintaining a strong balance sheet and thoughtfully deploying capital to create long-term shareholder value.

In closing, we have made significant progress repositioning Chegg for its next phase. We have strengthened both the business and the balance sheet, creating a more focused, efficient and financially flexible organization as we continue to build our employability platform. We believe we are well positioned to create long-term value through disciplined execution and thoughtful investment in future growth opportunities.

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

[Operator Instructions] Our first question is from Ryan MacDonald with Needham & Company.

On the balance sheet stability and the progress on the new initiatives. Dan, maybe to start, I'd be curious to see what you're seeing thus far with the employability platform in terms of student engagement as they're coming to the site. Is it simply, sort of, right now, sort of, building that engagement, sort of, through the browsing of the internship opportunities? Or are you starting to see early signs of good attach rates for some of the upselling to the resume, cover letter tailoring or the Chegg Complete offering?

Yes. Great question, and thank you for the comment because we're -- this has been a really challenging first year back. And the fact that we eliminated our debt, so we're debt-free, the fact that we have almost $45 million of cash on our balance sheet and the fact that we have the skilling business even before the employability platform that you're talking about that is going to be over $65 million this year -- I think we could acknowledge that the company finally is back in much healthier shape and should be valued at a lot higher than we're seeing today.

But the internship question is sort of fascinating because we asked ourselves the Jeff Bezos question, which is not what's changing, but what isn't going to change. And every student needs an internship and every student needs a job, no matter what school they go to or no matter what classes they take. And I think we were right: the fact that in less than 8 weeks, we had over 100,000 visitors to internships.com alone, and those are all people that were not current Chegg customers.

So, of course, our current Chegg customers also get to access the service as part of Chegg. So we actually have a lot more people using it than that, and that's pretty exciting. And honestly, ahead of what I expected since we only rolled it out at the beginning of September. So the product-market fit is clearly there. On the engagement metrics that you asked about, obviously, the first thing is, can they find us? So traffic has gone from, like, tenfold in terms of the number of people coming per day from when we launched it.

So clearly, people are finding us organically. We have started a very limited paid marketing campaign, and that's working. So once they find us, the goal is to get them to upload a resume. The percentage of people that come in and upload the resume is actually pretty high. And once they upload the resume, we're able to start to do the things that AI is able to do for them and the data that we have in the history of them is able to do for them.

So we're actually seeing significant growth week-over-week as we go into probably what will be the internship season. So the engagement is high in terms of resume uploads, searches, letters that we're writing, applications for jobs, all of which we automatically do for the students. So I would say right now, we have real optimism around it. And it's all small numbers, obviously, because we're just getting started, but each day, each week is a record over the previous week. And that's really all we can ask for at this time.

Makes sense. And then on the pilot programs you signed up with College of Charleston, Salem, Radford, I guess what are sort of some of the goals? Or what are these universities sort of looking to see during the pilot period that -- what are they judging sort of Chegg on from a success perspective when they're thinking about the pilot programs they're going through?

Yes, that's a great question because, as you know, historically, Chegg has not been able to work with colleges and universities. So we're ecstatic that we've got this many to sign up already, really just as a pilot program, and there's a lot more that are reaching out to us now because if you understand the economics of colleges, at the end of the day, enrollment is dependent now really on whether or not people think they're going to be able to get a job when they go to that college. And so the career services office is becoming really a hub of why parents or students agree to go to school.

So the goal of the pilot program is we do 2 things. The first thing is we've set up a set of data, which colleges historically have not had, which we're able to track and go back over the last 5 years, every student that's gone to that school, which companies they work for, what jobs they have, where they had internships, what they get paid, job descriptions, skills necessary so the colleges can actually track the success of their students. They always reached out to students or alumni to be able to get money. But now they really are tracking their employment so that they can say to a student at their school, if you take this major in this class from this individual, these are the kinds of companies that are likely going to recruit you for an internship or for a job, and these are the skills that you need.

They've never had access to the information. So the first thing is we set up college pages for all of the colleges. We're also going to do the same thing for employers on the other side so they can see which students from which schools are actively interested in working at their companies.

The second thing, then, is a certain number of students will be given access to our platform at no charge for several months so that we can actually track what the students do, and we can work with the career services centers. So we're actually willing to install people in the career services centers to help these students not only use the product, but really improve their ability to understand what it is that they need to do to get a job and internship.

So what the colleges are expecting is us to be able to give them data that they've never had before to help their students understand which jobs and internships are likely possible for them. And the second thing is they want to use our app as a way to help those students actually get the job. So when we started to talk to universities, we were concerned that over the historical situation as it related to Chegg, we've come up against none of it.

Got it. Makes sense. Okay. That's helpful. And then maybe on the -- sorry, go ahead.

Go ahead.

On the skilling business, you mentioned you're above $65 million in skilling revs this year. You've now got 11 distribution partners that have signed up since the start of the year. I guess -- I think we talked last quarter a bit about that maybe some of the ramping on some of those distribution partnerships was a little bit slower than what you're initially expecting. It sounds like, obviously, it's a little bit of a tougher environment on the B2B side out there just broadly in L&D. But I guess, how are those new distribution partners ramping relative to your expectations? And what sort of -- how is that informing your view on sort of the potential growth of that skilling business?

Yes. Great question. And so to your great point, at the beginning of the year, we had one partner in skilling. And that partner has been flat to down, unfortunately, based on their business. So our growth comes from adding new partners. And we were able to renegotiate a contract that would allow us to sign new partners. When it came back, we expected to have 4. We're now up to 11. And so now what we're learning is the length of time once you sign it to the actual rollout. Almost every rollout, regardless of when we signed the contract, really didn't roll out till the beginning of the fourth quarter or the very end of the third quarter.

So we're learning those ramps now. But we have excellent partners like Coursera, which are starting to show progress -- and so I think my expectation is by our next earnings call, we'll be able to understand which of these partnerships, what their value will be over a period of time. But they are starting to ramp, and that's been really positive. It's just -- as you point out, it takes time because you have to pick the right set of skills, you have to get into the distribution networks, you have to be rolled out by the partner, then the companies need to put you inside the catalog of choices for their employees. And those were things we just needed to learn along the way, but the fact that we have 11 versus 4 is a really good sign for us and the fact that they're beginning to yield shows that these are going to be good partners for us. But it's just too early to give you a solid number.

Makes sense. Okay. And then maybe just last one for David. Obviously, clean balance sheet now, have some cash, no debt. Can you just, kind of, walk us through, sort of, prioritization in terms of capital allocation strategy moving forward and whether or not you can, sort of, achieve, sort of, your strategic goals organically or if you start to look at small tuck-ins from an M&A perspective to, sort of, enhance what you're doing?

Yes. Thanks, Ryan. All of the above, really. And what we set out to do at the beginning of the year was make sure that the debt was paid off. We achieved that at the beginning of September, which was a large milestone for us and then continue to prioritize cash flow, cash generation. And every quarter this year, we've had free cash flow, including in the beginning half of the year when we were paying down some of the restructuring events that we've had.

So now that, that the debt is paid off, we -- as we mentioned in the call, we are looking at ways to continue to grow organically, inorganically. If we find the right opportunities to tuck in that can be accretive to our P&L, we'll take a look at all of those, but they've got to make sense strategically for what we're trying to do, but always focused on cash flow, cash generation.

So just one other point to add to that is there are a lot of assets that are good assets that have been underfunded or abandoned by their VC investors that we've been meeting and talking with over the course of the last year in anticipation of growing both organically and inorganically. And so I don't think there's going to be a shortage of opportunities. But to David's point, we're going to be very judicious. We're in no rush to take an asset that doesn't fit our goals. And our goals are both inorganic growth and organic growth and increased profitability with each transaction.

And one of the great things about the employability platform that we mentioned is our ability to take other companies and grow them faster at much lower cost because we've done the work that they haven't done yet. And so we'll be able to hang those companies on top of our platform, and that gives us a lot more opportunities. So we will be patient, but there will be opportunities, and we're pretty excited about...

We have reached the end of the question-and-answer session. I would like to turn the floor back over to Dan for closing comments.

So thanks for those of you who have listened to the call. It's been a really interesting year. Obviously, AI affected our business first, and we're using AI to reinvent the business going forward. So we're trying to go from a headwind to a tailwind. We stabilized the business. We've substantially improved the balance sheet. We have no debt. We have about $45 million in cash. We'll have produced cash every quarter this year, too, something the company hasn't done in a long time. And we've got a skilling business alone that is over $65 million of revenue expected this year. So we think that we are now in a position for people to take a look at us and understand that the value that we can create over the next few years could be pretty substantial. The team is excited, and we're excited. And I just want to thank everybody for joining the call. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you.

Greetings, and welcome to Chegg, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Tracey Ford, Vice President of Investor Relations. Thank you. You may begin.

Good afternoon. Thank you for joining Chegg's Second Quarter 2026 Conference Call. On today's call are Dan Rosensweig, 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. 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 the 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 for the year ended December 31, 2025, filed with the Securities and Exchange Commission 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 on the investor slide deck found on our IR website, investor.chegg.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 Dan.

Thank you, Tracey, and thanks, everyone, for joining Chegg's Second Quarter 2026 Earnings Call. We outperformed our expectations on revenue, adjusted EBITDA and cash, reflecting our ability to execute against our priorities while investing for future growth. The goals remain the same: return Chegg to growth with high margins and strong free cash flow. Starting last fall, we embarked on our next big chapter, rearchitecting the company to be AI first, building a sustainable cost structure and strengthening our balance sheet so we could accelerate our bigger vision.

Chegg's mission to put students first and help them move from learning to earning, has never wavered. For almost 20 years, we have evolved to meet students' most important needs from inventing textbook rental model to make higher education more affordable, then providing 24/7 learning support through Chegg Study and then adding skills-based courses to help learners build the skills needed to advance their careers. Each transition has opened up a new chapter of growth for Chegg. And the foundation we have built across our products, technology and data now positions us to expand our focus on employability.

We will help students build the skills, confidence and connections needed to graduate, find internships and transition into the workforce. Higher education continues to evolve, but one thing will never change. After completing whatever path they pursue, students need a job. For the nearly 20 million students entering today's job market over the next few years, that transition is filled with challenges and uncertainty. Beginning in Q3, we are soft launching the next generation of Chegg. By combining our proprietary data, AI and deep insight into how students learn and build careers, we will reduce the friction for students to get internships and then jobs.

The new Chegg will help automate job search and matching while adding coaching that will help students pick the right major, the right courses and evaluate the right skills. Our plan is to automate the search, the match and coaching so students can build the right skills, take the right courses and make the right connections. Chegg will handle the hard parts of applying: tailoring resumes, drafting cover letters, auto-filling and submitting applications and even initiating alumni outreach on behalf of the students.

We will then add the ability for students to get company-specific interview prep, personalized feedback and targeting skill-building courses to close any gaps standing between them and the job. The result is the platform that takes students from "I need a job" to "I am prepared, applied and connected" all in one place. It's this convergence of everything we have built, our academic platform, our skilling business and our language learning capability into one service that addresses one of the most pressing needs students face today.

We have already had more than 10,000 students use the beta and provide feedback, and we will begin rolling out the new service across both Chegg and our site internships.com starting in the third quarter and all throughout 2027. As we expand our focus on employability, our skilling business remains an important part of the opportunity ahead by helping organizations build workforce capabilities and helping learners develop and apply relevant skills. We are creating a platform that connects learning, skills development and career outcomes.

Chegg Skills has been built as a multichannel platform spanning enterprise, institutional, employer and marketplace channels to create a more diversified foundation for growth. We have already signed 6 new partners this year, including OpenSesame and Dale Carnegie, and those launches will take place over the second half of the year. We will continue to expand into enterprises and schools over the next few years using AI and data to dramatically expand and personalize our catalog while making our courses even more affordable.

Our language skills are an important component of employability, helping people expand career opportunities and communicate more effectively in an increasingly global workforce. As a result, we are transforming our language offering from a language learning app into a performance platform, helping people communicate with confidence and impact in any language when it counts. Our new agentic coach, which understands each learner's goals and the context of each interaction helps you prepare for the moments that matter like a client call, a presentation or an interview.

Early next year, we plan to have a seamless integration of our agentic coach into the learner's actual workflow, learning that shows up exactly when and where you need it. We are also expanding our skills offering into Europe, combining language learning with broader workforce capabilities. Underlying all of this has been the restructuring of our workforce to becoming AI first. AI allows us to personalize learning, improve outcomes and scale more efficiently and affordably, giving us a much leaner operating model, which allows us to return to being a growth business with high margins.

When I look at the arc of what we have built and where we are headed, I feel genuinely confident. AI created real headwinds for this company, and we responded by strengthening our balance sheet, rebuilding an AI-first cost structure and expanding our vision towards a much larger opportunity. We are becoming an employability business, one that helps students develop skills, find internships, land jobs and grow throughout their careers. That is a more durable market, and we are uniquely positioned to own it. The financial foundation, David, will walk you through is what makes that all possible, and we look forward to updating you on our progress next quarter.

With that, I'll turn it over to David.

Thank you, Dan, and good morning. Today, I will be reviewing our financial performance for the second quarter of 2026, along with the company's outlook for the third quarter. Our second quarter results exceeded our expectations, reflecting continued execution against our priorities. We are excited to take Chegg into its next chapter by expanding our focus on employability, addressing students' evolving needs while helping employers build a more skilled workforce, creating what we believe is a significant opportunity for long-term profitable growth.

As we execute on our strategy, AI is improving operational efficiency across the company and driving meaningful gains in profitability and cash generation. We also repurchased shares during the quarter, reflecting our confidence in the company's long-term value while maintaining a disciplined approach to capital allocation. In the quarter, total revenue was $51.8 million, exceeding our expectations. We expanded our distribution partnerships, which we expect to contribute more meaningfully later this year while remaining focused on efficiently managing our academic services products to maximize cash generation.

Chegg Study monthly retention continued to be very strong, reinforcing its long-term cash generation potential. Turning to expenses. Q2 non-GAAP operating expenses were $32.3 million, nearly cutting our expenses in half compared to the second quarter of last year. This significant reduction reflects our disciplined approach to expense management and enhanced use of AI to improve productivity and drive efficiencies across the company. We continue to identify opportunities to further optimize our cost structure.

Adjusted EBITDA for the quarter was $9.1 million, representing a margin of 17%. Second quarter CapEx was $3.7 million, down by 49% year-over-year. For full year 2026, we are targeting a 60% reduction in CapEx. Free cash flow in the quarter was $6.4 million, which includes approximately $1.5 million of severance payments related to prior restructuring actions. In the first half of the year, we generated $9.5 million in free cash flow despite $14.4 million in severance payments. We expect to continue to generate meaningful free cash flow in the second half of the year.

Looking at the balance sheet, we ended the quarter with $72.3 million in cash and investments and a net cash position of $38.5 million, providing us flexibility as we execute on our priorities. We've built a strong foundation for the future and are encouraged by the continued durability of our academic services products driven by strong monthly retention, the progress we are making leveraging AI to meaningfully improve our cost structure, the early traction we are seeing with new skilling distribution partnerships and the significant opportunity we see to expand through employability.

Together, these reinforce our confidence in generating meaningful cash flow and creating long-term value. During the second quarter, we repurchased $1.7 million of our common stock and have $120.7 million remaining on our securities repurchase authorization. We believe our shares represent an attractive use of capital. Our strong balance sheet and continued ability to generate meaningful cash flow provide us with flexibility to allocate capital where we believe will create the longest long-term value for our shareholders.

That includes investing behind our strategic priorities while also evaluating further share repurchases. In addition, we expect to fully repay the convertible debt in the third quarter, further strengthening our balance sheet, increasing our financial flexibility. Moving to guidance. As we execute on our expanded opportunity focused on building an employability platform, our Academic Services and Chegg Skilling businesses are becoming increasingly integrated, and we believe total revenue and adjusted EBITDA are the most meaningful ways to measure progress.

Beginning this quarter, we are providing guidance for total revenue rather than separate revenue guidance. Looking ahead to Q3 guidance, we expect total revenue between $43 million and $44 million, gross margin in the range of 48% to 49% and adjusted EBITDA between $1 million and $2 million. In closing, we have strengthened the business for long-term success. The company is leaner, more efficient and well positioned to generate meaningful free cash flow in 2026.

We are executing our strategy with focus and discipline while leaning into a large new opportunity, positioning us to drive sustainable growth, improve profitability and create long-term shareholder value. We have a strong balance sheet, which provides additional financial flexibility as we continue executing our strategy.

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

[Operator Instructions] Our first question comes from Ryan MacDonald with Needham & Company.

Dan, great to hear about the sort of new vision for Chegg and sort of the priorities moving forward. Maybe starting with sort of the new experience on helping students connect and find new job opportunities and internship opportunities. Can you just talk about sort of what you were seeing in the market that sort of pushed you in this direction?

Are there specific gaps from -- that you were seeing in a LinkedIn or Indeed or a Handshake that you felt like that Chegg could sort of take advantage of here? And then as we think about growing this, how do you drive awareness amongst the student population? Will you leverage sort of career services relationships? I'd love to hear more there.

Yes. Great question. And we've been working on this for quite some time. We just feel that now is the time to start talking about it because step one was make sure that the company could pay off its debt, which will be out of debt shortly. Second thing is to make sure our balance sheet, as David said, is really strong, which we're going to have substantial cash. You already see we have substantial cash, net of debt, that's only going to grow over the rest of this year and into next year.

So the value of the company, we think, is undervalued simply because of the amount of cash we're going to generate. The Skills business continues to grow. But the real opportunity that we have always believed in is that we asked the Jeff Bezos question, which is rather than what's changing, what's never going to change. And at the end of the day, college students go to college for one reason, which is to get a better job. And the fear over employment, unemployment that relates to technology and AI is rampant. I'm sure you know that. And the biggest question that students have been asking us to solve for them is how -- which classes do I take?

What major do I take? If I take these classes, what skills am I actually going to have that will allow me to be employable. And then help me identify the companies, help me build my network. LinkedIn doesn't help you build the network. Nobody does, but we will. So help me build the network, help me connect to these people, help me write my resume, help me write my cover letter, help me prepare for the interview. Nobody was putting all of this together in one place, and nobody was focused exclusively on the student.

Handshake existed, but as you know, Handshake has evolved its business to now be in the Data business. And so we have huge legacy customers that still use Chegg. You can see that in our numbers, you can see that in the amount of profits that we're generating. And so we have the ability to reach students in the millions. So awareness won't be difficult for us because we still get massive traffic and we still have a substantial customer base.

On top of that, over, I don't know, 12, 13 years ago, we bought the site, internships.com. We haven't used it in a bunch of years because of the difficulties that we've been facing, but we took it out of mothballs, the organic traffic that goes to there is quite substantial. And so we have been testing, Chegg is the front door, internships is the front door. We very quickly got over 10,000 beta testers of the original product.

We brought in a number of interns who actually help us design and build the product because it's for them. And so we're excited. So just anybody that has a student in college or going to college, the #1 fear of the student and the parent is, will my child get a job? Where will they work? How are they going to get the skills? And we're the company that is going to solve many of those issues for them. And we couldn't be more excited. And so we think we have the assets to do it. We think we have the brand to do it. We think we have the data to do it. And so a couple of years ago, we got punched in the face by AI. Now we're using AI to punch back.

I like it. And then as you think about sort of this sort of all-in-one way to assist the student from how to get the job or how to identify the skills they need to get the job, how is that sort of informing your content creation strategy with the Skills business in terms of sort of the partners that you select? And at some point, do you start to maybe bring more of the content creation in-house yourself or use AI to create some of this content for the student?

Yes. Well, so if you think about it, what Chegg's legacy, Chegg was AI before there was AI. So we have a pristine 100-and-something million pairs of Q&A that we built on our expert network. And all the data businesses now are trying to build an expert network in order to train their models. So we already have it. So our ability to answer any and all questions around any subject matter has always been available. We focused on academics.

Now we're going to focus on academics and job-related questions. So that's an advantage that we have that others don't have. But in terms of content creation, so that will be one of the areas. But our SEO strategy will expand dramatically based on the listings, based on the data that we have around students. Remember, we start with schools that students go to, the classes they take, the majors they have. We're able to identify people that took those classes and where they work, and we're able to identify those alumni and try to build a relationship between the student and the alumni.

So -- but you point to a very exciting area, which will come later on down the line, which is one of the things that we're talking about that I mentioned in the skilling part of our prepared remarks, is we're taking all the courses that we've developed, and we're basically going to turn them into 5,000 artifacts of content that will make them shorter, much more accessible, much more affordable to be able to assess the student on the skills that they think they have and then be able to train them up on it at a very affordable rate.

So that will come later. But it's not so much the partners we're picking, it's the content we're creating. And that content will constantly evolve, same as the answers and the questions did for students on academics around the professional needs of students. And it will be led by what companies are actually recommending the necessary skills that students will have. And AI allows us to do all that quickly, affordably, personalize each experience.

So when we look at the opportunity, the academic opportunity, I think at our peak, 25% of all students in the country have subscribed to Chegg. Unfortunately, another 25% [ has sold it ]. But it builds quite a large business. But if you ask me which TAM is bigger in the college market and even in the high-school market that doesn't go to college, remember, 50% of the high-school market never attends higher education.

So we think it's a bigger TAM, and we think the content creation will be around what do you need to know to be employable but also what do you need to know about how to interview? What do you need to know about how to get over the first AI interview if that's what's happening. You'll be able to rehearse in real time with our coach about what questions you're likely to get. And we'll store all that content based on the experiences that we're able to monitor the students have with different employers. So it's a multiyear effort to do it, but we thought because we're rolling out the first early version of it in -- later on in this quarter that now is the time to talk about it, but we couldn't be more excited.

Appreciate that. Maybe one for David. Can you talk about -- just maybe put a little more color around sort of expectations for free cash flow generation? It sounded like in the quarter that obviously some good cash generation, but there were some severance payments obviously outgoing. How much more incremental severance payments are sort of there? And when should we start to see that sort of material ramp in the cash generation here?

Yes, sure. So the severance payments are for the -- almost all behind us at this point, and we have about $14 million, $15 million in the first half of the year. Q3 is a traditionally slower period for us and then Q4 has always been our strongest cash generation period. So I haven't really guided for either the quarter or the full year, just there's some timing on payments in some annual contracts, which we have payments in Q3, which is one of the lower quarters of revenue coming in.

We still believe we'll be -- we know we'll be free cash flow positive in the back half of the year and even believe within the quarterization, but just some timing there. But if you take out those severance payments, which I know we can't, but if you kind of pro forma those out, just look at the cash generation in the first half, we're pleased with that, and we believe we can continue to do so through this year and next.

Okay. We have reached the end of the question-and-answer session, and this concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Hello, and welcome to the Chegg Inc. Annual Meeting of Stockholders. Please note that this meeting is being recorded. [Operator Instructions] The meeting is about to begin.

Hello, everyone. Welcome, and thank you for joining us for Chegg's 2026 Annual Meeting of Stockholders. I am Dan Rosensweig, Chairman of the Board and Chief Executive Officer of Chegg, and I will be presiding as Chair of as Chair of this meeting. David Longo, our Chief Financial Officer and Corporate Secretary, will act as Secretary of the meeting.

Before we begin the formal business of today's meeting, I want to introduce my fellow Board members, Renee Budig; Marne Levine; Marcella Martin and Ted Schlein. I would like to thank them for their dedication and their willingness to serve through the changes at Chegg. Also joining us are Joe Kilkenny of Grant Thornton LLP, Chegg's independent registered public accounting firm, who will be available to respond to questions.

Tiffany Hill, a representative of Equiniti Trust Company, LLC, who has been appointed by the Board of Directors as inspector of the election for this meeting. As an overview of today's meeting, we will first have the formal Annual Meeting of Stockholders. Following the formal meeting, we will answer questions that you have and submitted online through the web portal.

At this point, I'd like to turn the meeting over to David who will conduct the formal portion of the meeting.

Thank you, Dan. We will now proceed with the formal business of the meeting. I now officially call the annual meeting to order. This meeting is being held in accordance with the company's bylaws and Delaware law. An agenda that outlines the order of business for the meeting is displayed on the screen.

I will now report on the notice, attendance and quorum for this meeting. I have received an affidavit of mailing stating that the notice, definitive proxy statement and proxy card were mailed on April 28, 2026 to all stockholders of record as of April 14, 2026, the record date for this meeting. The affidavit will be filed with the minutes of the meeting. In addition, the complete list of the stockholders of record at the close of business on April 14, 2026, who are entitled to vote, showing their respective addresses and the number of shares held by each is available for inspection by the stockholders.

As noted, we have appointed Tiffany Hill, a representative of [ Equiniti ] Trust Company as Inspector of Election for the 2026 Annual Meeting. The Inspector of Election has signed an oath of office, which will be filed with the minutes of this meeting. The Inspector of Election has advised me that a sufficient number of shares are present in person or represented by proxy to constitute a quorum. Therefore, the meeting is duly constituted and we may proceed with the transaction of business properly brought before the meeting. Polls are now open. If you have already voted your shares and do not wish to change your vote, no action is required at this time. If you have not yet voted or would like to change your vote, you may do so by clicking the Vote My Shares tab at the top right of your screen.

I will now review the proposals to be voted on by the stockholders at this meeting. The first item of business is the election of 1 Class III director and 2 Class I directors who serve respectively, until the 2028 and 2029 Annual Meetings of Stockholders and until his or her successor has been elected and qualified or until his or her earlier resignation or removal. The director nominees are: Renee Budig, Class III; and Dan Rosensweig and Ted Schlein, Class I. No other director nominees have been properly submitted for election pursuant to our bylaws or SEC rules. Therefore, no other nominations may be accepted. The Board of Directors recommends a vote for the election of each nominated director.

The second item of business is to approve on a nonbinding advisory basis, the compensation of our named executive officers for the year ended December 31, 2025. The Board of Directors recommends a vote for the approval on a nonbinding advisory basis, the compensation of our named executive officers for the year ended December 31, 2025.

The third item of business is to ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the year ending December 31, 2026. The Board of Directors recommends a vote for the ratification of the appointment of Grant Thornton, LLP.

The fourth and final item of business is to approve the amendment of our restated certificate of incorporation to effect a reverse stock split of our outstanding common stock at a ratio within a range from [ 1:4 to 1:15 ]. The Board of Directors recommends a vote for the approval of the amendment of the restated certificate of incorporation to effect a reverse stock split.

This concludes the specific proposals that were set forth in the notice as the agenda for this meeting. If you registered with your voter control number and would like to submit a question regarding these proposals, please click on the side question box on the right side of your screen, type your question into the box then click the submit button. We will only address these questions related to the business of the meeting at this time. If you have general questions unrelated to these proposals, there will be time for those later following the formal portion of this meeting.

There are no questions at this time. Please continue.

As a reminder, voting is currently open via the web portal. We will close the polls shortly. If you have already voted, there is no need for you to cast a ballot now unless you wish to change the vote that you put on the proxy. Submission of a vote will revoke all prior proxies. If you are voting today, please make sure you have your voter control number and click the Vote My Shares tab at the top right of your screen.

We will provide some additional time for the submission of voting.

[Voting]

The polls for each matter to be voted on at this meeting are now closed. No additional ballots, proxies or votes and no changes or revocations will be accepted. The proxies and ballots will now be tabulated by the Inspector of Election. Based upon preliminary information provided by the Inspector of Election, I can report that the stockholders have elected the 3 director nominees. The stockholders have approved on a nonbinding advisory basis, the compensation of the company's named executive officers for the year ended December 31, 2025. The stockholders have ratified the appointment of Grant Thornton LLP as the company's independent registered accounting firm for the 2026 fiscal year, and the stockholders have approved proposed amendment to the restated certificate of incorporation to effect a reverse stock split.

The final results of voting will be set forth in the report of the Inspector of Elections and will be included in the minutes of the meeting. The results will also be reported in the Form 8-K to be filed with the SEC within 4 business days following this meeting.

With that, I will hand it back to Dan.

Thanks, David. At this time, I want to thank all of you for attending today's meeting. We very much appreciate your attendance. And as always, thank you for your support. If there is no further business, the meeting is now adjourned. And now that the formal business of this meeting is concluded, we will move on to the general Q&A portion of the meeting. Do we have any questions at this time? We ask that you comply with the rules of procedure for the annual meeting, which are available on the web portal.

There are no questions at this time. Please continue.

Thank you, everybody. We're very grateful for your continued support. We've got a lot of opportunity ahead of us, and we're excited about executing on it. Thank you.

Good afternoon, ladies and gentlemen, and welcome to the Chegg Inc.'s First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded.

I will now hand over to Tracey Ford, VP of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining Chegg's First Quarter 2026 Conference Call. On today's call are Dan Rosensweig, 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. 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. 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 for the year ended December 31, 2025, filed with the Securities and Exchange Commission 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.chegg.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 Dan.

Thank you, Tracey, and thanks, everyone, for joining Chegg's First Quarter 2026 Earnings Call. Q1 was a strong quarter. We exceeded our expectations for revenue, profitability, free cash flow while significantly reducing debt, and we continue to optimize our cost base and capital expenditure.

These results reflect the deliberate work we have done to rearchitect Chegg. Our financials, our corporate structure, our product experience are all optimized around AI and the results are showing. The business is leaner and better positioned for future growth with high margins.

Leveraging artificial intelligence, we provide a differentiated experience as we personalize learning paths, identify where learners are struggling and trigger targeted interventions from coaches or systems before a learner falls behind. AI also allows us to create and update curriculum fast enough to keep pace with how quickly skills, especially AI skills, are evolving. All of this allows us to deliver better outcomes without increasing costs.

We continue to expect double-digit revenue growth in skilling for the full year 2026 with acceleration as the year progresses. We are seeing positive attraction broadly across skilling, including the addition of new enterprise partners and channel partners, and momentum in the global category leaders across manufacturing, consulting and professional services and technology. Notably, we recently signed a partnership with Cornerstone, a leading learning and talent management platform. This is expected to open up a meaningful enterprise distribution channel for Chegg Skills and connect us with customers at scale.

And for the first time, we are expanding our skilling platform through accredited offerings. With Woolf, a partnership we announced last quarter, we are launching our first AI master's program, combining applied learning with recognized credentials. We take the same AI-first approach in our language learning offering as we are moving beyond structured lessons towards real-time in-workflow coaching, helping learners apply skills in the moments that matter the most.

What differentiates our offering is that AI enables us to service skills performance data that HR and learning and development leaders can act on, shifting the conversation from reporting on learning activity to demonstrating measurable language capability in the workflow. Skilling is a large and growing market, and we believe we are building the most credible outcomes-driven platform in the space.

In our 2026 Skills for Business Impact report, more than 2/3 of graduates surveyed report applying the new skills immediately. 43% say they are working more efficiently and 41% report improved quality of work. On AI specifically, 75% of graduates report increased confidence and 43% are actively applying those skills on the job.

The impact extends to employers as well. 80% of the graduates we surveyed report a positive career impact and 92% remain with their employers 6 to 12 months after completing the program, with 62% citing employer-sponsored education as a key reason for staying.

Our investments in skilling are funded by the strong free cash flow being generated by Chegg Study, which outperformed our expectations in Q1. While search headwinds continue to impact traffic for Chegg Study, retention remains strong, an indicator that students continue to find real value in our product. The financial foundation we have built is what makes everything we are building possible, and it reflects the kind of focus and discipline this team has.

Six months ago, I returned to Chegg because I saw a company with all the ingredients to win: a trusted brand, proven curriculum, outcomes data that demonstrated a real return on investment for our customers, and an expanding global network of enterprise and institutional partners. What we needed was focus and clarity to lean into the opportunities ahead of us.

In the last 6 months, this team has removed approximately 40% of our costs put us on a path to 0 debt, increased our free cash flow, retooled the business to be AI first, giving us a strong foundation to grow from. As a result, I am confident about the category we are in, the momentum in our skilling business and the strength of our balance sheet. I feel confident about the opportunity in front of us and our ability to drive value for our shareholders and our customers, and I look forward to updating you on the next call.

With that, I'll turn it over to David.

Thank you, Dan, and good afternoon. Today, I will review our financial performance for the first quarter of 2026, along with the company's outlook for the second quarter.

Building on the progress outlined in our last earnings call, we delivered a strong first quarter, which exceeded expectations. Our results reflect continued execution on our priorities and increasing momentum in our businesses. Our strategic focus on the large and growing skilling market positions us for long-term sustainable growth with strong margins, while we leverage AI across the organization to improve efficiency and drive meaningful improvements in profitability and cash generation.

In the quarter, Chegg Skilling generated $17.6 million in revenue, representing 9% growth as we continue to invest in the business. We also signed exciting new distribution deals, which we expect to contribute in the second half and help drive double-digit Skilling revenue growth for the full year.

Academic Services revenue was $45.7 million. We continue to manage this business with a focus on maximizing cash generation, which exceeded our expectations this quarter. While traffic remained under pressure, monthly retention rates were very strong in the quarter, further extending the operational runway of the business.

Turning to expenses. Non-GAAP operating expenses were $36.4 million, reflecting a reduction of $44.1 million or 55% year-over-year. These results reflect our disciplined approach to expense management. We will continue to identify additional opportunities, including enhanced use of AI, to drive further efficiencies.

Importantly, these actions are generating cash flow that we can invest in our future growth. Adjusted EBITDA for the quarter was $15.5 million, representing a margin of 24%. We also delivered positive net income in the first quarter for the first time in 2 years.

First quarter CapEx was $1 million, down 88% year-over-year. For 2026, we are targeting a 60% reduction in CapEx with approximately 90% dedicated to our growing skilling business. Free cash flow in the quarter was $3.1 million, which includes approximately $12.9 million of severance payments related to prior restructuring actions. We expect an additional $2.1 million of severance payments in the second quarter. Despite these items, we expect to generate meaningful free cash flow in 2026.

Looking at the balance sheet, we ended the quarter with $67.9 million in cash and investments, and a net cash position of $34.1 million, providing us flexibility as we execute on our priorities.

Looking ahead to Q2 guidance, we expect Chegg skilling revenue of $17.5 million to $18 million, total revenue between $49 million and $50 million, gross margins in the range of 51% to 52% and adjusted EBITDA between $5 million and $6 million.

In 2026, our capital allocation priorities remain focused on maximizing free cash flow, strengthening our balance sheet and fully repaying our convertible debt by September. Additionally, we will continue to evaluate opportunities to deploy capital, including through our remaining securities repurchase authorization with a disciplined approach aligned to long-term shareholder value.

In closing, we have taken deliberate actions to position the company for long-term success. We are leaner, more efficient and well-positioned for double-digit growth in our skilling business and meaningful free cash flow in 2026, putting us on a clear path to sustained growth, profitability and increased shareholder value.

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

Thank you, sir. [Operator Instructions] Our first question comes from Ryan MacDonald of Needham & Co.

Dan, maybe on the Chegg skilling business and the trends you're seeing there. Can you maybe unpack the sort of 2 segments a bit in Q1? Sort of what were you seeing across sort of B2B language learning versus Chegg Skills? And then as you think about sort of the back half of the year acceleration in growth and sort of getting to the double digits, what kind of visibility do you have or do you get from the partners as you add those and those additional channels throughout the year?

Yes. Great question. It's exactly what we look at. So the trend in the first quarter was very strong because there were 3 things that we wanted to accomplish. On the cost side, we reinvented the way we are able to build content utilizing AI. And the user experience allowing us to scale at a lower cost with a higher quality using AI versus necessarily using humans. And we apply that across both what you would call the traditional skilling and the language skilling.

We combine those businesses because whether we sell through channels in the U.S. or directly to corporations or businesses or corporates, as they call them in Europe, they actually buy them both as skills. So we are working to combine package and offerings to be able to offer both of those things. What you'll see going forward is some pretty exciting capabilities that AI allows us to have, which is real-time intervention inside the course or inside the use of language, which we think will make them extremely valuable, and we expect to be able to see increased retention and utilization of those products going forward. They're rolling out now.

The question over how these accounts build. So before I came back, Chegg had one channel of distribution, which was Guild. And we still have Guild and Guild is still a terrific partner. However, we needed to renegotiate the contract with Guild to allow us to work with additional partners, which we didn't have the ability to do before. So what you've heard from us from announcements is that since the beginning of the year, we were able to renegotiate that and sign on a number of distribution partners for the combined assets of our skilling, so whether it be the skills, the skills and the language or the language.

All of those have yet to launch. We've signed those agreements, and we're building the courses, and we expect them to launch somewhere around -- some of them somewhere in this quarter and then to build over the course of the year. So the reason we feel very comfortable at this moment in time is because we expect each of those to build revenue over the course of the year and then really accelerate going into '27.

So we're excited about that. So the first step was redesign the products and services to be more AI-centric, lower cost, better quality of outcome for the student. Second one was liberate ourselves from a single deal to be able to sign more deals, then sign more deals, which we have. And you heard the Cornerstone, which we signed -- we announced today. You heard us announce Woolf on the last call. We have others signed that are not yet announced because our partners would prefer not to announce them until they actually launch because they don't want to confuse the people in their channel.

So we feel good about the fact that we've signed a number of deals that should build over the course of the year. None of them has to build particularly large for us to achieve the 10% year-over-year growth rate target that we desire for this year. And we expect that they will roll out shortly and continually over the course of the year. So it's pretty exciting.

Really helpful. And then a trend and theme we've been hearing in sort of the enterprise skilling and learning market this year is sort of more commentary about learning in the flow of work, essentially the concept of if I'm in my day-to-day role and whether I'm interacting with salesforce or whatever system I'm in. It's sort of pushing more learning as I'm going through and using those tools. As you think about your sort of content catalog, are you shifting or sort of -- what type of content you're building or the format you're building it in to sort of meet this new kind of thematic demand, if you will?

Yes. That is exactly correct. You tapped into -- I'm used to 3-letter acronyms, but this is the new terminology in terms of what people want to do. What does it really mean? It means that whatever you're teaching them should be able to be used while they're actually using the capability inside their company. And agents allow for that to happen in particular. So I'll give you an example on the language side, which may be easier to understand.

Let's say you're using Busuu to learn a language to be able to negotiate deals because you're in business development or legal or something -- business affairs or something of that nature. The capability that we are building in, which goes to exactly what you said, is something that we'll call Pulse. And so you might be negotiating real-time, and Pulse will be able to prompt you real-time in the flow of work, what language or capabilities or techniques that you might need to do. So it goes beyond just the language, but into actually not only what to say, but how to say.

So yes, it is all got to be inside the workflow. And within skills, even within our academic services, we're building some of those capabilities, which we think is some of the reason that we're able to slow down the decline and extend the length of time, which will generate more cash for us is because you can go right inside and say, listen, do you want to learn how to do this right while you're here. So think of it as just real-time intervention at the moment for what the person needs where the technology can blend into what you're doing and what it's capable of doing. And yes, that is exactly why we retooled the company.

In addition to that, listen, there are a couple of elements that I believe the AI is ushering in. They all seem pretty common sense, which is speed, how quickly could you do something. So some of our partners are requesting content every 2 weeks now rather than every quarter or every year. So speed. The other one is reduction of friction, which is what you're talking about, at least partially what you're talking about, which is how do you remove all friction from the experience from the users of it as well as the creators of it as well as the distributors of it as well as the buyers of it. So every step that you can take out of the way or you can do for the person while they're in it is what you do.

And then quality, the ability to do consistency of quality at scale, which is something difficult for humans to do, less difficult for machines to do. So all of that is at the core of what we're building. We think we're ahead of most people and at least our partners here we're ahead of most people, which is why we've been able to sign so many deals so quickly.

Operator?

Ladies and gentlemen, with no further questions in the queue, we have reached the end of the Q&A. This concludes this event. Thank you for attending, and you may now disconnect your lines.

Greetings, and welcome to the Chegg, Inc. Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Tracey Ford, Vice President of Investor Relations. Thank you. You may begin.

Good afternoon. Thank you for joining Chegg's Fourth Quarter 2025 Conference Call. On today's call are Dan Rosensweig, 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. 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. 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 for the year ended December 31, 2024, filed with the Securities and Exchange Commission 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.chegg.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 Dan.

Thank you, Tracey, and thank you, everyone, for joining Chegg's Fourth Quarter 2025 Earnings Call. This is a period of reinvention at Chegg. We are rebuilding the company focused on the $40 billion skilling market, which we believe will be a double-digit revenue growth business for Chegg, with strong margins and cash flow in the years ahead.

To achieve this, we have reorganized Chegg around 2 focused business units: [ Chegg Skilling ] , which is now our growth engine and our legacy academic learning services, which we are managing to generate free cash flow. Together, this structure gives us the financial flexibility to invest and grow opportunities within skilling while creating long-term shareholder value. We are excited about our future and feel confident that this new structure sets us up for success.

We are already seeing positive early signs. In Q4, Chegg Skilling delivered $18 million in revenue, positioning us for double-digit growth for 2026. The -- our legacy business, Chegg Study continues to serve more than 1 million students. And with our new streamlined org structure is providing meaningful cash flow to fund value creation. As we have expressed, changes in search interfaces continue to impact our traffic. Yet despite these changes, the quality and accuracy of our services continues to drive high retention rates.

We are now focused on optimizing pricing and packaging and testing multiple strategies to extend our operational runway and drive more free cash flow. We have a clear objective to use that cash to fund new growth opportunities and increase the value for our shareholders. Given the global demand for workforce skilling has already reached 40 billion, we feel it's a huge opportunity for Chegg, and we are well positioned to serve this market, particularly in AI language, technical fluency and durable skills. Our brand is trusted by learners worldwide and our skills courses are grounded in learning science and data-driven instructional design.

Our platform tracks learner progress in real time, delivering predictive nudges and timely interventions that improve engagement, retention and completion rates. This combination of brand credibility, evidence-based course design and intelligent learner support consistently leads our channel partners to report stronger outcomes versus our competitor to capture the growth opportunity we see ahead, we are expanding our course catalog with high demand technical AI language and professional skills, while simultaneously broadening our global footprint across B2B distribution channels. As part of this strategy, we are excited to announce new partnerships with DHL, GI Group and Wolf University. Wolf specifically expands how we can serve learners as they provide accredited degree pathways that allows for acquired skills to count towards recognized credentials. We've also extended a few key contracts for companies like L'Oreal and PPG. Our goal is to further extend our reach into global enterprise, institutional and academic markets. Looking ahead to 2026, we plan to onboard additional employer and institutional partners both directly and through leading marketplaces. We continue to expand the depth and breadth of our curriculum. To support this opportunity, I'm thrilled to announce that Karen Alec is joining our team to run our European language learning and skills operation. Karen brings deep experience in building and scaling enterprise businesses across Microsoft, NetApp, Global English and most recently, at Corser.

Where she led the transformation of their enterprise business. We are thrilled to have her leadership and expertise as we scale our skilling business around the world. We have made significant progress in the reinvention of Chegg our goal is to continue to grow our skilling business by double digits annually and over the next couple of years to achieve an adjusted EBITDA margin of at least 20%. To achieve that, our 26 priorities are straightforward. Accelerate the growth of our skilling business by expanding our offerings and network partners domestically and through Europe, increased free cash flow to invest in the future growth of skilling. And strengthen our balance sheet by ending the year with 0 debt and meaningful cash balance. We are encouraged by the results we are seeing in the skills business and are excited about the path ahead.

We successfully transformed our business from a print textbook rental business to an online learning company. And now we are transitioning from a D2C business to a B2B skills learning platform. We are excited about the work we have done so far, and we look forward to updating you next quarter. And with that, I'll turn it over to David.

Thank you, Dan, and good afternoon. Today, I will be presenting our financial performance for the fourth quarter of 2025, along with the company's outlook for the first quarter of 2026. We are introducing our new revenue breakout to provide transparency into our Chegg skilling business. The historical revenue breakout for the past few years can be found on our data sheet on our Investor Relations website. We delivered a good fourth quarter. We exceeded our revenue expectations and surpassed the high end of our adjusted guidance by $2 million, reflecting the initial positive impact of our new focus and turnaround efforts.

Our strategic shift into the large scaling market positions us for the next phase of long-term sustainable growth with strong margins. During the quarter, we also took steps to enhance our capital structure repurchasing $9 million of our 2026 convertible notes at a discount. In the fourth quarter, we delivered $18 million in skilling revenue with double-digit growth underscoring the significant market opportunity and the momentum we are seeing. Academic Services revenue was $55 million as we continue to operate the business with a focus on cash generation.

As Dan mentioned earlier, we are testing different pricing and packaging strategies to extend its operational runway. Moving on to expenses. Non-GAAP operating expenses were $44.8 million in the quarter. a reduction of $39.8 million or 47% year-over-year as we maintain fiscal discipline and continue to benefit from the successful execution of our restructuring activities. Our fourth quarter adjusted EBITDA was $13 million, representing a margin of 18%. Our adoption of AI, along with our new business structure has enabled us to significantly lower expenses while preserving our ability to grow.

We overhauled our cost structure to improve efficiency and create capacity for reinvestment in change skilling. We are on track to reduce total non-GAAP expenses to less than $250 million in 2026 and a 53% decline from 2024. Our strategic investment in AI have allowed us to significantly reduce CapEx without compromising quality. Q4 CapEx was $6 million, down 51% year-over-year. For 2026, we are targeting a further 60% reduction in CapEx with approximately 90% and dedicated to our growing skilling business. Free cash flow in the fourth quarter was negative $15 million, which was primarily impacted by $12 million in employee severance payments related to our restructuring activities.

In 2026, we expect $18 million in severance-related cash expenditures related to our last 2 restructuring with approximately 80% occurring in the first quarter. Despite these items, we expect to generate meaningful free cash flow in 2026. Looking at the balance sheet. We concluded the quarter with cash and investments of $85 million and a net cash balance of $31 million.

Before I move to guidance, I'd like to quickly address the delisting notice we received from the NYSE. The notice has no immediate impact on our listing steps and we have ample time and multiple avenues available to regain compliance, including a potential reverse stock split. Our primary focus is on strengthening the fundamentals of the business. We believe that executing on our priorities will be the most effective path to restoring compliance and delivering long-term shareholder value. Looking ahead at Q1 guidance. We expect $17.5 million to $18 million of revenue from our Chegg skilling business.

We expect double-digit growth for the year and anticipate stronger performance in the second half than in the first driven by continued investment in the business and the addition of new distribution partners. Total revenue between $60 million and $62 million; gross margin to be in the range of 57% to 58%. And adjusted EBITDA between $11 million and $12 million.

In 2025, our capital allocation strategy is focused on optimizing free cash flow, strengthening our cash position and eliminating our debt to create a more flexible and resilient balance sheet. We will also evaluate opportunities to deploy capital through a disciplined approach that supports sustainable growth and generate long-term shareholder value.

In closing, we have taken deliberate actions to strengthen the company for long-term success. We are leaner, more efficient and poised for double-digit revenue growth in our Chegg Skilling business and meaningful free cash flow in 2026. We believe we are turning the corner and are on a clear path to our future growth, profitability and increased shareholder value.

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

[Operator Instructions] Our first question comes from the line of Brian Smilek with JPMorgan.

Great to see the skilling progress. Dan, can you just help us understand the key drivers of the skilling growth and focus between Bose and other skill and credentialing areas.

And then secondarily, more on the core business as well. Can you just elaborate on what you're seeing in the early price tests and plan mix across the legacy business?

Yes. Great questions. I just want to reverse the way we think about it, which is the core business now is skilling. So the historic business is the academic services business. So let me start with that one, and then I'll talk about the key KPIs that we look at with skilling. So we're probably about 40% through the quarter on learning business. And it's pretty much where we thought it would be with the exception of the retention continues to be a little bit stronger than we thought. And that's very good for free cash flow generation. So what we know is when Google doesn't block our traffic or when the traffic gets through, that we continue to convert well and retention continues to actually achieve the highest levels that I've seen, not since I've been that, but even before that. So that gives us a runway to be able to reinvent that product, which we have several ideas and we're sort of excited about them of where Chegg Study can go in the future.

But in the interim, the price testing -- the key for us is all they do a month in, which is retention. And so far, they're performing actually quite well. So it's too early to declare 1 way or the other, but -- we're very pleased with the fact that retention continues to be so high. On the business, so we used to be a B2C business on whether it was Bose or whether it was on Chegg skills, both those businesses over the last 24 months have been converted into B2B businesses. Skills is exclusively -- and by the end of this year, Boswell be B2B than B2C.

And so the key metrics that we're looking at are some of the things that we began to talk about, which is how do we expand the number of distribution partners that we have and we announced 1 and we expect to announce more over the course of the year, which we're excited about. And then second is how do we continue to expand the curriculum we have to sell more into the businesses or the channels that we already have. And so we'll just be focused on a number of channels and expanding curriculum.

And over time, we'll talk about sort of the average volume of a transaction. It's too early to do that. But at the moment, it's more channels of distribution and more curriculum to be able to sell into the existing and to the new channels. And both of those things are off to a slightly faster start than I would have expected only 9 weeks back on the job. So I'm actually excited about it.

Our next question comes from the line of Ryan MacDonald with Needham & Company.

Dan, maybe to ask you about the state of the skilling market. Obviously, a lot of change that's about to happen with this Coursera, Etame merger, obviously, 2 of the biggest players in the space. And so as I think about Chegg skilling and sort of how you gain share within the marketplace in B2B, you talk about expanding the number of distribution partners expanding the curriculum you have.

What opportunities do you think present themselves from this impending merger of areas where you can look to either take mind share from a distribution partner or expand content by bringing in maybe new content creators as this transition occurs over the next year or so?

Yes, it's a very interesting question, and that merger is sort of fascinating in terms of how the 2 companies are performing. But the significant difference is they are marketplaces for other people's content mostly and 1 has a -- they both have a version of B2B and B2C. And so rather than looking at how do we take share, you can actually think the other way, which is, can we work with them because our content continues to outperform the places we put it. And the definition of outperform us is not just conversion, but completion renewal with those companies that are inside those channels.

And we are -- and we mentioned it in the prepared remarks that we continue to hear from the partners that we have that we continue to outperform the other partners in the channel. And it's because we have a basis for actually teaching that we've been able to apply over into this world. So we don't see Coursera and Udemy as competitors. We actually see them as potential partners to work with going forward.

And our view is if we continue -- if you look at how value gets created, we think it's now the person that's creating the content and can actually serve the student, educate the student and that those businesses are going to be more higher margin businesses. So then just the channels of distribution. So we see ourselves looking to expand, we don't have to take share from them. We can take share potentially by working with them by also providing our content through their channels and other channels. So it's different than what we would have looked at before.

Really helpful clarification there, Dan. I appreciate the color on that. Maybe as a follow-up. Obviously, we're starting to see a lot of the, let's call it, AI strategies at the Board level start to be implemented within enterprise organizations broadly. Are you seeing that now translate into greater usage or consumption of AI learning content on your platform through your partnerships that you have?

Absolutely, yes. So when we first started this several years ago, I mean we went from 0 to the size that we plan to be this year in just 3.5 years. So we're seeing actually real good growth. And this will be the first time that we've expanded beyond our partnership with Gill to add new partners. So where we see double-digit growth ahead for the next several years because we're really just at the beginning of this thing, but when you ask what the demand is for the original deals that we did were for frontline workers who needed just basic technology skills.

Now the demand is shipping rapidly towards how do we get sure that every single employee, not just frontline workers, but workers across the board actually begin to understand how to utilize AI. So I -- a different way to think about it is rather than say what should I build, -- everybody needs to learn the tools that I can use true build. And that's the role that we're playing. And we think that's a very big growth market, which is why we're sort of accelerating the kinds of classes that we're teaching.

And obviously, the relationship that we now announced with Wealth is also a very big opportunity going forward. It's very early to be able to size it. But this is the first time Chegg is going to be offering courses through a partner where our courses can count towards a degree. And so you can imagine demand from students about wanting to have courses that they can take and also contribute to their college degree where they can put on their resume is that they actually understand how to use the tools around AI.

And so these are all really fun and interesting and high-growth areas for us.

Awesome. Thanks for taking my questions.

Thanks for asking them. And thanks for covering us. We appreciate it. A lot of small companies don't get that kind of coverage, so we're grateful.

And we have reached the end of the question-and-answer session. And this also concludes today's conference call. And we do thank you for your participation, and you may now disconnect your lines at this time. Thank you.

Ladies and gentlemen, greetings, and welcome to the Chegg, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tracey Ford, Vice President of Investor Relations. Thank you. Please go ahead.

Good afternoon. Thank you for joining Chegg's Third Quarter 2025 Conference Call. On today's call are Dan Rosensweig, 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. 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.

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 for 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 and on the investor slide deck found on our IR website, investor.chegg.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 Dan.

Thank you, Tracey. Hello, and thank you, everyone, for joining Chegg's Third Quarter 2025 Earnings Call. Despite our current challenges, I'm honored to return as the CEO and Executive Chairman of Chegg. The Board and I believe the company is undervalued and see a significant opportunity to rebuild and reinvent Chegg and return it to a growing company with strong adjusted EBITDA margins and cash flow. We split the company into 2 units: Our growth business, Chegg Skilling, which we expect to have sustainable double-digit growth and our legacy academic services, which will focus on generating cash. This new structure gives us the cash and the assets we need to rebuild, and I firmly believe we will create significant long-term value for our shareholders. It's clear that the rise of AI and the subsequent negative impact on traditional sources of traffic have disrupted almost every direct-to-consumer industry.

We are dealing with these realities head on. Two weeks ago, we took decisive action restructuring the company to enable our academic services to operate more efficiently and generate significantly more cash flow while repositioning Chegg Skilling to become a larger, more profitable B2B SaaS business. This was hard because of the impact on a large number of employees, but it was necessary and a positive decision for the future of Chegg.

Our clarity of purpose and lower cost structure is energizing and gives us the ability to invest in our skilling business, which is experiencing tailwinds and already generating double-digit growth. We're now in the right categories with the right business model and are beginning to see momentum from our efforts. The impact of AI has resulted in a large number of companies needing to reskill their employees, especially around AI. The skilling market is already large, more than $40 billion today and has turned its attention to workforce, AI and language learning. We start from a position of strength. We have 2 valuable Skilling assets.

The first is language learning with Busuu and the second in skills with Chegg Skills. Busuu is helping the true language learner differentiated by its focus on speaking, not just translation. Shape skills already has a strong catalog of courses on in-demand topics, which will only get stronger. We are combining them, investing in them and over time, will expand with additional assets. We plan to report them as a single unit called Chegg Skilling for external revenue reporting so you can track our progress and our growth. In that spirit, Chegg Skilling is ending 2025 with strong momentum, expecting a 14% year-over-year growth and a full year revenue of $70 million.

Looking ahead, we expect the business to continue to grow at double-digit pace. I've spent 42 years in the technology industry, and the one constant has been that platform changes bring both incredible disruption and opportunity. We reinvented Chegg and created a bigger, more valuable company, and we can do it again. We started as a textbook rental company, transformed it into an education technology company that helped tens of millions of students succeed. Our next chapter, Chegg Skilling, is in a very large and growing market. We have the ability to use our skilling assets and our balance sheet to build a great company, and we are excited about the opportunities ahead.

I'm confident that Chegg will evolve and thrive, and I'm grateful for the opportunity to lead our team through the next chapter. With that, I'll turn it over to David.

Thank you, Dan, and good afternoon. Today, I will be presenting our financial performance for the third quarter of 2025, along with the company's outlook for the fourth quarter. We delivered a good third quarter, surpassing our revenue expectations and outperforming our adjusted EBITDA guidance by $5 million as a direct result of our cost cutting and restructurings. With our strategic shift toward the large and growing skilling market, we are now well positioned to enter the next phase of our growth. In the third quarter, total revenue was $78 million, a decrease of 42% year-over-year. Reduced traffic impacted our business in 2 key ways: First, it led to fewer subscribers and less subscription revenue; and second, within our skills and other, it led to fewer sessions, which significantly reduced advertising revenue.

As Dan mentioned earlier, going forward, we will break out our skilling business, which only includes Busuu and Chegg Skills so you can track our progress. Moving on to expenses. Non-GAAP operating expenses were $49 million in the quarter, a reduction of approximately $41 million or 46% year-over-year, driven by the execution of our restructurings. Our third quarter adjusted EBITDA was $13 million, representing a margin of 17%. To position ourselves for future growth, we overhauled our cost structure to be more efficient and allow us to invest in future growth.

To put this in context, in 2024, our total non-GAAP expenses were $536 million and we are on track to reduce them to under $250 million by 2026. Our investments in AI have enabled us to continue to reduce our CapEx, which was $6 million in Q3, down 63% year-over-year. We anticipate full year 2025 CapEx of approximately $27 million with a targeted further reduction of approximately 60% in 2026, while still delivering a high-quality experience that our students expect from us. Free cash flow for the third quarter was negative $900,000, which was primarily impacted by a onetime $7.5 million settlement payment to the FTC and $5.5 million in severance payments related to our restructuring.

Our company will continue to generate strong cash flow, although it will be temporarily affected by $15 million to $19 million in cash expenditures for employee transition and severance costs associated with our recently announced restructuring. These payments will occur over the fourth and first quarters. Considering this, we are still on a path to generate meaningful free cash flow in 2026.

Looking at the balance sheet, we concluded the quarter with cash and investments of $112 million and a net cash balance of $49 million. Looking ahead and using our new revenue breakout, for Q4, we expect $18 million of revenue from our skilling business, which represents an increase of 14% year-over-year. Total revenue between $70 million and $72 million, gross margin to be in the range of 57% to 58% and adjusted EBITDA between $10 million and $11 million. In closing, the path has been difficult, but the outcome will be positive. We are now a more lean and efficient company with a skilling business that is expected to grow 14% in Q4.

We believe we are turning the corner and are on a path to future growth and profitability. We look forward to sharing more detail on our February earnings call, including greater visibility into our multiyear growth plan for skilling and how we intend to drive additional value in the years ahead. With that, I will turn the call over to the operator for your questions.

[Operator Instructions] Our first question comes from the line of Eric Sheridan with Goldman Sachs.

Maybe 2 quick ones, if I could. In terms of skilling, can you talk through a little bit of what you see as the strategic product priorities to execute on the skilling side to capture the market opportunity? And across the legacy business and skilling, how should we think about the mix of resource allocation across those efforts looking forward?

I was on mute. So I apologize for that because I haven't been on the call for a while. So I appreciate the question. And very simply, all of our growth resources are going to go into the skilling business. So we -- when we made the decision to restructure the company, so this is not a layoff. This is a complete restructure. We essentially put the company into 2 businesses or 2 units. One is the legacy business, which historically had been the majority of the company, and that was Chegg Study. Given the realities of AI and given the realities of the Google traffic situation, we've turned our attention to the bigger and growing market and more sustainable market for us, which is the skilling market, which is made up of B2B now versus B2C. When we originally had the businesses, they were B2C. So we've made that transformation. And they're growing, as you saw, released as we said, about 14% year-over-year in Q4. That's our expectation. So we're excited about the fact that they're already growing. Those businesses are going to focus on frontline workers, which is the deal that we already have with Guild. They're going to focus on language learning, which is what Busuu traditionally has done. Believe it or not, even though AI is going to affect translation and instant translation and those things, corporations still want their people to learn how to actually speak the languages. And so we are seeing really great progress in our B2B side of the Busuu business. And then job-related skills mostly around AI today, which are extraordinarily popular. So our resources -- we have the necessary resources because we have the necessary cash now by removing almost 400 people from the company. And our expectation is that our capital investments will be used to grow the growth businesses and come at the expense of what traditionally was Chegg.

Our next question comes from Devin Au with KeyBanc Capital.

Just first one, just a follow-up from the last set of questions. On the legacy academic business, what kind of support or like services are you going to continue providing for that unit? And I have a follow-up.

Yes. So that business, it's very interesting because as we invested early in AI because of what we saw the situation was becoming and also because the technology allows us to do things more efficiently. We built an incredible service, which we believe is the #1 service. The issue for us is that our Google traffic dropped by 50%. And so we weren't seeing the necessary traffic to come in. And as you know, we've launched a lawsuit against them for that. But the quality of the product is unquestioned. So believe it or not, 90% of all the questions that we get are already in Chegg's database. So we're able to make this transition on the resources and still have the quality product that we had before. So we're actually fine in that context. So we expect that business to generate cash for hopefully several years. Most companies -- most businesses have tails longer than we expect. I mean I just -- I marveled at the fact that AOL just sold for $1.4 billion to Bending Spoons based on its historical model and no one's heard of it in 10 years. So our desire is to run that business as long as we can. We have the necessary resources on it. But the resources are mostly the database, the technology and the network that we built over the years. We still have over 130 million questions that are already in the database. So it's really in a good position to generate cash, but our expectation is of future growth, they just -- we cannot compete with the situation that Google has caused and the fact that OpenAI is what it is. So we put the business into a bigger $40 billion growing market and transition that business over the last 2 years from what was historically a B2C business or a D2C business, I should say, to now almost exclusively B2B, which is a better business, a more stable business, more secure business, less likely to be impacted negatively by the trends in the market. And already seeing some success on that by being able to acknowledge that we're going to grow more than double digits in the quarter and then expectedly for next year. So things -- this has been a long process. It's been a painful process. It's affected a lot of people negatively. It's obviously affected our shareholders. But we finally feel like we've hit the bottom because we have a business that's growing that is $70 million. Our expectation is for 2025, and we expect it to grow double digits next year, and we're rebuilding the company with those resources.

Understood. I appreciate the context there, Dan. Maybe just a quick follow-up. I know you touched on this a little bit. It seems like the Busuu business, the B2B side is doing well. Maybe if you could just kind of give us a little bit more color on the initiatives you're looking to make, some of the near-term product road map or milestones you're looking to reach in that business and kind of what's giving you the confidence that you can grow that business sustainably double digit?

Yes. It's a great question. And part of the reason I was willing to come back is because I feel confident in that. So Busuu, for those who just haven't had a chance to know much about the business, is predominantly in Europe. And we'll also be moving into Latin America. So one of the initiatives will be Latin America as an example. The big initiative over the last 2 years was repackaging our learning mechanisms, not for the D2C, but for the B2B, what do businesses want. And then, of course, leveraging AI. But in our case, the #1 thing that people want is conversation. They want a conversational way to be able to learn the language and discuss it and be gated on it. AI actually, with voice, it's scary, but it gives us a heck of a chance to be able to do that. So what we'll be looking at is a number of businesses that sign up, number of seats that we have, but engagement with those that choose to use it inside the companies because the more they engage, the more seats we'll have at those companies. So it won't be -- the things we'll be looking at over the next year, 2 years, 3 years will not be surprising. It will be the number of businesses that we sign up, the number of seats in those businesses, the retention that we have within those businesses, and that gives us the confidence to keep moving forward. So Busuu has been around for 15 years. This is a very significant change for it. It started originally trying to compete in a world of Duolingo. And we made the decision that, that was not a market that we should compete in, and we went B2B, and it's actually now working in our favor. It's exciting. But the milestones on the product will be how does AI help you develop the language skills better your pronunciation better, feel like that you're actually working with a human being on the other side. Those are the things that people seem to use when they learn best when they need to learn the language as opposed to just want to get a couple of phrases.

Our next question comes from the line of Ryan MacDonald with Needham & Company.

Dan, welcome back. Maybe on the skilling business, can you talk about -- you mentioned Guild already is obviously that's been a good channel for that business as you look to grow it. Can you talk about other sort of investments or other potential channels you're kind of looking at or evaluating as you sort of build the go-to-market motion here? And how much do you think is going to be sort of direct sales versus sort of additional channels? And where does sort of internal sales capacity stand at right now for those initiatives?

Yes, a great question, and it's early on in that question. So here's where we are in our current thinking, which is we launched through Guild, and that has been incredibly successful, and we're grateful for that partnership. But obviously, nobody wants to be dependent on a singular channel. And so we are working very hard to be able to offer noncompetitive products to Guild in other channels. And I think as you track that part of the business, you'll probably hear over the course of the year, new partnerships. So think of it as all new distribution channels where they have the customer, we have the content and there are marketplaces for that and there are channels for that. And those channels are in the U.S. and they're in Europe. So we think that's where we're starting, which is what we know, which is how to put great content in places where people want that content. The second thing is we are building slowly a B2B sales force. And that B2B sales force is focusing on opening more of those channels. But also one of the unfortunate realities of Chegg's existence was universities did not historically want to work with Chegg because of Chegg. Now that, that part of the business is going away, there's a lot of people who understand the quality of our content, the quality of the way we execute, the value that it has for the students. And so we will be building new channels eventually direct to institutions. It's just going to start slow. So I don't want you to think in '26, we're going to announce a lot of universities because we're not. We are going to start with the other distribution channels similar to Guild that already have built-in audiences inside of corporations. But we have been contacted by a number of universities who now -- who know the quality of our work. If you actually look at the success that we've had inside of Guild, I think we have amongst the highest retention rate and completion rate. And those things are examples of just how good our quality is. So those are the things that we are working on, but we're going to take it slow because we want to grow the business at double-digit growth. We want the businesses to become profitable. We want them to have sustainable growth. And we have a road map over the course of '26 that we're really excited about by adding more content, adding more channels and starting with new partnerships.

Helpful there. And then maybe just as a follow-up. So I think you mentioned -- I think it was in David's sort of prepared remarks that you saw a little bit slower than -- or lower-than-expected advertising revenue within the sort of Skills and Other segment as a result of the reduced traffic. I guess, how should we think about how much of a headwind traffic can be in the skilling business moving forward? And maybe some of the initiatives you're undertaking to whether it's investing in new marketing channels to sort of drive that top of the funnel in the business to sort of offset some of the declines from just core Google, if you will?

Yes. So actually, it's a really great question, and I'm glad you asked it because we should clarify this absolutely, which is Skilling and other, it's not that we're removing the other from Skilling. So the other were things like advertising. And those ads didn't appear in the Skills. Those ads appeared in Chegg Study, they appeared in Chegg Math and Chegg Writing. And that's where the traffic has declined, and that's where the ad sessions have gone away. You will see no headwinds in skilling other than things that we don't expect or might pop up. But those businesses are about growth now. So -- and those businesses -- the headwind that they have faced is over the last couple of years is a lack of investment because of what we were dealing with on the core side of the business. And it's not easy to reposition a business at all ever, but in the public markets, it's even more difficult. And so we've had to balance our debt, our cash, our initiatives and reposition those businesses to B2B, and we now feel like they're in a position to do that, and we're actually pretty excited about it.

Ladies and gentlemen, at this time, there are no further questions. The conference of Chegg, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines. Thank you.

Thanks, everybody.