CHEGG, INC 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk, including changes to foreign currency exchange rates, interest rates, and inflation. Foreign Currency Exchange Risk International revenues as a percentage of net revenues is not significant and our sales contracts are denominated primarily in U.S. dollars. A portion of our operating expenses are incurred outside the United States and are denominated in foreign currencies, which are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Indian Rupee. To date, we have not entered into derivatives or hedging strategies as our exposure to foreign currency exchange rates has not been material to our historical results of operations. There were no significant foreign exchange gains or losses in the years ended December 31, 2020 and 2019. Interest Rate Sensitivity We had cash and cash equivalents totaling $479.9 million and $387.5 million as of December 31, 2020 and 2019, respectively, and held investments of $1.2 billion and $691.6 million as of December 31, 2020 and 2019, respectively. Our cash and cash equivalents consist of cash and money market accounts and investments consist of commercial paper, corporate debt securities, and agency bonds. Our investment policy and strategy are focused on preservation of capital, supporting our liquidity requirements, and delivering competitive returns subject to prevailing market conditions. Changes in U.S. interest rates affect the interest earned on our cash and cash equivalents and investments and the market value of those securities. A hypothetical 100 basis point increase or decrease in interest rates would result in a $11.7 million and $6.9 million increase or decline in the fair value of our investments as of December 31, 2020 and 2019, respectively. Any realized gains or losses resulting from such hypothetical interest rate changes would only occur if we sold the investments prior to maturity. We were not exposed to material risks due to changes in market interest rates given the liquidity of the cash, cash equivalents, and investments in which we invested our cash. We carry our notes at face value less unamortized debt discount and debt issuance costs on our consolidated balance sheets. Because the 2026 notes, 2025 notes and 2023 notes have a fixed annual interest rate of 0.0%, 0.125% and 0.25%, respectively, we do not have any economic interest rate exposure or financial statement risk associated with changes in interest rates. The fair value of the notes, however, may fluctuate when interest rates and the market price of our stock changes. See Note 10, “Convertible Senior Notes,” of the Notes to Consolidated Financial Statements of Part II, Item 8 of this Annual Report on Form 10-K for additional information. 44 T a b l e o f C o n t e n t s ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Page Reports of Independent Registered Public Accounting Firm 46 Consolidated Balance Sheets 49 Consolidated Statements of Operations 50 Consolidated Statements of Comprehensive Loss 51 Consolidated Statements of Stockholders’ Equity 52 Consolidated Statements of Cash Flows 53 Notes to Consolidated Financial Statements 54 45 T a b l e o f C o n t e n t s Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Chegg, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Chegg, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15.2 (collectively, referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 22, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Convertible Senior Notes—Refer to Notes 2, 5, and 10 to the financial statements Critical Audit Matter Description During 2020, the Company issued $1.0 billion in aggregate principal amount of 0% convertible senior notes due in 2026 (the “notes”), which, if converted, may be settled in cash, shares of common stock, or a combination thereof, at the Company’s election. The Company separated the notes into liability and equity components. The carrying amount of the liability component was calculated by estimating the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the carrying amount of the liability component from the principal amount of the notes. Given the determination of the fair value of the liability component required management to make significant estimates and assumptions regarding the relevant valuation assumptions, auditing the valuation of the liability component required a high degree of auditor judgment and an increased extent of effort, including the need to involve professionals in our firm having 46 T a b l e o f C o n t e n t s expertise in the valuation of financial instruments, when performing audit procedures to evaluate management’s judgements and conclusions. How the Critical Audit Matter was Addressed in the Audit Our audit procedures related to the fair value of the liability component included the following, among others: • We tested the effectiveness of internal controls over the Company’s determination of the fair value of the liability component, including controls over the relevant valuation assumptions. • With the assistance of our fair value specialists, we evaluated the appropriateness of the valuation methodology and the reasonableness of the valuation assumptions to determine the fair value of the liability component. Additionally, we: ◦ Tested the source information underlying the valuation assumptions used in the model to determine fair value. ◦ Tested the mathematical accuracy of the valuation model. ◦ Developed a range of independent estimates and compared those to the fair value of the liability component determined by management. /s/ DELOITTE & TOUCHE LLP San Jose, California February 22, 2021 We have served as the Company’s auditor since 2018. 47 T a b l e o f C o n t e n t s Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Chegg, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Chegg, Inc. and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 22, 2021, expressed an unqualified opinion on those financial statements. As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Mathway, LLC, which was acquired on June 4, 2020, and whose financial statements constituted less than 1% of total assets and approximately 2% of total net revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2020. Accordingly, our audit did not include the internal control over financial reporting at Mathway, LLC. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP San Jose, California February 22, 2021 48 T a b l e o f C o n t e n t s CHEGG, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except for number of shares and par value) December 31, 2020 December 31, 2019 Assets Current assets Cash and cash equivalents $ 479,853 $ 387,520 Short-term investments 665,567 381,074 Accounts receivable, net of allowance of $ 153 and $ 56 at December 31, 2020 and December 31, 2019, respectively 12,913 11,529 Prepaid expenses 12,776 10,538 Other current assets 11,846 16,606 Total current assets 1,182,955 807,267 Long-term investments 523,628 310,483 Textbook library, net 34,149 — Property and equipment, net 125,807 87,359 Goodwill 285,214 214,513 Intangible assets, net 51,249 34,667 Right of use assets 24,226 15,931 Other assets 24,030 18,778 Total assets $ 2,251,258 $ 1,488,998 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 8,547 $ 7,362 Deferred revenue 32,620 18,780 Current operating lease liabilities 6,603 5,283 Accrued liabilities 61,962 39,964 Total current liabilities 109,732 71,389 Long-term liabilities Convertible senior notes, net 1,506,922 900,303 Long-term operating lease liabilities 19,264 14,513 Other long-term liabilities 5,705 3,964 Total long-term liabilities 1,531,891 918,780 Total liabilities 1,641,623 990,169 Commitments and contingencies Stockholders’ equity: Preferred stock, $ 0.001 par value – 10,000,000 shares authorized, no shares issued and outstanding at December 31, 2020 and December 31, 2019 — — Common stock, $ 0.001 par value – 400,000,000 shares authorized; 129,343,524 and 121,583,501 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively 129 122 Additional paid-in capital 1,030,577 916,095 Accumulated other comprehensive income (loss) 1,530 ( 1,096 ) Accumulated deficit ( 422,601 ) ( 416,292 ) Total stockholders’ equity 609,635 498,829 Total liabilities and stockholders’ equity $ 2,251,258 $ 1,488,998 See Notes to Consolidated Financial Statements. 49 T a b l e o f C o n t e n t s CHEGG, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Years Ended December 31, 2020 2019 2018 Net revenues $ 644,338 $ 410,926 $ 321,084 Cost of revenues 205,417 92,182 79,996 Gross profit 438,921 318,744 241,088 Operating expenses: Research and development 170,905 139,772 114,291 Sales and marketing 81,914 63,569 54,714 General and administrative 129,349 97,489 77,714 Restructuring charges — 97 589 Total operating expenses 382,168 300,927 247,308 Income (loss) from operations 56,753 17,817 ( 6,220 ) Interest expense, net and other income, net: Interest expense, net ( 66,297 ) ( 44,851 ) ( 11,225 ) Other income, net 8,683 20,063 3,987 Total interest expense, net and other income, net ( 57,614 ) ( 24,788 ) ( 7,238 ) Loss before provision for income taxes ( 861 ) ( 6,971 ) ( 13,458 ) Provision for income taxes 5,360 2,634 1,430 Net loss $ ( 6,221 ) $ ( 9,605 ) $ ( 14,888 ) Net loss per share, basic and diluted $ ( 0.05 ) $ ( 0.08 ) $ ( 0.13 ) Weighted average shares used to compute net loss per share, basic and diluted 125,367 119,204 113,251 See Notes to Consolidated Financial Statements. 50 T a b l e o f C o n t e n t s CHEGG, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Years Ended December 31, 2020 2019 2018 Net loss $ ( 6,221 ) $ ( 9,605 ) $ ( 14,888 ) Other comprehensive income (loss) Change in unrealized gain on available for sale investments, net of tax 1,037 668 76 Change in foreign currency translation adjustments, net of tax 1,589 ( 745 ) ( 813 ) Other comprehensive income (loss) 2,626 ( 77 ) ( 737 ) Total comprehensive loss $ ( 3,595 ) $ ( 9,682 ) $ ( 15,625 ) See Notes to Consolidated Financial Statements. 51 T a b l e o f C o n t e n t s CHEGG, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands) Common Stock Shares Par Value Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Balances at December 31, 2017 109,668 $ 110 $ 782,845 $ ( 282 ) $ ( 391,611 ) $ 391,062 Cumulative-effect adjustment to accumulated deficit related to adoption of ASUs — — — — ( 77 ) ( 77 ) Equity component of 2023 convertible senior notes, net of issuance costs — — 62,444 — — 62,444 Purchase of 2023 convertible senior notes capped call — — ( 39,227 ) — — ( 39,227 ) Repurchase of common stock ( 983 ) ( 1 ) ( 19,999 ) — — ( 20,000 ) Issuance of common stock upon exercise of stock options and ESPP 3,459 4 29,109 — — 29,113 Net share settlement of equity awards 3,322 3 ( 49,089 ) — — ( 49,086 ) Warrant exercises 34 — — — — — Share-based compensation expense — — 52,030 — — 52,030 Other comprehensive loss — — — ( 737 ) — ( 737 ) Net loss — — — — ( 14,888 ) ( 14,888 ) Balances at December 31, 2018 115,500 116 818,113 ( 1,019 ) ( 406,576 ) 410,634 Cumulative-effect adjustment to accumulated deficit related to adoption of ASU 2016-02 — — — — ( 111 ) ( 111 ) Equity component of 2025 convertible senior notes, net of issuance costs — — 206,747 — — 206,747 Purchase of 2025 convertible senior notes capped call — — ( 97,200 ) — — ( 97,200 ) Repurchase of common stock ( 504 ) ( 1 ) ( 19,999 ) — — ( 20,000 ) Issuance of common stock upon exercise of stock options and ESPP 3,276 4 35,093 — — 35,097 Net share settlement of equity awards 3,248 3 ( 94,571 ) — — ( 94,568 ) Issuance of common stock in connection with prior acquisition 64 — 3,003 — — 3,003 Share-based compensation expense — — 64,909 — — 64,909 Other comprehensive loss — — — ( 77 ) — ( 77 ) Net loss — — — — ( 9,605 ) ( 9,605 ) Balances at December 31, 2019 121,584 122 916,095 ( 1,096 ) ( 416,292 ) 498,829 Cumulative-effect adjustment to accumulated deficit related to adoption of ASU 2016-13 — — — — ( 88 ) ( 88 ) Equity component of 2026 convertible senior notes, net of issuance costs — — 237,462 — — 237,462 Purchase of 2026 convertible senior notes capped call — — ( 103,400 ) — — ( 103,400 ) Equity component related to conversions of 2023 convertible senior notes — — ( 442,667 ) — — ( 442,667 ) Issuance of common stock upon conversion of 2023 convertible senior notes 4,182 4 327,137 — — 327,141 Proceeds from capped call related to conversions of 2023 convertible senior notes — — 77,095 — — 77,095 Issuance of common stock upon exercise of stock options and ESPP 1,154 1 15,480 — — 15,481 Net share settlement of equity awards 2,424 2 ( 80,680 ) — — ( 80,678 ) Share-based compensation expense — — 84,055 — — 84,055 Other comprehensive income — — — 2,626 — 2,626 Net loss — — — — ( 6,221 ) ( 6,221 ) Balances at December 31, 2020 129,344 $ 129 $ 1,030,577 $ 1,530 $ ( 422,601 ) $ 609,635 See Notes to Consolidated Financial Statements. 52 T a b l e o f C o n t e n t s CHEGG, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2020 2019 2018 Cash flows from operating activities Net loss $ ( 6,221 ) $ ( 9,605 ) $ ( 14,888 ) Adjustments to reconcile net loss to net cash provided by operating activities: Print textbook depreciation expense 15,397 — — Other depreciation and amortization expense 47,018 30,247 22,805 Share-based compensation expense 84,055 64,909 52,030 Amortization of debt discount and issuance costs 64,573 43,202 10,494 Repayment of convertible senior notes attributable to debt discount ( 20,433 ) — — Loss on early extinguishments of debt 4,286 — — Loss from write-offs of property and equipment 1,211 1,009 93 Loss from impairment of strategic equity investment 10,000 — — Gain on textbook library, net ( 1,453 ) — — Deferred income taxes ( 109 ) ( 39 ) ( 323 ) Operating lease expense, net of accretion 4,901 4,385 — Other non-cash items ( 118 ) ( 416 ) 65 Change in assets and liabilities, net of effect of acquisition of businesses: Accounts receivable ( 400 ) 1,829 ( 1,538 ) Prepaid expenses and other current assets 5,419 ( 12,930 ) ( 4,921 ) Other assets ( 4,214 ) ( 1,494 ) 48 Accounts payable 1,119 ( 2,395 ) 893 Deferred revenue 12,918 ( 1,682 ) 3,978 Accrued liabilities 22,444 ( 206 ) 3,838 Other liabilities ( 3,951 ) ( 3,411 ) 2,539 Net cash provided by operating activities 236,442 113,403 75,113 Cash flows from investing activities Purchases of property and equipment ( 81,317 ) ( 42,326 ) ( 31,223 ) Purchases of textbooks ( 58,567 ) — — Proceeds from disposition of textbooks 7,569 — — Purchases of investments ( 1,045,564 ) ( 959,911 ) ( 146,856 ) Proceeds from sale of investments — 53,261 1,800 Maturities of investments 539,889 324,700 138,380 Acquisition of businesses, net of cash acquired ( 92,796 ) ( 79,149 ) ( 34,650 ) Purchases of strategic equity investment ( 2,000 ) — ( 10,000 ) Net cash used in investing activities ( 732,786 ) ( 703,425 ) ( 82,549 ) Cash flows from financing activities Proceeds from common stock issued under stock plans, net 15,483 35,100 29,116 Payment of taxes related to the net share settlement of equity awards ( 80,680 ) ( 94,571 ) ( 49,089 ) Proceeds from issuance of convertible senior notes, net of issuance costs 984,096 780,180 335,618 Purchase of convertible senior notes capped call ( 103,400 ) ( 97,200 ) ( 39,227 ) Repayment of convertible senior notes ( 303,967 ) — — Proceeds from exercise of convertible senior notes capped call 77,095 — — Repurchase of common stock — ( 20,000 ) ( 20,000 ) Net cash provided by financing activities 588,627 603,509 256,418 Net increase in cash, cash equivalents and restricted cash 92,283 13,487 248,982 Cash, cash equivalents and restricted cash, beginning of period 389,432 375,945 126,963 Cash, cash equivalents and restricted cash, end of period $ 481,715 $ 389,432 $ 375,945 See Notes to Consolidated Financial Statements. Years Ended December 31, 2020 2019 2018 Supplemental cash flow data: Cash paid during the period for: Interest $ 1,766 $ 1,332 $ 605 Income taxes $ 3,436 $ 2,070 $ 2,097 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 6,790 $ 5,297 $ — Right of use assets obtained in exchange for lease obligations: Operating leases $ 13,688 $ 3,364 $ — Non-cash investing and financing activities: Accrued purchases of long-lived assets $ 1,588 $ 10,036 $ 1,210 Accrued escrow related to acquisition $ 7,451 $ — $ — Issuance of common stock related to repayment of convertible senior notes $ 327,141 $ — $ — Issuance of common stock related to prior acquisition $ — $ 3,003 $ — December 31, 2020 2019 2018 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 479,853 $ 387,520 $ 374,664 Restricted cash included in other current assets 122 149 84 Restricted cash included in other assets 1,740 1,763 1,197 Total cash, cash equivalents and restricted cash $ 481,715 $ 389,432 $ 375,945 See Notes to Consolidated Financial Statements. 53 T a b l e o f C o n t e n t s CHEGG, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Background and Basis of Presentation Company and Background Chegg, Inc. (Chegg, the Company, we, us, or our), headquartered in Santa Clara, California, was incorporated as a Delaware corporation in July 2005. Chegg: A Smarter Way to Student ® . We strive to improve educational outcomes by putting the student first. We support students on their journey from high school to college and into their careers with tools designed to help them learn their course materials, succeed in their classes, save money on required materials, and learn the most in-demand skills. Our services are available online, anytime and anywhere. Basis of Presentation Our fiscal year ends on December 31 and in this report we refer to the year ended December 31, 2020, December 31, 2019, and December 31, 2018 as 2020, 2019, and 2018, respectively. Note 2. Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities; the disclosure of contingent liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting periods. Significant estimates, assumptions, and judgments are used for, but not limited to: revenue recognition, recoverability of accounts receivable, share-based compensation expense including estimated forfeitures, accounting for income taxes, useful lives and salvage value assigned to our textbook library, useful lives assigned to long-lived assets for depreciation and amortization, impairment of goodwill and long-lived assets, the valuation of acquired intangible assets, the valuation of our convertible senior notes, internal-use software and website development costs, operating lease right of use (ROU) assets, and operating lease liabilities. We base our estimates on historical experience, knowledge of current business conditions, and various other factors we believe to be reasonable under the circumstances. These estimates are based on management’s knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ from these estimates, and such differences could be material to our financial position and results of operations. Principles of Consolidation The consolidated financial statements include the accounts of Chegg and our wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with U.S. GAAP. Cash and Cash Equivalents and Restricted Cash We consider all highly liquid investments with an original maturity date of three months or less from the date of purchase to be cash equivalents. Our cash and cash equivalents consist of cash and money market accounts at financial institutions, and are stated at cost, which approximates fair value. We classify certain restricted cash balances within other current assets and other assets on the accompanying consolidated balance sheets based upon the term of the remaining restrictions. 54 T a b l e o f C o n t e n t s Investments We hold investments in commercial paper, corporate debt securities, and agency bonds. We classify our investments as available-for-sale that are either short or long-term based on the nature of each security based on the remaining contractual maturity of the investment. Our available-for-sale investments are carried at estimated fair value with any unrealized gains and losses, unrelated to credit loss factors, net of taxes, included in other comprehensive income (loss) on our consolidated statements of stockholders’ equity. Beginning in 2020, unrealized losses related to credit loss factors are now recorded through an allowance for credit losses in other income, net on our consolidated statements of operations, rather than as a reduction to the amortized costs basis in other comprehensive income (loss), when a decline in fair value has resulted from a credit loss. We determine realized gains or losses on the sale of investments on a specific identification method, and record such gains or losses as other income, net. For the years ended December 31, 2020, 2019 and 2018, the Company's gross realized gains and losses on investments were not significant. Accounts Receivable, Net of Allowance Accounts receivable are recorded at the invoiced amount and are non-interest bearing. We generally grant uncollateralized credit terms to our customers, which include textbook wholesalers and advertising customers. We maintain an allowance to account for potentially uncollectible receivables. We assess the creditworthiness of our customers based on multiple sources of information, and analyze such factors as our historical bad debt experience, industry and geographic concentrations of credit risk, economic trends, and customer payment history. This assessment requires significant judgment. Because of this assessment, we maintain an allowance for estimated losses resulting from the inability of certain customers to make all of their required payments. In making this estimate, we analyze historical payment performance and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. Accounts receivable are written off as a decrease to the allowance when all collection efforts have been exhausted and an account is deemed uncollectible. Concentration of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, and investments in highly liquid instruments in accordance with our investment policy. We place the majority of our cash and cash equivalents and restricted cash with financial institutions in the United States that we believe to be of high credit quality, and accordingly minimal credit risk exists with respect to these instruments. Certain of our cash balances held with a financial institution are in excess of Federal Deposit Insurance Corporation limits. Our investment portfolio consists of investments diversified among security types, industries and issuers. Our investments were held and managed by recognized financial institutions that followed our investment policy with the main objective of preserving capital and maintaining liquidity. Concentrations of credit risk with respect to accounts receivables exist to the full extent of amounts presented in the financial statements. We had one customer, in each year, that represented 10 % and 11 % of our net accounts receivable balance as of December 31, 2020 and 2019, respectively. No customers represented over 10% of net revenues during the years ended December 31, 2020, 2019 or 2018. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation and content amortization. Depreciation and content amortization are computed using the straight-line method over the following estimated useful lives of the assets: Classification Useful Life Content Shorter of the licensed content term or the estimated useful life of 5 years Leasehold improvements Shorter of the remaining lease term or the estimated useful life of 5 years Internal-use software and website development 3 years Furniture and fixtures 5 years Computers and equipment 3 years 55 T a b l e o f C o n t e n t s Depreciation and content amortization expense are generally classified within the corresponding cost of revenues and operating expenses categories on our consolidated statements of operations. The cost of maintenance and repairs is expensed as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in income (loss) from operations. Internal-Use Software and Website Development Costs We capitalize certain costs associated with software developed or obtained for internal use and website and application development. We capitalize costs when preliminary development efforts are successfully completed, management has authorized and committed project funding and it is probable that the project will be completed and the software will be used as intended. Such costs are amortized on a straight-line basis over a three year estimated useful life of the related asset. Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred. Costs incurred for enhancements that are expected to result in additional material functionality are capitalized and amortized over the estimated useful life of the upgrades. Business Combinations We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired through a business combination based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets acquired and liabilities assumed is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Goodwill and Indefinite-Lived Intangible Asset Goodwill represents the excess of the fair value of purchase consideration paid over the estimated fair value of assets acquired and liabilities assumed in a business combination. Our indefinite-lived intangible asset represents the internships.com trade name. Goodwill and our indefinite-lived intangible asset are not amortized but rather tested for impairment at least annually on October 1, or more frequently if certain events or indicators of impairment occur between annual impairment tests. We first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. In our qualitative assessment, we consider factors including economic conditions, industry and market conditions and developments, overall financial performance and other relevant entity-specific events in determining whether it is more likely than not that the fair value of our reporting unit is less than the carrying amount. We completed our annual impairment test on October 1st of 2020 and 2019, each of which did not result in any impairment as our qualitative assessment did not indicate that it is more likely than not that the fair value of our reporting unit is less than the carrying amount. Acquired Intangible Assets and Other Long-Lived Assets Acquired intangible assets with finite useful lives, which include developed technology, content library, customer lists, trade names, domain names, and non-compete agreements, are amortized over their estimated useful lives. We assess the impairment of acquired intangible assets and other long-lived assets when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Leases We determine if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets and operating lease liabilities within current liabilities and long-term liabilities on our consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Our leases do not provide an implicit rate and therefore we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future minimum lease payments. Our incremental borrowing rate is estimated based on the estimated rate incurred to borrow, on a collateralized basis over a similar term as our leases, an amount equal to the lease payments in a similar economic environment. Our lease 56 T a b l e o f C o n t e n t s terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. We do not record leases on our consolidated balance sheet with a term of one year or less. We do not separate lease and non-lease components but rather account for each separate component as a single lease component for all underlying classes of assets. Some of our leases include payments that are dependent on an index, such as the Consumer Price Index (CPI), and our minimum lease payments include payments based on the index at inception with any future changes in such indices recognized as an expense in the period of change. Where leases contain escalation clauses, rent abatements, or concessions, such as rent holidays and landlord or tenant incentives or allowances, we apply them in the determination of straight-line operating lease cost over the lease term. Strategic Investments We have entered into strategic investments that do not have readily determinable fair values and have elected to account for these investments at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, if any. Strategic investments are included in other assets on our consolidated balance sheets. We assess our strategic investments for impairment whenever events or changes in circumstances indicate that they may be impaired. The factors we consider in our evaluation include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee or factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations or working capital deficiencies. Convertible Senior Notes, net In August 2020, we issued $ 1.0 billion in aggregate principal amount of 0 % convertible senior notes due in 2026 (2026 notes). In March 2019, we issued $ 700 million in aggregate principal amount of 0.125 % convertible senior notes due in 2025 (2025 notes) and in April 2019, the initial purchasers fully exercised their option to purchase $ 100 million of additional 2025 notes for aggregate total gross proceeds of $ 800 million. In April 2018, we issued $ 345 million in aggregate principal amount of 0.25 % convertible senior notes due in 2023 (2023 notes). Collectively, the 2026 notes, 2025 notes and the 2023 notes are referred to as the “notes.” In accounting for their issuance, we separated the notes into liability and equity components, as the notes represent convertible instruments with a cash conversion feature. The carrying amount of the liability component was calculated by measuring the fair value of similar liabilities that do not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the carrying amount of the liability component from the par value of the notes. The difference represents the debt discount, recorded as a reduction of the convertible senior notes on our consolidated balance sheet, and is amortized to interest expense over the term of the notes using the effective interest rate method. The carrying amount of the liability component is classified as a long-term liability as we have the election to settle conversion requests in shares of our common stock. The carrying amount of the equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the notes, we allocated the total amount of issuance costs incurred to liability and equity components based on their relative values. Issuance costs attributable to the liability component are being amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the term of the notes. The issuance costs attributable to the equity component are recorded as a reduction of the equity component within additional paid-in capital. In accounting for extinguishment of the notes, we allocated the consideration transferred between the liability and equity components in a similar manner as upon issuance. The liability component for extinguished notes is then compared to the carrying amount of the respective extinguished notes and a gain or loss is recorded in other income, net on our consolidated statements of operations. Textbook Library Beginning in January 2020, we began our transition back to print textbook ownership by purchasing print textbooks to establish our textbook library. We consider our print textbook library to be a long-term productive asset and, as such, classify it as a non-current asset on our consolidated balance sheets. All print textbooks in our textbook library are stated at cost, which includes the purchase price less accumulated depreciation. We write down textbooks on a book-by-book basis for lost, damaged, or excess print textbooks. We depreciate our print textbooks, less an estimated salvage value, over an estimated useful life of four years using an accelerated method of depreciation, as we estimate this method most accurately reflects the actual pattern of decline in their economic value. The salvage value considers the historical trend and projected proceeds for print textbooks. The useful life is determined based on the estimated time period in which the print textbooks are held and rented. We review the estimated salvage value and useful life of our print textbook library on an ongoing basis. 57 T a b l e o f C o n t e n t s Write-downs for print textbooks, print textbook depreciation expense, the gain or loss on print textbooks liquidated, and the net book value of print textbooks purchased by students at the end of the term or on a just-in-time basis are recorded in cost of revenues on our consolidated statements of operations and classified as adjustments to cash flows from operating activities. Cash outflows for the acquisition of print textbooks net of changes in related accounts payable and accrued liabilities, and cash inflows received from the proceeds from the disposition of print textbooks net of changes in related accounts receivable, are classified as cash flows from investing activities on our consolidated statements of cash flows. Revenue Recognition and Deferred Revenue We recognize revenues when the control of goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenues are presented net of sales tax collected from customers to be remitted to governmental authorities and net of allowances for estimated cancellations and customer returns, which are based on historical data. Customer refunds from cancellations and returns are recorded as a reduction to revenues. We determine revenue recognition through the following steps: • Identification of the contract, or contracts, with a customer • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract • Recognition of revenue when, or as, we satisfy a performance obligation We generate revenues from our Chegg Services product line which primarily includes Chegg Study, Chegg Writing, Chegg Math Solver, Chegg Study Pack, Thinkful, and Mathway. Revenues from Chegg Study, Chegg Writing, Chegg Math Solver, Chegg Study Pack, and Mathway are primarily recognized ratably over the respective weekly or monthly subscription period. Revenues from Thinkful are recognized either ratably over the term of the course, generally six months , or upon completion of the lessons, depending on the instruction type of the course. Revenues from our Required Materials product line includes revenues from print textbooks that we own or that are owned by a partner as well as revenues from eTextbooks. Beginning in 2020, our Required Materials product line includes operating leases with students for the rental of print textbooks that we own. Operating lease income is recognized as the total transaction amount, paid upon commencement of the lease, ratably over the lease term or rental term, generally a two - to five-month period. Students generally have the option to extend the term of their rental or purchase the print textbook at the end of the term otherwise the print textbook is returned to our print textbook library for future rental. If a student chooses to purchase or not return the print textbook at the end of their rental term, we charge the student for the book and recognize the revenues immediately. Additionally, we provide students the ability to purchase print textbooks on a just-in-time basis and recognize revenues immediately upon shipment. Revenues from print textbooks owned by a partner are recognized as a revenue share on the total transaction amount of a rental or sale transaction immediately when a print textbook ships to a student. Shipping and handling activities are expensed as incurred. Revenues from eTextbooks are recognized ratably over the contractual period, generally a two - to five-month period. Some of our customer arrangements include multiple performance obligations. We have determined these performance obligations qualify as distinct performance obligations, as the customer can benefit from the service on its own or together with other resources that are readily available to the customer, and our promise to transfer the service is separately identifiable from other promises in the contract. For these arrangements that contain multiple performance obligations, we allocate the transaction price based on the relative standalone selling price (SSP) method by comparing the SSP of each distinct performance obligation to the total value of the contract. We determine the SSP based on our historical pricing and discounting practices for the distinct performance obligation when sold separately. If the SSP is not directly observable, we estimate the SSP by considering information such as market conditions, and information about the customer. Additionally, we limit the amount of revenues recognized for delivered promises to the amount that is not contingent on future delivery of services or other future performance obligations. Some of our customer arrangements may include an amount of variable consideration in addition to a fixed revenue share that we earn. This variable consideration can either increase or decrease the total transaction price depending on the nature of the variable consideration. We estimate the amount of variable consideration that we will earn at the inception of the contract, adjusted during each period, and include an estimated amount each period. 58 T a b l e o f C o n t e n t s For sales of third-party products, we evaluate whether we are acting as a principal or an agent, and therefore would record the gross sales amount as revenues and related costs or the net amount earned as a revenue share from the sale of third-party products. Our determination is based on our evaluation of whether we control the specified goods or services prior to transferring them to the customer. In relation to print textbooks owned by a partner, we recognize revenues on a net basis based on our role in the transaction as an agent as we have concluded that we do not control the use of the print textbooks, and therefore record only the net revenue share we earn. We have concluded that we control our Chegg Services, print textbooks that we own for rental, purchase at the end of the rental term, or sale on a just-in-time basis, and eTextbook service and therefore we recognize revenues and cost of revenues on a gross basis. Contract assets are contained within other current assets and other assets on our consolidated balance sheets. Contract assets represent the goods or services that we have transferred to a customer before invoicing the customer and primarily consist of the income sharing payment arrangements we offer to students for our Thinkful service. Contract receivables are contained within accounts receivable, net on our consolidated balance sheets and represent unconditional consideration that will be received solely due to the passage of time. Contract liabilities are contained within deferred revenue on our consolidated balance sheets. Deferred revenue primarily consists of advanced payments from students related to rental and subscription performance obligations that have not been satisfied and estimated variable consideration. Deferred revenue related to rental and subscription performance obligations is recognized as revenues ratably over the term for subscriptions or when the services are provided and all other revenue recognition criteria have been met. Deferred revenue related to variable consideration is recognized as revenues during each reporting period based on the estimated amount we believe we will earn over the life of the contract. We have elected a practical expedient to record incremental costs to obtain or fulfill a contract when the amortization period would have been one year or less as incurred. These incremental costs primarily relate to sales commissions costs and are recorded in sales and marketing expense on our consolidated statements of operations. Cost of Revenues Our cost of revenues consists primarily of expenses associated with the delivery and distribution of our products and services. Cost of revenues primarily consists of content amortization expense related to content that we develop, license from publishers for which we pay one-time license fees, or acquire through acquisitions, payment processing costs, order fulfillment fees primarily related to outbound shipping and fulfillment as well as publisher content fees for eTextbooks, write-downs for print textbooks, the gain or loss on print textbooks liquidated, the net book value of print textbooks purchased by students at the end of the term or on a just-in-time basis, print textbook depreciation expense, personnel costs and other direct costs related to providing content or services. In addition, cost of revenues includes allocated information technology and facilities costs. Research and Development Costs Our research and development expenses consist of salaries, benefits, and share-based compensation expense for employees on our product, engineering, and technical teams who are responsible for maintaining our website, developing new products, and improving existing products. Research and development costs also include depreciation expense, technology costs to support our research and development, outside services, and allocated information technology and facilities expenses. We expense substantially all of our research and development expenses as they are incurred. Advertising Costs Advertising costs are expensed as incurred and consist primarily of online advertising and marketing promotional expenditures. During the years ended December 31, 2020, 2019, and 2018, advertising costs were approximately $ 35.3 million, $ 24.4 million, and $ 17.9 million, respectively. Share-based Compensation Expense Share-based compensation expense for restricted stock units (RSUs), performance-based restricted stock units (PSUs), and employee stock purchase plan (ESPP) are accounted for under the fair value method, which requires us to measure the cost of share-based compensation awards based on the grant-date fair value of the award. Share-based compensation expense for our ESPP is estimated at the date of grant using the Black-Scholes-Merton option pricing model while RSUs and PSUs are measured based on the closing fair market value of the Company’s common stock generally on the date of grant. We recognize share-based compensation expense over the requisite service period, which is generally the vesting period, on a straight-line basis for ESPP and RSUs and on a graded basis for PSUs, contingent on the achievement of performance conditions. These 59 T a b l e o f C o n t e n t s amounts are reduced by estimated forfeitures, which are estimated at the time of the grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Income Taxes We account for income taxes under an asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and the tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to an amount that is more likely than not to be realized. We record uncertain tax positions on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of technical merits of the position and (2) for those tax positions that meet the more likely than not recognition threshold, we recognize the tax benefit as the largest amount that is cumulative more than 50% likely to be realized upon ultimate settlement with the related tax authority. Our policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense. Net Loss Per Share Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including stock options, RSUs, PSUs, and shares related to convertible senior notes, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential common shares outstanding would have been anti-dilutive. The following table sets forth the computation of historical basic and diluted net loss per share (in thousands, except per share amounts): Years Ended December 31, 2020 2019 2018 Numerator: Net loss $ ( 6,221 ) $ ( 9,605 ) $ ( 14,888 ) Denominator: Weighted average shares used to compute net loss per share, basic and diluted 125,367 119,204 113,251 Net loss per share, basic and diluted $ ( 0.05 ) $ ( 0.08 ) $ ( 0.13 ) The following potential weighted-average shares of common stock outstanding were excluded from the computation of diluted net loss per share because including them would have been anti-dilutive (in thousands): Years Ended December 31, 2020 2019 2018 Options to purchase common stock 935 2,395 4,045 RSUs and PSUs 3,529 4,699 7,946 Shares related to convertible senior notes 4,942 3,526 — Employee stock purchase plan 6 — — Total common stock equivalents 9,412 10,620 11,991 Shares related to convertible senior notes during the year ended December 31, 2020 represents the anti-dilutive impact of our issuance of our 2023 notes and 2025 notes as the average price of our common stock was higher than the conversion price of $ 26.95 and $ 51.56 , respectively, and the conditions for conversion had been met. Shares related to convertible senior notes during the year ended December 31, 2019 represents the anti-dilutive impact of our 2023 notes as the average price of our common stock was higher than the conversion price and the conditions for conversion had been met. While these shares were anti-dilutive during the years ended December 31, 2020 and 2019, they may be dilutive in periods we report net income. However, as a result of the capped call transactions, there will be no economic dilution from the 2023 notes and 2025 notes up to $ 40.68 and $ 79.32 , respectively, as exercise of the capped call instruments will reduce dilution that would have otherwise occurred when the average price of our common stock exceeds the conversion prices. None of the shares related to our 2026 60 T a b l e o f C o n t e n t s notes were dilutive or anti-dilutive during the year ended December 31, 2020 as a result of the conditions for conversion not being met. For further information on the notes, see Note 10, “Convertible Senior Notes.” Foreign Currency Translation The functional currency of our foreign subsidiaries is the local currency. Adjustments resulting from the translation of foreign currencies into U.S. dollars for balance sheet amounts are based on the exchange rates as of the consolidated balance sheet date. Revenues and expenses are translated at average exchange rates during the period. Foreign currency translation gains or losses are included in accumulated other comprehensive income (loss) as a component of stockholders’ equity on the consolidated balance sheets. Gains or losses resulting from foreign currency transactions, which are denominated in currencies other than the entity’s functional currency, are included in other income, net in the consolidated statements of operations and were not material during the years ended December 31, 2020, 2019 or 2018. Recent Accounting Pronouncements Recently Issued Accounting Pronouncements Not Yet Adopted In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity . ASU 2020-06 simplifies the guidance in Accounting Standards Codification (ASC) 470-20, Debt - Debt with Conversion and Other Options, by reducing the number of accounting separation models for convertible instruments, amends the guidance in ASC 815-40, Derivatives and Hedging - Contracts in Entity's Own Equity, for certain contracts in an entity's own equity that are currently accounted for as derivatives, and requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share (EPS) calculation. The guidance allows for a modified retrospective method of transition with a cumulative-effect adjustment to the opening balance sheet of accumulated deficit in the period of adoption without restating prior periods. The guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. We will early adopt the guidance on January 1, 2021 under the modified retrospective method of transition. Upon adoption, we expect to initially record a $ 107 million cumulative-effect adjustment to the opening balance of accumulated deficit on our consolidated balance sheet, largely due to the reduction in non-cash interest expense associated with the historical separation of debt and equity components for our notes. Recently Adopted Accounting Pronouncements In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting . ASU 2020-04 provides temporary optional expedients and exceptions for applying reference rate reform to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance is required to be applied immediately and only applies to contract modifications made or hedging relationships entered into or evaluated before December 31, 2022. We do not have any hedging relationships and currently do not have material contracts impacted by reference rate reform, however, we will continue to assess contracts through December 31, 2022. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . ASU 2019-12 key changes include hybrid tax regimes, intraperiod tax allocation exception, and interim-period accounting for enacted changes in tax law. We early adopted ASU 2019-12 during the second quarter of 2020 under the prospective method of adoption. As a result of adoption, there was no modification required to the first quarter of 2020 results of operations as previously presented. The FASB issued four ASUs related to ASC 326, Financial Instruments - Credit Losses . In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. In June 2016, the FASB issued ASU 2016-13, Financial Instruments— Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. On January 1, 2020, we adopted ASC 326, which replaces the existing incurred loss impairment model for financial assets, including trade receivables, with an expected loss model which requires the use of forward-looking information to calculate expected credit loss estimates. Additionally, the concept of other-than-temporary impairment for available-for-sale investments is eliminated and instead requires us to focus on determining whether any unrealized loss is a result of a credit loss or other factors. We adopted ASC 326 under the modified retrospective method for all financial assets measured at amortized cost. Results for reporting periods beginning after adoption are presented under ASC 326 while we have not changed previously disclosed amounts or provided additional disclosures for comparative periods. We recorded an immaterial cumulative-effect adjustment to trade receivables to the opening balance of 61 T a b l e o f C o n t e n t s accumulated deficit on our consolidated balance sheet. We adopted ASC 326 under the prospective transition approach for available-for-sale investments which resulted in no change to amortized cost basis before and after adoption. Credit losses related to available-for-sale investments will now be recorded through an allowance for credit losses with immediate recognition to our consolidated statement of operations rather than as a reduction to the amortized cost basis and recognition to our consolidated statements of comprehensive loss. See above within Note 1, “Background and Basis of Presentation”, for updates to our significant accounting policies impacted by our adoption of ASC 326 as well as Note 4, “Cash and Cash Equivalents, and Investments” for more information. In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract . ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with existing guidance contained within subtopic 350-40 to develop or obtain internal-use software. We adopted ASU 2018-15 on January 1, 2020 under the prospective method of adoption. Note 3. Revenues Revenue Recognition Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The majority of our revenues are recognized over time as services are performed, with certain revenues being recognized at a point in time. The following table sets forth our total net revenues for the periods shown disaggregated for our Chegg Services and Required Materials product lines (in thousands, except percentages): Years Ended December 31, Change in 2020 Change in 2019 2020 2019 2018 $ % $ % Chegg Services $ 521,228 $ 332,221 $ 253,985 $ 189,007 57 % $ 78,236 31 % Required Materials 123,110 78,705 67,099 44,405 56 11,606 17 Total net revenues $ 644,338 $ 410,926 $ 321,084 $ 233,412 57 $ 89,842 28 During the years ended December 31, 2020, 2019, and 2018, we recognized $ 18.3 million, $ 17.0 million and $ 11.7 million, respectively, of revenues that were included in our deferred revenue balance at the beginning of each respective fiscal year. During the year ended December 31, 2020, we recognized an immaterial amount of previously deferred revenues recognized from performance obligation satisfied in previous periods. During the year ended December 31, 2019, we recognized $ 3.4 million of previously deferred revenues recognized from performance obligations satisfied in previous periods related to variable consideration recognized from our agreement with our Required Materials print textbook partner. During the year ended December 31, 2018, we recognized an immaterial amount of previously deferred revenues recognized from performance obligations satisfied in previous periods. During the year ended December 31, 2020, we recognized $ 50.8 million of operating lease income from print textbook rentals that we own. The aggregate amount of unsatisfied performance obligations is approximately $ 32.6 million as of December 31, 2020, which are expected to be recognized into revenues over the next year. Contract Balances The following table presents our accounts receivable, net, deferred revenue, and contract assets balances (in thousands, except percentages): December 31, Change 2020 2019 $ % Accounts receivable, net $ 12,913 $ 11,529 $ 1,384 12 % Deferred revenue 32,620 18,780 13,840 74 Contract assets 13,243 3,531 9,712 275 During the year ended December 31, 2020, our accounts receivable, net balance increased by $ 1.4 million, or 12 %, primarily due to timing of billings. During the year ended December 31, 2020, our deferred revenue balance increased by $ 13.8 62 T a b l e o f C o n t e n t s million, or 74 %, primarily due to increased bookings driven by higher Chegg Services revenue and print textbooks that we own that are recognized ratably rather than immediately. During the year ended December 31, 2020, our contract assets balance increased by $ 9.7 million or 275 %, primarily due to the income sharing payment arrangements we offer to students for our Thinkful service. Note 4. Cash and Cash Equivalents, and Investments The following tables show our cash and cash equivalents, and investments’ adjusted cost, unrealized gain, unrealized loss and fair value as of December 31, 2020 and 2019 (in thousands): December 31, 2020 Adjusted Cost Unrealized Gain Unrealized Loss Fair Value Cash and cash equivalents: Cash $ 15,054 $ — $ — $ 15,054 Money market funds 464,799 — — 464,799 Total cash and cash equivalents $ 479,853 $ — $ — $ 479,853 Short-term investments: Commercial paper $ 204,152 $ 24 $ ( 6 ) $ 204,170 Corporate debt securities 459,967 1,478 ( 48 ) 461,397 Total short-term investments $ 664,119 $ 1,502 $ ( 54 ) $ 665,567 Long-term investments Corporate debt securities $ 484,275 $ 605 $ ( 283 ) $ 484,597 Agency bonds 38,995 36 — 39,031 Total long-term investments $ 523,270 $ 641 $ ( 283 ) $ 523,628 December 31, 2019 Adjusted Cost Unrealized Gain Unrealized Loss Fair Value Cash and cash equivalents: Cash $ 241,355 $ — $ — $ 241,355 Money market funds 146,165 — — 146,165 Total cash and cash equivalents $ 387,520 $ — $ — $ 387,520 Short-term investments: Commercial paper $ 7,489 $ — $ — $ 7,489 Corporate debt securities 318,946 425 ( 78 ) 319,293 U.S. treasury securities 44,251 39 ( 4 ) 44,286 Agency bonds 10,000 6 — 10,006 Total short-term investments $ 380,686 $ 470 $ ( 82 ) $ 381,074 Long-term investments Corporate securities $ 295,103 $ 533 $ ( 158 ) $ 295,478 Agency bonds 14,999 6 — 15,005 Total long-term investments $ 310,102 $ 539 $ ( 158 ) $ 310,483 63 T a b l e o f C o n t e n t s The adjusted cost and fair value of our cash equivalents and investments as of December 31, 2020 by contractual maturity were as follows (in thousands): December 31, 2020 Cost Fair Value Due in 1 year or less $ 664,119 $ 665,567 Due in 1-2 years 523,270 523,628 Investments not due at a single maturity date 464,799 464,799 Total $ 1,652,188 $ 1,653,994 Investments not due at a single maturity date in the preceding table consist of money market funds. As of December 31, 2020, we did not consider the declines in market value of our investment portfolio to be driven by credit related factors. When evaluating whether an investment's unrealized losses are related to credit factors, we review factors such as the extent to which fair value is below its cost basis, any changes to the credit rating of the security, adverse conditions specifically related to the security, changes in market interest rates and our intent to sell, or whether it is more likely than not we will be required to sell, before recovery of cost basis. We invest in highly-rated securities with a minimum credit rating of A- and a weighted average maturity of less than twelve months , and our investment policy limits the amount of credit exposure to any one issuer or industry sector. The policy requires investments generally to be investment grade, with the primary objective of preserving capital and maintaining liquidity. Fair values were determined for each individual security in the investment portfolio. During the year ended December 31, 2020, we did not recognize any losses on our investments due to credit related factors. During the years ended December 31, 2019 and 2018, we did not recognize any impairment charges. Strategic Investments In March 2020, we completed an investment of $ 2.0 million in TAPD, Inc., also known as Frank, a U.S.-based service that helps students access financial aid. In October 2018, we completed an investment of $ 10.0 million in WayUp, Inc. (WayUp), a U.S.-based job site and mobile application for college students and recent graduates. Additionally, we previously invested $ 3.0 million in a foreign entity to explore expanding our reach internationally. During the year ended December 31, 2020, we recorded a $ 10.0 million impairment charge on our investment in WayUp included within general and administrative expense on our consolidated statements of operations. Our impairment assessment was the result of the uncertainty around WayUp's ability to raise additional funding to support their future operations. We did not record any other impairment charges on our other strategic investments during the years ended December 31, 2020, 2019 and 2018, as there were no other significant identified events or changes in circumstances that would be considered an indicator for impairment. We considered general market conditions as a result of the COVID-19 pandemic in our impairment analysis. There were no observable price changes in orderly transactions for the identical or similar investments of the same issuers that resulted in an upward or downward adjustment on our strategic investments during the years ended December 31, 2020, 2019 and 2018. Note 5. Fair Value Measurement We have established a fair value hierarchy used to determine the fair value of our financial instruments as follows: Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments. Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value; the inputs require significant management judgment or estimation. A financial instrument’s classification within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. 64 T a b l e o f C o n t e n t s Financial instruments measured and recorded at fair value on a recurring basis as of December 31, 2020 and 2019 are classified based on the valuation technique level in the tables below (in thousands): December 31, 2020 Total Level 1 Level 2 Assets: Cash equivalents: Money market funds $ 464,799 $ 464,799 $ — Short-term investments: Commercial paper 204,170 — 204,170 Corporate debt securities 461,397 — 461,397 Long-term investments: Corporate debt securities 484,597 — 484,597 Agency bonds 39,031 — 39,031 Total assets measured and recorded at fair value $ 1,653,994 $ 464,799 $ 1,189,195 December 31, 2019 Total Level 1 Level 2 Assets: Cash equivalents: Money market funds $ 146,165 $ 146,165 $ — Short-term investments: Commercial paper 7,489 — 7,489 Corporate securities 319,293 — 319,293 U.S. treasury securities 44,286 44,286 — Agency bonds 10,006 — 10,006 Long-term investments: Corporate debt securities 295,478 — 295,478 Agency bonds 15,005 — 15,005 Total assets measured and recorded at fair value $ 837,722 $ 190,451 $ 647,271 We value our investments based on quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. Other than our money market funds and U.S. treasury securities, we classify our fixed income available-for-sale investments as having Level 2 inputs. The valuation techniques used to measure the fair value of our investments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models such as discounted cash flow techniques. We do not hold any investments valued with a Level 3 input. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Financial Instruments Not Recorded at Fair Value on a Recurring Basis We report our financial instruments at fair value with the exception of the notes. The estimated fair value of the notes was determined based on the trading price of the notes as of the last day of trading for the period. We consider the fair value of the notes to be a Level 2 measurement due to the limited trading activity. For further information on the notes see Note 10, “Convertible Senior Notes.” 65 T a b l e o f C o n t e n t s The carrying amounts and estimated fair values of the notes as of December 31, 2020 and 2019 are as follows (in thousands): December 31, 2020 December 31, 2019 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value 2026 notes $ 761,930 $ 1,129,370 $ — $ — 2025 notes 640,614 1,456,800 602,611 831,000 2023 notes 104,378 376,949 297,692 523,538 Convertible senior notes, net $ 1,506,922 $ 2,963,119 $ 900,303 $ 1,354,538 The carrying amount of the 2026 notes, 2025 notes and 2023 notes as of December 31, 2020 was net of unamortized debt discount of $ 226.7 million, $ 149.1 million and $ 10.0 million, respectively, and unamortized issuance costs of $ 11.3 million $ 10.2 million and $ 1.2 million, respectively. The carrying amount of the 2025 notes and 2023 notes as of December 31, 2019 was net of unamortized debt discount of $ 184.7 million and $ 42.3 million, respectively, and unamortized issuance costs of $ 12.7 million and $ 5.0 million, respectively. Note 6. Long-Lived Assets Textbook Library, Net Textbook library, net consisted of the following (in thousands): December 31, 2020 Textbook library $ 47,293 Less accumulated depreciation ( 13,144 ) Textbook library, net $ 34,149 During the year ended December 31, 2020, print textbook depreciation expense was approximately $ 15.4 million and our net gain on textbook library was approximately $ 1.5 million. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, 2020 2019 Content $ 181,938 $ 122,670 Leasehold improvements 19,574 17,738 Internal-use software and website development 15,646 7,552 Furniture and fixtures 3,891 3,640 Computer and equipment 3,368 3,355 Property and equipment 224,417 154,955 Less accumulated depreciation and amortization ( 98,610 ) ( 67,596 ) Property and equipment, net $ 125,807 $ 87,359 Depreciation and content amortization expense during the years ended December 31, 2020, 2019, and 2018 were approximately $ 32.6 million, $ 24.2 million, and $ 16.8 million, respectively. 66 T a b l e o f C o n t e n t s Note 7. Acquisitions 2020 Acquisition On June 4, 2020, we completed our acquisition of Mathway, LLC (Mathway), an online, on-demand math problem solving company that provides a vast range of subject areas in mathematics, including pre-algebra, algebra, trigonometry, pre-calculus, calculus, and linear algebra, and related disciplines. This acquisition helps to strengthen our existing Chegg Math Solver service with the addition of new subjects, languages, and international reach. The total fair value of the purchase consideration was $ 101.0 million, of which $ 93.5 million was paid in cash on the acquisition date and $ 7.5 million, included within accrued liabilities, was held in escrow as security for general representations and warranties and potential post-closing adjustments. Any remaining escrow amount will be released 15 months after the acquisition date. The Mathway purchase agreement provides for additional payments of up to $ 15.0 million subject to the achievement of specified milestones and continued employment of the sellers. These payments are not included in the fair value of the purchase consideration but rather are expensed ratably as acquisition-related compensation costs classified as research and development and general and administrative expenses, based on the seller's job function, on our consolidated statement of operations. We have recorded approximately $ 2.9 million as of December 31, 2020, included within accrued liabilities on our consolidated balance sheet for these payments. The following table presents the preliminary total allocation of purchase consideration recorded on our consolidated balance sheet as of the acquisition date (in thousands): Mathway Cash $ 712 Accounts receivable 1,132 Other acquired assets 779 Acquired intangible assets 30,320 Total identifiable assets acquired 32,943 Deferred revenue ( 1,423 ) Liabilities assumed ( 727 ) Net identifiable assets acquired 30,793 Goodwill 70,167 Total fair value of purchase consideration $ 100,960 Goodwill is primarily attributable to the potential for enhancing our existing offerings and expanding our reach by providing additional mathematics support for students and helping them through their academic journey. The amounts recorded for intangible assets and goodwill are deductible for tax purposes. The following table presents the details of the allocation of purchase consideration to the acquired intangible assets (in thousands, except weighted-average amortization period): Mathway Amount Weighted-Average Amortization Period (in months) Trade name $ 520 18 Domain names 220 18 Customer lists 6,220 48 Developed technology 23,360 84 Total acquired intangible assets $ 30,320 75 During the year ended December 31, 2020, we incurred $ 3.1 million of acquisition-related expenses associated with our acquisition of Mathway, which have been included in general and administrative expense on our consolidated statement of operations. We have recorded immaterial amounts of revenue and earnings from Mathway since the acquisition date. 67 T a b l e o f C o n t e n t s The following unaudited supplemental pro forma net loss is for informational purposes only and presents our combined results as if the acquisition of Mathway had occurred on January 1, 2019. The unaudited supplemental pro forma information includes the historical combined operating results adjusted for acquisition-related compensation costs, amortization of intangible assets, share-based compensation expense and acquisition-related expenses and does not necessarily reflect the actual results that would have been achieved, nor is it necessarily indicative of our future consolidated results. During the years ended December 31, 2020 and 2019, our supplemental pro forma net loss would have been $ 6.1 million and $ 27.3 million, respectively. Revenues from Mathway were immaterial during the years ended December 31, 2020 and 2019. 2019 Acquisition On October 1, 2019, we completed our acquisition of Thinkful, Inc. (Thinkful), our skills-based learning platform that offers professional courses in software engineering, UX/UI design, digital marketing, data science, product management, data analytics, product design, and technical project management directly to students across the United States to expand our existing offerings by adding affordable and high-quality courses focused on the most in-demand technology skills. The total fair value of the purchase consideration was $ 79.2 million, which was paid in cash and included an escrow amount of $ 9.0 million for general representations and warranties and potential post-closing adjustments. Any remaining escrow amount will be released 18 months after the acquisition date. Included in the purchase agreement for the acquisition of Thinkful are additional payments of up to $ 20.0 million subject to the achievement of specified milestones and continued employment of key employees. These payments are not included in the fair value of the purchase consideration and are expensed ratably as acquisition related compensation costs classified as research and development, general and administrative, and sales and marketing expenses, based on the key employee's job function, on our consolidated statement of operations. These payments may be settled by us, at our sole discretion, either in cash or shares of our common stock. During the year ended December 31, 2020, the terms of the purchase agreement were amended such that the retention incentive was reduced to $ 12.8 million, half of which remains subject to the achievement of specified milestones and payable in cash and half of which will be settled in equity grants, to adjust for employee departures. As of December 31, 2020 and 2019, we have recorded approximately $ 5.7 million and $ 3.0 million, respectively, included within accrued liabilities on our consolidated balance sheet for the cash payments. Goodwill is primarily attributable to the potential for expanding our existing offerings and reach by providing educational services for students and helping them through their professional journey. The amounts recorded for intangible assets and goodwill are not deductible for tax purposes. The following table presents the total allocation of purchase consideration recorded on our consolidated balance sheet as of the acquisition date (in thousands): Thinkful Cash $ 51 Accounts receivable 547 Other acquired assets 1,710 Acquired intangible assets 16,360 Total identifiable assets acquired 18,668 Deferred revenue ( 2,455 ) Liabilities assumed ( 1,906 ) Net identifiable assets acquired 14,307 Goodwill 64,893 Total fair value of purchase consideration $ 79,200 68 T a b l e o f C o n t e n t s The following table presents the details of the allocation of purchase consideration to the acquired intangible assets (in thousands, except weighted-average amortization period): Thinkful Amount Weighted-Average Amortization Period (in months) Trade name $ 4,430 48 Domain names 330 48 Content library 6,940 60 Developed technology 4,660 36 Acquired intangible assets $ 16,360 50 During the year ended December 31, 2019, we incurred $ 1.0 million of acquisition-related expenses associated with our acquisition of Thinkful, which have been included in general and administrative expenses on our consolidated statement of operations. During the year ended December 31, 2019, $ 8.6 million of our consolidated net loss was attributed to Thinkful and we have recorded an immaterial amount of revenues since the acquisition date. The following unaudited supplemental pro forma net loss is for informational purposes only and presents our combined results as if the acquisition of Thinkful had occurred on January 1, 2018. The unaudited supplemental pro forma information includes the historical combined operating results adjusted for acquisition related compensation costs, amortization of intangible assets, share-based compensation expense and transaction expenses and does not necessarily reflect the actual results that would have been achieved, nor is it necessarily indicative of our future consolidated results. During the years ended December 31, 2019 and 2018, our supplemental pro forma net loss would have been $ 25.0 million and $ 38.6 million, respectively. Revenues from Thinkful were immaterial during the years ended December 31, 2019 and 2018. 2018 Acquisitions On July 2, 2018, we acquired StudyBlue, Inc. (StudyBlue), a privately held online learning company that provides a content library that allows students to create flashcards and their own study materials. This acquisition helps strengthen our existing Chegg Services offerings by adding a substantial number of subject categories and a library of content to our learning platform. The total fair value of the purchase consideration was $ 20.4 million, which included an escrow amount of $ 3.3 million for general representations and warranties and post-closing adjustments, which was released in January 2020. On May 15, 2018, we acquired WriteLab, Inc. (WriteLab), an AI-enhanced writing platform that teaches students grammar, sentence structure, writing style, and offers instant feedback to help students revise, edit, and improve their written work. This acquisition helps to strengthen Chegg Writing with the addition of new tools, features, and functionality. The total fair value of the purchase consideration was $ 14.5 million, which included an escrow amount of $ 2.6 million for general representations and warranties and potential post-closing adjustments, which was released in January 2020. Included in the purchase agreement for the acquisition of WriteLab are additional payments of up to $ 5.0 million subject to continued employment of the sellers. These payments are not included in the fair value of the purchase consideration and are expensed ratably as research and development expenses on our consolidated statement of operations. These payments may be settled by us, at our sole discretion, either in cash or shares of our common stock. We have recorded approximately $ 1.0 million as of December 31, 2020 and 2019 included within accrued liabilities on our consolidated balance sheet for these payments. Goodwill is primarily attributable to the potential for future product offerings as well as our expanded student reach. The amounts recorded for intangible assets and goodwill are not deductible for tax purposes. 69 T a b l e o f C o n t e n t s The following table presents the total allocation of purchase consideration recorded on our consolidated balance sheets as of the acquisition date (in thousands): StudyBlue WriteLab Total Cash $ 152 $ 82 $ 234 Accounts receivable 288 194 482 Other acquired assets 151 — 151 Acquired intangible assets 7,100 4,450 11,550 Total identifiable assets acquired 7,691 4,726 12,417 Liabilities assumed ( 1,309 ) ( 897 ) ( 2,206 ) Net identifiable assets acquired 6,382 3,829 10,211 Goodwill 13,996 10,677 24,673 Total fair value of purchase consideration $ 20,378 $ 14,506 $ 34,884 The following table presents the details of the allocation of purchase consideration to the acquired intangible assets (in thousands, except weighted-average amortization period): StudyBlue WriteLab Total Amount Weighted-Average Amortization Period (in months) Amount Weighted-Average Amortization Period (in months) Amount Weighted-Average Amortization Period (in months) Trade name $ 140 12 $ — 0 $ 140 12 Domain names 180 12 — 0 180 12 Non-compete agreements 220 36 — 0 220 36 Developed technology 1,340 60 4,450 96 5,790 88 Content library 5,220 60 — 0 5,220 60 Acquired intangible assets $ 7,100 57 $ 4,450 96 $ 11,550 72 During the year ended December 31, 2018, we incurred $ 1.0 million of acquisition-related expenses associated with the above 2018 acquisitions which have been included in general and administrative expenses on our consolidated statement of operations. We have not presented supplemental pro forma financial information as the revenues and earnings of these 2018 acquisitions were immaterial during the year ended December 31, 2018. Further, we have recorded an immaterial amount of revenues and expenses since the acquisition dates during the year ended December 31, 2018. Note 8. Goodwill and Intangible Assets Goodwill consists of the following (in thousands): Years Ended December 31, 2020 2019 Beginning balance $ 214,513 $ 149,524 Additions due to acquisitions 70,167 65,181 Foreign currency translation adjustment 822 ( 192 ) Measurement period adjustments related to prior acquisition ( 288 ) — Ending balance $ 285,214 $ 214,513 70 T a b l e o f C o n t e n t s Intangible assets as of December 31, 2020 and December 31, 2019 consist of the following (in thousands, except weighted-average amortization period): December 31, 2020 Weighted-Average Amortization Period (in months) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Developed technologies 75 $ 54,398 $ ( 24,246 ) $ 30,152 Content library 60 12,230 ( 4,390 ) 7,840 Customer lists 47 16,190 ( 10,437 ) 5,753 Trade and domain names 44 11,613 ( 7,888 ) 3,725 Non-compete agreements 31 2,018 ( 1,981 ) 37 Indefinite-lived trade name — 3,600 — 3,600 Foreign currency translation adjustment — 142 — 142 Total intangible assets 64 $ 100,191 $ ( 48,942 ) $ 51,249 December 31, 2019 Weighted-Average Amortization Period (in months) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Developed technologies 68 $ 31,038 $ ( 16,451 ) $ 14,587 Content library 60 12,230 ( 1,944 ) 10,286 Customer lists 47 9,970 ( 8,210 ) 1,760 Trade and domain names 46 10,873 ( 6,169 ) 4,704 Non-compete agreements 31 2,018 ( 1,890 ) 128 Indefinite-lived trade name — 3,600 — 3,600 Foreign currency translation adjustment — ( 398 ) — ( 398 ) Total intangible assets 58 $ 69,331 $ ( 34,664 ) $ 34,667 The indefinite-lived trade name intangible asset of $ 3.6 million is related to the internships.com trade name. During the years ended December 31, 2020, 2019 and 2018, amortization expense related to our acquired intangible assets totaled approximately $ 14.3 million, $ 7.5 million and $ 6.5 million, respectively. As of December 31, 2020, the estimated future amortization expense related to our finite-lived intangible assets is as follows (in thousands): 2021 $ 13,320 2022 10,889 2023 8,760 2024 5,707 2025 3,893 Thereafter 5,080 Total $ 47,649 71 T a b l e o f C o n t e n t s Note 9. Balance Sheet Details Accrued Liabilities Accrued liabilities consist of the following (in thousands): December 31, 2020 2019 Order fulfillment fees $ 11,430 $ 6,939 Acquisition-related compensation 9,611 4,042 Accrued escrow related to acquisition 7,451 — Accrued content related costs 6,273 1,907 Taxes payable 6,166 3,046 Payment processing fees 2,130 1,137 Accrued purchases of long-lived assets 1,588 10,036 Other 17,313 12,857 Accrued liabilities $ 61,962 $ 39,964 Note 10. Convertible Senior Notes In August 2020, we issued $ 1.0 billion in aggregate principal amount of 0 % convertible senior notes due in 2026 (2026 notes). The aggregate principal amount of the 2026 notes includes $ 100 million from the initial purchasers fully exercising their option to purchase additional notes. In March 2019, we issued $ 700 million in aggregate principal amount of 0.125 % convertible senior notes due in 2025 (2025 notes) and in April 2019, the initial purchasers fully exercised their option to purchase $ 100 million of additional notes for aggregate total principal amount of $ 800 million. In April 2018, we issued $ 345 million in aggregate principal amount of 0.25 % convertible senior notes due in 2023 (the 2023 notes and together with the 2026 notes and the 2025 notes, the notes). The aggregate principal amount of the 2023 notes includes $ 45 million from the initial purchasers fully exercising their option to purchase additional notes. The notes were issued in private placements to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended. The total net proceeds from the notes are as follows (in thousands): 2026 Notes 2025 Notes 2023 Notes Principal amount $ 1,000,000 $ 800,000 $ 345,000 Less initial purchasers’ discount ( 15,000 ) ( 18,998 ) ( 8,625 ) Less other issuance costs ( 904 ) ( 822 ) ( 757 ) Net proceeds $ 984,096 $ 780,180 $ 335,618 During the year ended December 31, 2020, in connection with our securities repurchase program, we extinguished $ 57.4 million aggregate principal amount of the 2023 notes in privately-negotiated transactions for an aggregate consideration of $ 149.6 million, which was paid in cash. Of the $ 149.6 million consideration, we allocated $ 52.6 million and $ 97.0 million to the liability and equity components of the extinguished 2023 notes, respectively. The fair value of the liability component was calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amount of the liability component of the 2023 notes subject to the extinguishment was $ 51.6 million resulting in a $ 1.0 million loss on early extinguishment which was recorded in other income, net on our consolidated statements of operations. Additionally, we terminated 2023 notes capped call transactions underlying 2,131,354 shares of our common stock and received cash proceeds of $ 19.7 million. During the year ended December 31, 2020, in connection with our issuance of the 2026 notes, we exchanged $ 172.0 million aggregate principal amount of the 2023 notes in privately-negotiated transactions for an aggregate consideration of $ 501.7 million, consisting of $ 174.6 million in cash and 4,182,320 shares of our common stock with a value of $ 327.1 million. Of the $ 501.7 million consideration, we allocated $ 156.1 million and $ 345.6 million to the liability and equity components of the exchanged 2023 notes, respectively. The fair value of the liability component was calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amount of the liability component of the 2023 notes subject to the exchange was $ 152.8 million resulting in a $ 3.3 million loss on early 72 T a b l e o f C o n t e n t s extinguishment of debt which was recorded in other income, net on our consolidated statements of operations. Additionally, we terminated 2023 notes capped call transactions underlying 6,380,815 shares of our common stock and received cash proceeds of $ 57.4 million. As of December 31, 2020, $ 115.6 million of aggregate principal amount of the 2023 notes remain outstanding and 4,288,459 shares remain underlying the 2023 notes capped call transactions. The notes are our senior, unsecured obligations and are governed by indenture agreements by and between us and Wells Fargo Bank, National Association, as Trustee (the indentures). The 2026 notes bear no interest and will mature on September 1, 2026, unless repurchased, redeemed or converted in accordance with their terms prior to such date. The 2025 notes bear interest of 0.125 % per year which is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2019. The 2025 notes will mature on March 15, 2025, unless repurchased, redeemed or converted in accordance with their terms prior to such date. The 2023 notes bear interest of 0.25 % per year which is payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2018. The 2023 notes will mature on May 15, 2023, unless repurchased, redeemed or converted in accordance with their terms prior to such date. Each $1,000 principal amount of the 2026 notes will initially be convertible into 9.2978 shares of our common stock. This is equivalent to an initial conversion price of approximately $ 107.55 per share, which is subject to adjustment in certain circumstances. Each $1,000 principal amount of the 2025 notes will initially be convertible into 19.3956 shares of our common stock. This is equivalent to an initial conversion price of approximately $ 51.56 per share, which is subject to adjustment in certain circumstances. Each $1,000 principal amount of the 2023 notes will initially be convertible into 37.1051 shares of our common stock. This is equivalent to an initial conversion price of approximately $ 26.95 per share, which is subject to adjustment in certain circumstances. Prior to the close of business on the business day immediately preceding June 1, 2026 for the 2026 notes, December 15, 2024 for the 2025 notes and February 15, 2023 for the 2023 notes, the notes are convertible at the option of holders only upon satisfaction of the following circumstances: • during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 for the 2026 notes, June 30, 2019 for the 2025 notes, and June 30, 2018 for the 2023 notes, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the respective conversion price for the notes on each applicable trading day; • during the five -business day period after any 10 consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; • if we call any or all of the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or • upon the occurrence of certain specified corporate events described in the indentures. On or after June 1, 2026 for the 2026 notes, December 15, 2024 for the 2025 notes and February 15, 2023 for the 2023 notes until the close of business on the second scheduled trading day immediately preceding the respective maturity dates, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, the notes may be settled in shares of our common stock, cash or a combination of cash and shares of our common stock, at our election. If we undergo a fundamental change, as defined in the indentures, prior to the respective maturity dates, subject to certain conditions, holders of the notes may require us to repurchase for cash all or any portion of their notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if specific corporate events, described in the indentures, occur prior to the respective maturity dates, we will also increase the conversion rate for a holder who elects to convert their notes in connection with such specified corporate events. The conditions allowing holders of the 2026 notes to convert have not been met and therefore the 2026 notes are not convertible. The first circumstance allowing holders of the 2025 notes to convert was met during the three months ended December 31, 2020 and September 30, 2020 and therefore, the 2025 notes are convertible starting October 1, 2020 through March 31, 2021. During the year ended December 31, 2020, we received an immaterial request for conversion of the 2025 notes which we intend to settle in cash during the three months ended March 31, 2021. The first circumstance allowing holders of the 2023 notes to convert was met during the three months ended December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019, June 30, 2019, and March 31, 2019 and therefore, the 2023 notes were and are convertible starting April 1, 2019 through September 30, 2019 and from January 1, 2020 through March 31, 2021. During the year ended December 31, 2020, aside from the exchange of $ 172.0 million and extinguishments of $ 57.4 million aggregate principal 73 T a b l e o f C o n t e n t s amount of the 2023 notes discussed above, we received immaterial requests for conversion of the 2023 notes which we settled in cash during the year ended December 31, 2020 and intend to settle during the three months ended March 31, 2021. After December 31, 2020 and through the date of issuance of this Annual Report on Form 10-K, we received $ 24.7 million aggregate principal amount requests for conversion of the 2023 Notes, which we intend to settle through a combination of cash and shares of our common stock during the first half of 2021. In accounting for their issuance, we separated the notes into liability and equity components. The carrying amount of the liability components for the 2026 notes, 2025 notes and 2023 notes of approximately $ 758.7 million, $ 588.0 million and $ 280.8 million, respectively, was calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amount of the equity components for the 2026 notes, 2025 notes and 2023 notes of approximately $ 241.3 million, $ 212.0 million and $ 64.2 million, respectively, representing the conversion option, was determined by deducting the carrying amount of the liability components from the principal amount of the notes. This difference between the principal amount of the notes and the liability components represents the debt discount, presented as a reduction to the notes on our consolidated balance sheets, and is amortized to interest expense using the effective interest method over the remaining term of the notes. The equity components of the notes are included in additional paid-in capital on our consolidated balance sheets and are not remeasured as long as they continue to meet the conditions for equity classification. We incurred issuance costs related to the 2026 notes, 2025 notes and 2023 notes of approximately $ 15.9 million, $ 19.8 million, and $ 9.4 million, respectively. In accounting for the issuance costs, we allocated the total amount incurred to the liability and equity components using the same proportions determined above for the notes. Issuance costs attributable to the liability components for the 2026 notes, 2025 notes and 2023 notes of approximately $ 12.1 million, $ 14.6 million and $ 7.6 million, respectively, were recorded as debt issuance cost, presented as a reduction to the notes on our consolidated balance sheets, and are amortized to interest expense using the effective interest method over the term of the notes. The issuance costs attributable to the equity components for the 2026 notes, 2025 notes and 2023 notes were approximately $ 3.8 million, $ 5.3 million and $ 1.7 million, respectively, and were recorded as a reduction to the equity component included in additional paid-in capital. The net carrying amount of the liability component of the notes is as follows (in thousands): December 31, 2020 December 31, 2019 2026 Notes 2025 Notes 2023 Notes 2025 Notes 2023 Notes Principal amount $ 1,000,000 $ 800,000 $ 115,576 $ 800,000 $ 345,000 Unamortized debt discount ( 226,732 ) ( 149,138 ) ( 9,953 ) ( 184,698 ) ( 42,280 ) Unamortized issuance costs ( 11,338 ) ( 10,248 ) ( 1,245 ) ( 12,691 ) ( 5,028 ) Net carrying amount (liability) $ 761,930 $ 640,614 $ 104,378 $ 602,611 $ 297,692 The net carrying amount of the equity component of the notes is as follows (in thousands): December 31, 2020 December 31, 2019 2026 Notes 2025 Notes 2023 Notes 2025 Notes 2023 Notes Debt discount for conversion option $ 241,300 $ 212,000 $ 21,505 $ 212,000 $ 64,193 Issuance costs ( 3,838 ) ( 5,253 ) ( 586 ) ( 5,253 ) ( 1,749 ) Net carrying amount (equity) $ 237,462 $ 206,747 $ 20,919 $ 206,747 $ 62,444 As of December 31, 2020, the remaining lives of the 2026 notes, 2025 notes and 2023 notes were approximately 5.7 years, 4.2 years and 2.4 years, respectively. Based on the closing price of our common stock of $ 90.33 on December 31, 2020, the if-converted value of the 2026 notes was approximately $ 839.9 million, which was less than the principal amount of $ 1.0 billion by approximately $ 160.1 million, the if-converted value of the 2025 notes was approximately $ 1,401.6 million, which exceeds the principal amount of $ 800 million by approximately $ 601.6 million, and the if-converted value of the 2023 notes was approximately $ 387.4 million, which exceeds the principal amount of $ 115.6 million by approximately $ 271.8 million. 74 T a b l e o f C o n t e n t s The effective interest rates of the liability components for the 2026 notes, 2025 notes and 2023 notes are 4.63 % , 5.40 % and 4.34 %, respectively, and each is based on the interest rate of similar debt instruments, at the time of our offering, that do not have associated convertible features. The following table sets forth the total interest expense recognized related to the notes (in thousands): Years Ended December 31, 2020 2019 2026 Notes 2025 Notes 2023 Notes 2025 Notes 2023 Notes Contractual interest expense $ — $ 1,001 $ 691 $ 769 $ 862 Amortization of debt discount 14,568 35,561 10,073 27,302 12,536 Amortization of issuance costs 728 2,443 1,200 1,876 1,488 Total interest expense $ 15,296 $ 39,005 $ 11,964 $ 29,947 $ 14,886 Capped Call Transactions Concurrently with the offering of the 2026 notes, 2025 notes and 2023 notes, we used $ 103.4 million, $ 97.2 million and $ 39.2 million, respectively, of the net proceeds to enter into privately negotiated capped call transactions which are expected to generally reduce or offset potential dilution to holders of our common stock upon conversion of the notes and/or offset the potential cash payments we would be required to make in excess of the principal amount of any converted notes. The capped call transactions automatically exercise upon conversion of the notes and cover 9,297,800 , 15,516,480 and 4,288,459 shares of our common stock for the 2026 notes, 2025 notes and 2023 notes, respectively, and are intended to effectively increase the overall conversion price from $ 107.55 to $ 156.44 per share for the 2026 notes, $ 51.56 to $ 79.32 per share for the 2025 notes and $ 26.95 to $ 40.68 per share for the 2023 notes. The effective increase in conversion price as a result of the capped call transactions serves to reduce potential dilution to holders of our common stock and/or offset the cash payments we are required to make in excess of the principal amount of any converted notes. As these transactions meet certain accounting criteria, they are recorded in stockholders’ equity as a reduction of additional paid-in capital on our consolidated balance sheets and are not accounted for as derivatives. The fair value of the capped call instrument is not remeasured each reporting period. The cost of the capped call is not expected to be deductible for tax purposes. Impact to Earnings per Share The shares underlying the notes have no impact to diluted earnings per share until the average price of our common stock during the period exceeds the conversion price for the 2026 notes, 2025 notes and 2023 notes of $ 107.55 , $ 51.56 and $ 26.95 per share, respectively, and the conversion circumstances have been met. Under the treasury stock method, in periods we report net income, we are required to include the effect of additional shares that may be issued under the notes when the average price of our common stock exceeds each respective conversion price. However, as a result of the capped call transactions described above, there will be no economic dilution from the 2026 notes, 2025 notes and 2023 notes up to $ 156.44 , $ 79.32 and $ 40.68 , respectively, as exercise of the capped call instruments will reduce any dilution from the notes that would have otherwise occurred when the average price of our common stock exceeds the conversion price. Note 11. Leases We have operating leases for corporate offices worldwide, which expire at various dates through 2027. Our primary operating lease commitments at December 31, 2020 are related to our corporate headquarters in Santa Clara, California. We have additional offices in California, Oregon, and New York in the United States and internationally in India and Israel. As of December 31, 2020 and 2019, we had operating lease ROU assets of $ 24.2 million and $ 15.9 million, respectively, and operating lease liabilities of $ 25.9 million and $ 19.8 million, respectively. During the year ended December 31, 2020, we obtained $ 13.7 million of ROU assets in exchange for lease liabilities related to commencing leases for additional office space in New York and internationally in India. During the year ended December 31, 2019, we obtained $ 3.4 million of ROU assets in exchange for lease liabilities related to the reassessment of the lease term for two of our office spaces and commencing a lease for an additional office space internationally in India. As of December 31, 2020 and 2019, we did not have finance leases recorded on our consolidated balance sheet, our weighted average remaining lease term was 4.6 years and 3.7 years, respectively, and our weighted average discount rate was 4.8 % and 4.7 %, respectively. Operating lease expense, net of immaterial sublease income, was approximately $ 5.6 million and $ 5.0 million, respectively, during the years ended December 31, 2020 and 2019. Variable lease cost and short term lease cost were immaterial during the years ended December 31, 2020 and 2019. 75 T a b l e o f C o n t e n t s The aggregate future minimum lease payments and reconciliation to operating lease liabilities as of December 31, 2020, are as follows (in thousands): December 31, 2020 2021 $ 7,702 2022 7,590 2023 5,604 2024 2,559 2025 1,823 Thereafter 3,618 Total future minimum lease payments 28,896 Less imputed interest ( 3,029 ) Total operating lease liabilities $ 25,867 Note 12. Commitments and Contingencies From time to time, third parties may assert patent infringement claims against us in the form of letters, litigation, or other forms of communication. In addition, we may from time to time be subject to other legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks, copyrights, and other intellectual property rights; employment claims; and general contract or other claims. We may also, from time to time, be subject to various legal or government claims, disputes, or investigations. Such matters may include, but not be limited to, claims, disputes, or investigations related to warranty, refund, breach of contract, employment, intellectual property, government regulation, or compliance or other matters. On December 1, 2020 we received notice that a class action lawsuit was filed against Chegg in New York alleging violations of the American with Disabilities Act. The claim asserted that one of Chegg’s websites is not compatible with software used by vision-impaired individuals. The claims seek an injunction and monetary relief. We dispute these claims and filed an answer on January 28, 2021. On August 18, 2020, we received notice that a class action lawsuit was filed against Chegg in California alleging violations of the Unruh Civil Rights Act. The claim asserted that one of Chegg’s websites is not compatible with software used by vision-impaired individuals. The claims seek an injunction and monetary relief. We dispute these claims and are working with plaintiffs’ class counsel toward amicably dismissing/settling this claim. On July 21, 2020, VitalSource Technologies LLC (VST), which is wholly owned by Ingram Industries Inc., filed a complaint against Chegg alleging that Chegg breached its contract with VST involving the development of an eTextbook reader and eTextbook reader platform. The suit seeks damages uncertain, but the complaint alleges that they exceed $ 75,000 . Chegg filed a motion to dismiss for lack of personal jurisdiction on August 11, 2020, which remains pending. The case is currently in the discovery phase. On June 18, 2020, we received a Civil Investigative Demand (CID) from the Federal Trade Commission (FTC) to determine whether we may have violated Section 5 of the FTC Act or the Children's Online Privacy Protection Act (COPPA), as they relate to deceptive or unfair acts or practices related to consumer privacy and/or data security. Pursuant to the CID, the FTC has requested responses to interrogatories and the production of documents pertaining to data breach incidents and our data security and privacy practices generally. Efforts are currently underway to collect the documents and information requested after reaching an agreement with the FTC on the order and timing of our responses. On May 12, 2020, we received notice that 15,107 arbitration demands were filed against us by individuals represented by the same legal counsel, each alleging to have suffered more than $ 25,000 in damages as a result of the 2018 Data Incident. On July 1, 2020, an additional 1,007 arbitration demands were filed by the same counsel. On August 12, 2020, an additional 577 arbitration demands were filed by the same counsel; cases have been filed by the same counsel in Maryland and California. We dispute that these claimants have a valid basis for seeking arbitration, assert that they have acted in bad faith and are working with the Maryland and California courts and plaintiffs’ counsel on resolution of these claims. On March 3, 2020, Ingram Hosting Holdings LLC (IHH) filed a complaint in the U.S. District Court for the Middle District of Tennessee alleging that Chegg breached its various contracts with IHH and other Ingram group entities, seeking 76 T a b l e o f C o n t e n t s damages in the amount of $ 17 million. An answer was filed on March 31, 2020. Chegg and Ingram have now dismissed the litigation after reaching an amicable settlement of the dispute which includes an immaterial undisclosed payment from Ingram. On November 5, 2018, NetSoc, LLC (NetSoc) filed a complaint against us in the U.S. District Court for the Southern District of New York for patent infringement alleging that the Chegg Tutors service infringes U.S. Patent No. 9.978,107 and seeking unspecified compensatory damages. A responsive pleading was filed on February 19, 2019. On January 13, 2020, the Court issued an order dismissing the case as to Chegg. On January 30, 2020, NetSoc appealed the dismissal. On April 21, 2020, the Court granted Chegg's motion to hold the appeal in abeyance pending outcome of an appeal in the litigation above. On December 2, 2020, the United States Patent and Trademark Office determined that the patent is invalid based on two Inter Partes Review (IPR) proceedings and on January 4, 2021, NetSoc filed a notice of appeals appealing the IPR decision. We have not recorded any amounts related to the above matters, as we do not believe that a loss is probable in these matters. We are not aware of any other pending legal matters or claims, individually or in the aggregate, that are expected to have a material adverse impact on our consolidated financial position, results of operations, or cash flows. However, our analysis of whether a claim will proceed to litigation cannot be predicted with certainty, nor can the results of litigation be predicted with certainty. Nevertheless, defending any of these actions, regardless of the outcome, may be costly, time consuming, distract management personnel, and have a negative effect on our business. An adverse outcome in any of these actions, including a judgment or settlement, may cause a material adverse effect on our future business, results of operations, and financial condition. Note 13. Guarantees and Indemnifications We have agreed to indemnify our directors and officers for certain events or occurrences, subject to certain limits, while such persons are or were serving at our request in such capacity. We may terminate the indemnification agreements with these persons upon termination of employment, but termination will not affect claims for indemnification related to events occurring prior to the effective date of termination. We have a directors’ and officers’ insurance policy that limits our potential exposure up to the limits of our insurance coverage. In addition, we also have other indemnification agreements with various vendors against certain claims, liabilities, losses, and damages. The maximum amount of potential future indemnification is unlimited. We believe the fair value of these indemnification agreements is minimal. We have not recorded any liabilities for these agreements as of December 31, 2020. Note 14. Common Stock We are authorized to issue 400 million shares of our common stock, with a par value per share of $ 0.001 . As of December 31, 2020, we have reserved the following shares of our common stock for future issuance: December 31, 2020 Outstanding stock options 627,317 Outstanding RSUs and PSUs 4,816,000 Shares available for grant under the 2013 Plan 29,158,085 Shares available for issuance under the 2013 ESPP 8,688,210 Total common shares reserved for future issuance 43,289,612 77 T a b l e o f C o n t e n t s Stock Plans 2013 Equity Incentive Plan On June 6, 2013, the Board of Directors adopted our 2013 Equity Incentive Plan (the 2013 Plan), which was subsequently approved by our stockholders on August 29, 2013. The 2013 Plan became effective on November 11, 2013 and replaced the 2005 Plan. On the effective date of the 2013 Plan, 12,000,000 shares of our common stock were reserved for issuance, plus an additional 3,838,985 shares reserved but not issued or subject to outstanding awards under our 2005 Plan on the effective date of the 2013 Plan, plus, on and after the effective date of the 2013 Plan, (i) shares that are subject to outstanding awards under the 2005 Plan which cease to be subject to such awards, (ii) shares issued under the 2005 Plan that are forfeited or repurchased at their original issue price and (iii) shares subject to awards under the 2005 Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award. As of December 31, 2020, there were 29,158,085 shares available for grant under the 2013 Plan. The 2013 Plan permits the granting of incentive stock options, non-qualified stock options, RSUs, stock appreciation rights, restricted shares of common stock and performance share awards. The exercise price of stock options may not be less than the 100 % of the fair market value of the common stock on the date of grant. Options granted pursuant to the 2013 Plan generally expire no later than 10 years. 2013 Employee Stock Purchase Plan On June 6, 2013, our Board of Directors adopted our 2013 Employee Stock Purchase Plan (the 2013 ESPP) and our stockholders subsequently approved the 2013 ESPP Plan on August 29, 2013. The 2013 ESPP permits eligible employees to acquire shares of our common stock by accumulating funds through periodic payroll deductions of up to 15 % of base salary. Our 2013 ESPP is intended to qualify as an ESPP under Section 423 of the Code and employees will receive a 15 % discount to the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period or (ii) the last day of each purchase period in the applicable offering period. Each offering period may run for no more than six months . We have reserved 4,000,000 shares of our common stock under our 2013 ESPP. The aggregate number of shares issued over the term of our 2013 ESPP will not exceed 20,000,000 shares of our common stock. As of December 31, 2020, there were 8,688,210 shares of common stock available for future issuance under the 2013 ESPP. Note 15. Stockholders' Equity Securities Repurchase Program In June 2020, our board of directors approved a securities repurchase program authorizing our repurchase of up to $ 500.0 million of our common stock and/or convertible notes, through open market purchases, block trades, and/or privately negotiated transactions or pursuant to Rule 10b5-1 plans, in compliance with applicable securities laws and other legal requirements. The timing, volume, and nature of the repurchases will be determined by management based on the capital needs of the business, market conditions, applicable legal requirements, and other factors. During the year ended December 31, 2020, we repurchased $ 57.4 million of aggregate principal amount of the 2023 notes in privately-negotiated transactions for an aggregate consideration of $ 149.6 million and have $ 350.4 million remaining under the repurchase program. The repurchase program will end on December 31, 2021. Share-based Compensation Expense Total share-based compensation expense recorded for employees and non-employees, is as follows (in thousands): Years Ended December 31, 2020 2019 2018 Cost of revenues $ 950 $ 426 $ 420 Research and development 31,588 22,229 17,055 Sales and marketing 9,606 7,380 6,703 General and administrative 41,911 34,874 27,852 Total share-based compensation expense $ 84,055 $ 64,909 $ 52,030 78 T a b l e o f C o n t e n t s During the year ended December 31, 2020, the Compensation Committee of the Board of Directors approved a modification accelerating the vesting of 42,982 restricted stock units (RSUs) and performance-based restricted stock units (PSUs) for three key employees resulting in approximately $ 2.4 million of incremental share-based compensation expense. As of December 31, 2020, we had a total of approximately $ 110.3 million of unrecognized share-based compensation expense related to RSUs and PSUs that is expected to be recognized over the remaining weighted average period of 1.8 years. Fair Value of 2013 ESPP Under the 2013 ESPP, rights to purchase shares are generally granted during the second and fourth quarter of each year. We estimate the fair value of each right to purchase shares under our 2013 ESPP using the Black-Scholes-Merton option-pricing model, which utilizes the fair value of our common stock based on active market and requires input on the following subjective assumptions: Expected Term. The expected term for rights to purchase shares under the 2013 ESPP is six months . Expected Volatility. The expected volatility is based on the average volatility of our stock price over the expected term. Expected Dividends. The dividend assumption is based on our historical experience. To date we have not paid any dividends on our common stock. Risk-Free Interest Rate. The risk-free interest rate used in the valuation method is the implied yield currently available on the United States treasury zero-coupon issues, with a remaining term equal to the expected term. The following table summarizes the key assumptions used to determine the fair value of rights granted under the 2013 ESPP: Years Ended December 31, 2020 2019 2018 Expected term (years) 0.50 0.50 0.50 Expected volatility 52.06 %- 68.09 % 40.51 %- 41.81 % 42.07 %- 44.97 % Dividend yield — % — % — % Risk-free interest rate 0.12 %- 0.15 % 1.59 %- 2.43 % 2.09 %- 2.50 % Weighted-average grant-date fair value per share $ 20.52 $ 9.88 $ 7.14 2013 ESPP Activity There were 173,992 shares purchased under the 2013 ESPP for the year ended December 31, 2020 at an average price per share of $ 38.85 with cash proceeds from the issuance of shares of $ 6.8 million. There were 201,581 shares purchased under the 2013 ESPP for the year ended December 31, 2019 at an average price per share of $ 25.55 with cash proceeds from the issuance of shares of $ 5.1 million. There were 253,301 shares purchased under the 2013 ESPP for the year ended December 31, 2018 at an average price per share of $ 15.77 with cash proceeds from the issuance of shares of $ 4.0 million. Fair Value of RSUs and PSUs RSUs and PSUs are converted into shares of our common stock upon vesting on a one-for-one basis. Vesting of RSUs is subject to the employee’s continuing service to us, while vesting of PSUs is subject to our achievement of specified corporate financial performance objectives in addition to the employee's continuing service to us. RSUs are typically fully vested at the end of three or four years while PSUs vest subject to the achievement of performance objectives and if achieved, typically vest over two to three years . We assess the achievement of performance objectives on a quarterly basis and adjust our share-based compensation expense as appropriate. 79 T a b l e o f C o n t e n t s Stock Option Activity Options Outstanding Number of Options Outstanding Weighted- Average Exercise Price per Share Weighted-Average Remaining Contractual Term in Years Aggregate Intrinsic Value Balance at December 31, 2019 1,611,385 $ 8.64 3.60 $ 47,171,160 Exercised ( 984,068 ) 9.13 Balance at December 31, 2020 627,317 $ 7.86 3.48 $ 51,733,285 We did no t grant any stock option awards during the years ended December 31, 2020, 2019, and 2018. The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018, was approximately $ 53.5 million, $ 90.8 million, and $ 57.2 million, respectively. RSU and PSU Activity RSUs and PSUs Outstanding Number of RSUs and PSUs Outstanding Weighted Average Grant Date Fair Value Balance at December 31, 2019 6,909,530 $ 24.04 Granted 2,593,745 45.37 Released ( 4,098,742 ) 20.22 Canceled ( 588,533 ) 31.84 Balance at December 31, 2020 4,816,000 $ 37.82 The weighted-average grant-date fair value of RSUs and PSUs granted during the years ended December 31, 2020, 2019, and 2018 was $ 45.37 , $ 37.56 , and $ 21.67 , respectively. The total fair value of RSUs and PSUs vested as of the vesting dates during the years ended December 31, 2020, 2019, and 2018 was $ 200.1 million, $ 222.3 million, and $ 120.9 million, respectively. 2020 PSU Grants In March 2020, we granted PSUs under the 2013 Plan to certain of our key executives. The PSUs entitle the executives to receive a certain number of shares of our common stock based on our satisfaction of certain financial and strategic performance targets during 2020. Based on the achievement of the performance conditions for the March 2020 grants, the final settlement met the target threshold based on a specified objective formula approved by the Compensation Committee. These PSUs will vest over a three-year period, with the initial vesting occurring in March 2021. The number of shares underlying the March 2020 PSUs granted during the year ended December 31, 2020 totaled 460,976 shares and had a grant date fair value of $ 39.21 per share. 2019 PSU Grants In March 2019, we granted PSUs under the 2013 Plan to certain of our key executives. The PSUs entitle the executives to receive a certain number of shares of our common stock based on our satisfaction of certain financial and strategic performance targets during 2019. Based on the achievement of the performance conditions for the March 2019 grants, the final settlement met the target threshold based on a specified objective formula approved by the Compensation Committee. These PSUs will vest over a three-year period, with the initial vesting occurring in March 2020. The number of shares underlying the March 2019 PSUs granted during the year ended December 31, 2019 totaled 436,042 shares and had a grant date fair value of $ 40.42 per share. 80 T a b l e o f C o n t e n t s 2018 PSU Grants In August 2018, in conjunction with our acquisition of StudyBlue, we granted PSUs under the 2013 Plan to certain employees. The PSUs entitle the employees to receive a certain number of shares of our common stock based on our satisfaction of certain strategic performance targets during 2018 and 2019. Based on the achievement of the performance conditions for the August 2018 grant, the final settlement exceeded the target threshold based on a specified objective formula approved by the Compensation Committee. These PSUs vest over a three-year period, with the initial vesting occurring in September 2019. The number of shares underlying the August 2018 PSUs granted during the year ended December 31, 2018 totaled 45,756 shares and had a grant date fair value of $ 28.74 per share. In March 2018, we granted PSUs under the 2013 Plan to certain of our key executives. The PSUs entitle the executives to receive a certain number of shares of our common stock based on our satisfaction of certain financial and strategic performance targets during 2018. Based on the achievement of the performance conditions for the March 2018 grant, the final settlement exceeded the target threshold based on a specified objective formula approved by the Compensation Committee. These PSUs vest over a three-year period, with the initial vesting occurring in March 2019. The number of shares underlying the March 2018 PSUs granted during the year ended December 31, 2018 totaled 845,934 shares and had a grant date fair value of $ 19.70 per share. Note 16. Income Taxes We recorded an income tax provision of approximately $ 5.4 million, $ 2.6 million and $ 1.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. The income tax provision for the years ended December 31, 2020, 2019 and 2018 was primarily due to state and foreign income tax expense. Our income tax provision consisted of the following (in thousands): Years Ended December 31, 2020 2019 2018 Current income taxes: Federal $ — $ ( 185 ) $ ( 91 ) State 459 264 ( 73 ) Foreign 5,010 2,594 1,374 Total current income taxes 5,469 2,673 1,210 Deferred income taxes: Federal 187 ( 17 ) 155 State 255 42 76 Foreign ( 551 ) ( 64 ) ( 11 ) Total deferred income taxes ( 109 ) ( 39 ) 220 Total income tax provision $ 5,360 $ 2,634 $ 1,430 Loss before provision for income taxes consisted of the following (in thousands): Years Ended December 31, 2020 2019 2018 United States $ ( 10,369 ) $ ( 12,497 ) $ ( 18,617 ) Foreign 9,508 5,526 5,159 Total $ ( 861 ) $ ( 6,971 ) $ ( 13,458 ) 81 T a b l e o f C o n t e n t s The differences between our income tax provision as presented in the accompanying consolidated statements of operations and the income tax expense computed at the federal statutory rate consists of the items shown in the following table as a percentage of pretax loss (in percentages): Years Ended December 31, 2020 2019 2018 Income tax at U.S. statutory rate 21.0 % 21.0 % 21.0 % State, net of federal benefit ( 169.5 ) ( 76.3 ) 14.8 Foreign rate differential ( 285.9 ) ( 19.4 ) ( 3 ) Share-based compensation 2,901.5 695.4 178.7 Non-deductible expenses ( 50.3 ) 0.4 ( 4.4 ) Tax credits 351.6 19.3 26.7 Acquisition related — 31.8 15.2 Convertible senior notes ( 5,854.8 ) ( 412.6 ) ( 0.3 ) Other 1.2 27.9 ( 1.8 ) Change in valuation allowance 2,462.7 ( 325.3 ) ( 257.5 ) Total ( 622.5 ) % ( 37.8 ) % ( 10.6 ) % A summary of our deferred tax assets is as follows (in thousands): As of December 31, 2020 2019 Deferred tax assets: Accrued expenses and reserves $ 6,365 $ 3,978 Share-based compensation 6,473 12,003 Accrued compensation 2,402 997 Net operating loss carryforwards 190,904 162,320 Other items 5,734 3,438 Gross deferred tax assets 211,878 182,736 Valuation allowance ( 151,825 ) ( 148,519 ) Total deferred tax assets 60,053 34,217 Deferred tax liabilities: Property and equipment, textbooks and intangibles assets ( 4,066 ) ( 4,111 ) Convertible senior notes ( 51,607 ) ( 27,065 ) Other ( 5,890 ) ( 4,661 ) Total deferred tax liabilities ( 61,563 ) ( 35,837 ) Net deferred tax liability $ ( 1,510 ) $ ( 1,620 ) At December 31, 2020 and 2019, the deferred tax liability is primarily created by the tax amortization of acquired indefinite lived intangible assets. Under the accounting guidance this deferred tax liability can be used as a source of income for recognition of deferred tax assets when determining the amount of valuation allowance to be recorded. As of December 31, 2020, we intend to permanently reinvest all 2020, 2019, and 2018 earnings from our foreign subsidiaries. As such, we have not provided for any remaining tax effect, if any, of the outside basis difference of our foreign subsidiaries based upon plans of future reinvestment. The determination of the future tax consequences of the remittance of these earnings is not practicable. Realization of the deferred tax assets is dependent upon future taxable income, the amount and timing of which are uncertain. Accordingly, the federal and state gross deferred tax assets have been fully offset by a valuation allowance. The 82 T a b l e o f C o n t e n t s valuation allowance increased by approximately $ 3.3 million during the year ended December 31, 2020 and increased by approximately $ 22.7 million during the year ended December 31, 2019. As of December 31, 2020, we had net operating loss carryforwards for federal and state income tax purposes of approximately $ 674 million and $ 511 million, respectively, which will begin to expire in years beginning 2028 and 2021, respectively. As of December 31, 2020, we had tax credit carryforwards for federal and state income tax purposes of approximately $ 19.1 million and $ 14.8 million, respectively. The federal credits expire in various years beginning in 2030. The state credits do not expire. Utilization of our net operating losses and tax credit carryforwards may be subject to substantial annual limitations due to ownership change limitations provided by the Internal Revenue Code of 1986, as amended (IRC), and similar state provisions. Such annual limitations could result in the expiration of the net operating losses and tax credit carryforwards before utilization. We recognize interest and penalties related to uncertain tax positions as a component of income tax expense. During the years ended December 31, 2020, 2019 and 2018, we recognized an increase of $ 0.1 million, an increase of $ 45 thousand and a decrease of $ 0.7 million of interest and penalties, respectively. Accrued interest and penalties as of December 31, 2020 and 2019 were approximately $ 0.2 million and $ 0.1 million, respectively. We file tax returns in U.S. federal, state, and certain foreign jurisdictions with varying statutes of limitations. Due to net operating loss and credit carryforwards, all of the tax years since inception through the 2020 tax year remain subject to examination by the U.S. federal and some state authorities. Foreign jurisdictions remain subject to examination up to approximately seven years from the filing date, depending on the jurisdiction. A reconciliation of the beginning and ending balances of the total amount of unrecognized tax benefits, excluding accrued interest and penalties, is as follows (in thousands): Years Ended December 31, 2020 2019 2018 Beginning balance $ 10,993 $ 8,771 $ 5,772 Increase in tax positions for prior years 479 221 758 Decrease in tax positions for prior years ( 535 ) ( 1,550 ) ( 569 ) Decrease in tax positions for prior year settlement ( 208 ) — ( 149 ) Decrease in tax positions for prior years due to statutes lapsing ( 26 ) ( 164 ) ( 103 ) Increase in tax positions for current year 3,999 3,722 3,112 Change due to translation of foreign currencies ( 48 ) ( 7 ) ( 50 ) Ending balance $ 14,654 $ 10,993 $ 8,771 The amount of unrecognized tax benefits, if recognized, that would affect the effective tax rate is $ 3.4 million for the year ended December 31, 2020. One or more of these unrecognized tax benefits could be subject to a valuation allowance if, and when recognized in a future period, which could impact the timing of any related effective tax rate benefit. The actual amount of any taxes due could vary significantly depending on the ultimate timing and nature of any settlement. We believe that the amount by which the unrecognized tax benefits may increase or decrease within the next 12 months is not estimable. 83 T a b l e o f C o n t e n t s Note 17. Related-Party Transactions Our Chief Executive Officer is a member of the Board of Directors of Adobe Systems Incorporated (Adobe). During the years ended December 31, 2020, 2019, and 2018, we purchased $ 1.7 million, $ 2.1 million and $ 3.3 million, respectively, of services from Adobe. We had $ 0.1 million, $ 0.2 million, and $ 0.1 million in revenues during the years ended December 31, 2020, 2019, and 2018, respectively, from Adobe. We had $ 0.1 million and $ 0.2 million in payables as of December 31, 2020 and 2019, respectively, to Adobe. We had no outstanding receivables as of December 31, 2020 and 2019 from Adobe. One of our board members is also a member of the Board of Directors of Synack, Inc. (Synack). During the years ended December 31, 2020, 2019, and 2018, we purchased $ 0.1 million, $ 0.4 million, and $ 0.1 million, respectively, of services from Synack. The immediate family of one of our board members is a member of the Board of Directors of PayPal Holdings, Inc. (PayPal). During the years ended December 31, 2020, 2019, and 2018, we incurred payment processing fees of $ 2.1 million, $ 1.6 million, and $ 1.3 million, respectively, to PayPal. One of our board members is also a member of the Board of Directors of Zuora, Inc. (Zuora). During the year ended December 31, 2020, we purchased $ 1.3 million of services from Zuora. Note 18. Employee Benefit Plan We sponsor a 401(k) savings plan for eligible employees and their beneficiaries. Contributions by us are discretionary. Participants may contribute, on a pretax basis, a percentage of their annual compensation, but not to exceed a maximum contribution amount pursuant to Section 401(k) of the IRC. During the years ended December 31, 2020, 2019, and 2018, our matching contributions totaled approximately $ 2.2 million, $ 1.7 million, and $ 1.4 million, respectively. Note 19. Segment Information Our chief operating decision-maker is our Chief Executive Officer who makes resource allocation decisions and reviews financial information presented on a consolidated basis. Accordingly, we have determined that we have a single operating and reportable segment and operating unit structure. Product Information We derive our revenues from our Chegg Services and Required Materials product lines. Our Chegg Services primarily include Chegg Study, Chegg Writing, Chegg Math Solver, Chegg Study Pack, Thinkful, and Mathway. Our Required Materials product line includes revenues from print textbooks and eTextbooks. The following table sets forth our total net revenues for the periods shown for our Chegg Services and Required Materials product lines (in thousands): Years Ended December 31, 2020 2019 2018 Chegg Services $ 521,228 $ 332,221 $ 253,985 Required Materials 123,110 78,705 67,099 Total net revenues $ 644,338 $ 410,926 $ 321,084 Geographic Information Our headquarters and most of our operations are located in the United States. We conduct our sales, marketing and customer service activities primarily in the United States. Geographic revenues information is based on the location of the customer. During the years ended December 31, 2020, 2019, and 2018, substantially all of our revenues and long-lived assets are located in the United States. 84 T a b l e o f C o n t e n t s Note 20. Selected Quarterly Financial Data (unaudited) Three Months Ended March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 Total net revenues $ 131,590 $ 153,009 $ 154,018 $ 205,721 Gross profit 89,200 109,485 91,648 148,588 Income (loss) from operations 3,276 22,061 ( 17,802 ) 49,218 Net (loss) income ( 5,713 ) 10,589 ( 37,140 ) 26,043 Weighted average shares used to compute net (loss) income per share: Basic 122,428 123,842 126,194 128,955 Diluted 122,428 133,851 126,194 141,297 Net (loss) income per share: Basic $ ( 0.05 ) $ 0.09 $ ( 0.29 ) $ 0.20 Diluted $ ( 0.05 ) $ 0.08 $ ( 0.29 ) $ 0.18 Three Months Ended March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019 Total net revenues $ 97,409 $ 93,862 $ 94,151 $ 125,504 Gross profit 74,074 73,344 71,987 99,339 (Loss) income from operations ( 1,027 ) 6,815 ( 5,057 ) 17,086 Net (loss) income ( 4,318 ) ( 2,029 ) ( 11,477 ) 8,219 Weighted average shares used to compute net (loss) income per share: Basic 116,730 118,790 120,085 121,151 Diluted 116,730 118,790 120,085 129,150 Net (loss) income per share: Basic $ ( 0.04 ) $ ( 0.02 ) $ ( 0.10 ) $ 0.07 Diluted $ ( 0.04 ) $ ( 0.02 ) $ ( 0.10 ) $ 0.06 Note 21. Subsequent Event On February 17, 2021, we entered into an underwriting agreement pursuant to which we agreed to issue and sell 9,804,000 shares of our common stock at a public offering price of $ 102.00 per share and on February 18, 2021, the option to purchase up to an additional 1,470,600 shares of our common stock, consisting of 300,000 shares of common stock from the selling stockholder and 1,170,600 shares issued by us, was exercised (the “Offering”). On February 22, 2021, we closed the Offering and issued the shares for estimated net proceeds of approximately $ 1,091.6 million, after deducting underwriting discounts and commissions and estimated Offering expenses payable by Chegg. 85 T a b l e o f C o n t e n t s ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.