What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-02 · 123 added, 70 removed, 148 unchanged (57% of the section changed)

17 unchanged sentences

Required Materials includes our print textbook and eTextbook offerings, which help students save money compared to the cost of buying new.

We offer an extensive print textbook library primarily for rent and also for sale both on our own and through our print textbook partners.

We partner with a variety of third parties to source print textbooks and eTextbooks directly or indirectly from publishers.

In April 2022, we entered into definitive agreements with BBA such that we will continue to offer our Required Materials offering on our website and maintain relationships with the students, however, BBA has purchased our existing print textbook library and will continue to make print textbook investments and provide fulfillment logistics for print textbook transactions.

We expect that we will continue to fulfill eTextbook transactions through the end of 2022, at which point BBA will fulfill eTextbook transactions.

We expect that our partnership with BBA provides an opportunity to grow faster with higher margins.

We offer an extensive print textbook library primarily for rent and also for sale through our print textbook partners.

During the three and six months ended June 30, 2022, we generated net revenues of $194.7 million and $397.0 million, respectively.

During the three and six months ended June 30, 2021, we generated net revenues of $198.5 million and $396.9 million, respectively.

In April 2022, we entered into definitive agreements with GT such that we will continue to offer our Required Materials offering on our website and maintain relationships with the students, however, GT has purchased our existing print textbook library and will continue to make print textbook investments and provide fulfillment logistics for print textbook transactions.

We expect that we will continue to fulfill eTextbook transactions through the end of 2022, at which point GT will fulfill eTextbook transactions.

We expect that our partnership with GT provides an opportunity to grow faster with higher margins.

As a result of the partnership with GT, revenues from print textbook transactions will consist of a revenue share of the total transactions recognized immediately rather than the total amounts recognized ratably over the rental term, generally a two- to five-month period.

Revenues from eTextbook transactions will continue to be recognized at the gross amount ratably over the customer's contractual period, generally a two- to five-month period, through the expected transition period, at which point they will be recognized as a revenue share immediately.

After the transition to GT, we will no longer incur significant costs of revenue such as order fulfillment fees primarily related to shipping and fulfillment, publisher content fees for eTextbooks after transition to GT at the end of 2022, and print textbook depreciation and write off expense.

We will continue to incur costs of revenue such as payment processing fees and employee related costs as well as ongoing operating expenses such as platform infrastructure maintenance and transition costs.

In January 2022, we completed our acquisition of Busuu Online S.L.

(Busuu), an online language learning company that offers a comprehensive solution through a combination of self-paced lessons, live classes with expert tutors and the ability to learn and practice with members of the Busuu language learning community.

During the three months ended March 31, 2022 and 2021, we generated net revenues of $202.2 million and $198.4 million, respectively.

We continue to experience a slowdown in the education industry as a result of the COVID-19 pandemic and macroeconomic conditions, such as inflation, which resulted in a decline in traffic to education technology services, such as the ones we provide.

A combination of increased employment opportunities and compensation, along with students taking less classes, all led to significantly fewer enrollments than expected.

Those students who have enrolled are taking fewer and less rigorous classes and are receiving less graded assignments.

As a result, we are experiencing a deceleration in the growth rates of our services and revenues that may continue.

Our long-term strategy is centered upon our ability to utilize Chegg Services to increase student engagement with our learning platform.

We plan to continue to invest in the expansion of our Chegg Services to provide a more compelling and personalized solution and deepen engagement with students.

In addition, we believe that the investments we have made to achieve our current scale will allow us to drive increased operating margins over time that, together with increased

contributions of Chegg Services, will enable us to sustain profitability and remain cash-flow positive in the long-term.

Our ability to achieve these long-term objectives is subject to numerous risks and uncertainties, including our ability to attract, retain, and increasingly engage the student population, reduced traffic to our services, intense competition in our markets, the ability to achieve sufficient contributions to revenue from Chegg Services, and other factors, such as the COVID-19 pandemic, which continues to evolve and affect our business and results of operations.

The COVID-19 pandemic subjects our business to numerous risks and uncertainties, most of which are beyond our control and cannot be predicted, including post-pandemic enrollment trends and student behaviors, such as the number and intensity of the courses selected.

In addition, we believe that the investments we have made to achieve our current scale will allow us to drive increased operating margins over time that, together with increased contributions of Chegg Services, will enable us to sustain profitability and remain cash-flow positive in the long-term.

ability to achieve these long-term objectives is subject to numerous risks and uncertainties, including our ability to attract, retain, and increasingly engage the student population, reduced traffic to our services, intense competition in our markets, the ability to achieve sufficient contributions to revenue from Chegg Services, and other factors, such as the COVID-19 pandemic, which continues to evolve and affect our business and results of operations.

Further, the education industry is experiencing a slowdown as a result of the COVID-19 pandemic and macroeconomic conditions, such as inflation, which has resulted in a decline in traffic to education technology services, such as the ones we provide.

A combination of increased employment opportunities and compensation has led to significantly fewer enrollments than expected.

In addition, those students who have enrolled have been taking fewer and less rigorous classes and receiving less graded assignments.

As a result, we are experiencing a deceleration in the growth rates of our services and revenues that may continue.

These risks and uncertainties are described in greater detail in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

5 unchanged sentences

We also work with leading brands to provide students with discounts, promotions, and other products that, based on student feedback, delight them.

In the aggregate, Chegg Services revenues were 91% and 82% of net revenues during the three months ended March 31, 2022 and 2021, respectively.

In the aggregate, Chegg Services revenues were 97% and 94% of net revenues during the three and six months ended June 30, 2022 , respectively, and 87% and 85% during the three and six months ended June 30, 2021, respectively.

Required Materials

Our Required Materials product line includes revenues from print textbooks and eTextbooks.

Revenues from print textbooks that we own are primarily recognized as the total transaction amount ratably over the rental term, generally a two- to five-month period.

Revenues from print textbooks owned by a partner are recognized as a revenue share on the total transactional amount immediately when a print textbook ships to a student.

Additionally, Required Materials includes revenues from eTextbooks, which are primarily recognized ratably over the contractual period, generally a two- to five-month period.

As a result of the partnership with BBA, revenues from print textbook transactions will consist of a revenue share of the total transactions recognized immediately rather than the total amounts recognized ratably over the rental term, generally a two- to five-month period.

Revenues from eTextbook transactions will continue to be recognized at the gross amount ratably over the contractual period, generally a two- to five-month period, through the expected transition period, at which point they will be recognized as a revenue share immediately.

In the aggregate, Required Materials revenues were 9% and 18% of net revenues during the three months ended March 31, 2022 and 2021, respectively.

Subsequent to April 2022, we no longer recognize operating lease income from print textbooks that we own ratable on a gross basis.

In relation to print textbooks owned by GT, we recognize revenues immediately on a net basis, representing the margin earned, 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.

Additionally, Required Materials includes revenues from eTextbooks, which are primarily recognized ratably over the customer's contractual period, generally a two- to five-month period.

In the aggregate, Required Materials revenues were 3% and 6% of net revenues during the three and six months ended June 30, 2022, respectively, and 13% and 15% during the three and six months ended June 30, 2021, respectively.

Seasonality of Our Business

Revenues from Chegg Services, print textbooks that we own, and eTextbooks are primarily recognized ratably over the term a student subscribes to our Chegg Services, rents a print textbook or has access to an eTextbook.

Revenues from Chegg Services and eTextbooks are primarily recognized ratably over the term a student subscribes to our Chegg Services or has access to an eTextbook.

This has generally resulted in our highest revenues and profitability in the fourth quarter as it reflects more days of the academic year.

Our variable expenses related to cost of revenues and marketing activities remain highest in the first and third quarters such that our profitability may not provide meaningful insight on a sequential basis.

Certain variable expenses, such as marketing expenses, remain highest in the first and third quarters such that our profitability may not provide meaningful insight on a sequential basis.

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

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Net revenues $ 194,721 100 % $ 198,478 100 % $ 396,965 100 % $ 396,856 100 %

21 unchanged sentences

Total share-based compensation expense $ 31,087 $ 28,545 $ 64,171 $ 51,645

Three Months Ended March 31, 2022 and 2021

Three and Six Months Ended June 30, 2022 and 2021

The following table sets forth our total net revenues for the periods shown for our Chegg Services and Required Materials product lines (in thousands, except percentages):

Three Months Ended

March 31, Change

June 30, Change

2022 2021 $ %

2 unchanged sentences

Total net revenues $ 194,721 $ 198,478 $ (3,757) (2)

Chegg Services revenues increased $22.5 million, or 14%, during the three months ended March 31, 2022, compared to the same period in 2021.

The increase was primarily due to the introduction of enhanced and new offerings, including our acquisition of Busuu, which closed in January 2022, and increased global brand awareness and penetration.

Chegg Services revenues were 91% and 82% of net revenues during the three months ended March 31, 2022 and 2021, respectively.

Required Materials revenues decreased $18.6 million, or 52%, during the three months ended March 31, 2022 compared to the same period in 2021.

The decrease was primarily due to various print textbook logistics challenges and lower unit volumes driven by decreased college enrollments.

Required Materials revenues were 9% and 18% of net revenues during the three months ended March 31, 2022 and 2021, respectively.

As a result of our partnership with BBA, we expect Required Material revenues to decrease due to recognizing a revenue share of the total transaction amount rather than the total transaction amount.

Six Months Ended June 30, Change

2022 2021 $ %

Chegg Services $ 373,888 $ 335,864 $ 38,024 11 %

Required Materials 23,077 60,992 (37,915) (62)

Total net revenues $ 396,965 $ 396,856 $ 109 0

Chegg Services revenues increased $15.6 million, or 9% and $38.0 million, or 11% during the three and six months ended June 30, 2022, compared to the same periods in 2021.

The increase was primarily due to an increased global brand awareness and penetration, including our acquisition of Busuu, which closed in January 2022, and increased students subscribing to the Chegg Study Pack.

Chegg Services revenues were 97% and 94% of net revenues during the three and six months ended June 30, 2022, respectively, and 87% and 85% of net revenues during the three and six months ended June 30, 2021, respectively.

Required Materials revenues decreased $19.3 million, or 77% and $37.9 million or 62%, during the three and six months ended June 30, 2022 compared to the same periods in 2021.

The decrease was primarily due to lower revenues from print textbooks as we no longer own print textbooks as a result of our partnership with GT beginning in April 2022, lower unit volumes driven by decreased college enrollments, and various print textbook logistic challenges prior to the partnership with GT during the first quarter of 2022.

Required Materials revenues were 3% and 6% of net revenues during the three and six months ended June 30, 2022, respectively, and 13% and 15% of net revenues during the three and six months ended June 30, 2021, respectively.

As a result of our partnership with GT, we expect Required Material revenues to continue to decrease throughout 2022 due to recognizing a revenue share of the total transaction amount rather than the total transaction amount.

Cost of Revenues

1 unchanged sentence

Three Months Ended

March 31, Change

June 30, Change

2022 2021 $ %

3 unchanged sentences

$ 669 $ 419 $ 250 60 %

Cost of revenues decreased $16.3 million, or 23%, during the three months ended March 31, 2022, compared to the same period in 2021.

The decrease was primarily attributable to lower order fulfillment fees of $12.3 million driven by lower unit volumes, lower net loss on textbook library of $4.6 million, primarily due to a reduction in write-downs, lower cost of textbooks purchased by students of $3.3 million, lower print textbook depreciation expense of $2.2 million, and lower customer support fees of $1.9 million, partially offset by higher other depreciation and amortization expense of $4.1 million, higher web hosting fees of $2.4 million, and incremental cost of tutors, as a result of our acquisition of Busuu, of $2.2 million.

Gross margins increased to 73% during the three months ended March 31, 2022, from 64% during the same period in 2021.

As a result of our partnership with BBA, we expect cost of revenues to decrease and margins to improve over time.

Six Months Ended June 30, Change

2022 2021 $ %

Cost of revenues (1)

$ 100,769 $ 132,092 $ (31,323) (24) %

(1) Includes share-based compensation expense of:

$ 1,292 $ 781 $ 511 65 %

Cost of revenues decreased $15.0 million, or 25%, during the three months ended June 30, 2022, compared to the same period in 2021.

The decrease was primarily attributable to lower order fulfillment fees of $9.8 million driven by lower unit volumes, net change in the gain on textbook library of $4.6 million, driven by the sale of print textbooks to GT in April 2022,

lower transitional logistic charges of $3.0 million, lower print textbook depreciation expense of $2.7 million, and lower cost of textbooks purchased by students of $1.6 million, partially offset by higher other depreciation and amortization expense of $3.6 million, and incremental cost of tutors, as a result of our acquisition of Busuu, of $2.5 million.

Gross margins increased to 77% during the three months ended June 30, 2022, from 69% during the same period in 2021.

Cost of revenues decreased $31.3 million, or 24%, during the six months ended June 30, 2022, compared to the same period in 2021.

The decrease was primarily attributable to lower order fulfillment fees of $22.1 million driven by lower unit volumes, net change in the gain on textbook library of $9.2 million, driven by the sale of print textbooks to GT in April 2022 and lower write-downs, lower print textbook depreciation expense of $5.0 million, lower cost of textbooks purchased by students of $4.9 million, lower transitional logistic charges of $2.7 million, lower customer support fees of $1.3 million, partially offset by higher other depreciation and amortization expense of $7.7 million, incremental cost of tutors, as a result of our acquisition of Busuu, of $4.7 million and higher web hosting fees of $2.4 million.

Gross margins increased to 75% during the six months ended June 30, 2022, from 67% during the same period in 2021.

Decreases related to print textbooks, including order fulfillment fees, net change in the gain on textbook library, print textbook depreciation expense and cost of textbooks purchased by students, were primarily attributable to our partnership with GT.

We expect cost of revenues to continue to decrease throughout 2022 and margins to improve over time as we continue the partnership.

Operating Expenses

1 unchanged sentence

Three Months Ended

March 31, Change

June 30, Change

2022 2021 $ %

11 unchanged sentences

Share-based compensation expense $ 30,418 $ 28,126 $ 2,292 8 %

Six Months Ended June 30, Change

2022 2021 $ %

Research and development (1)

Research and development expenses increased $6.3 million, or 14%, during the three months ended March 31, 2022 compared to the same period in 2021.

The increase was primarily attributable to higher employee-related expenses, including share-based compensation expense, of $5.5 million and higher technology expenses to support our research and development of $1.5 million.

Research and development expenses as a percentage of net revenues were 26% during the three months ended March 31, 2022 compared to 23% during the same period in 2021.

$ 104,895 $ 87,726 $ 17,169 20 %

Sales and marketing (1)

Sales and marketing expenses increased by $16.3 million, or 62%, during the three months ended March 31, 2022, compared to the same period in 2021.

77,777 47,900 29,877 62

General and administrative (1)

100,805 77,589 23,216 30

Total operating expenses $ 283,477 $ 213,215 $ 70,262 33 %

(1) Includes share-based compensation expense of:

Research and development $ 21,782 $ 17,059 $ 4,723 28 %

Sales and marketing 8,405 6,574 1,831 28

General and administrative 32,692 27,231 5,461 20

Share-based compensation expense $ 62,879 $ 50,864 $ 12,015 24 %

Research and Development

Research and development expenses increased $10.9 million, or 26%, during the three months ended June 30, 2022 compared to the same period in 2021.

The increase was primarily attributable to higher employee-related expenses, including share-based compensation expense, of $5.1 million, higher technology expenses to support our research and development of $3.6 million, and higher contractor spend of $1.1 million.

Research and development expenses as a percentage of net revenues were 27% during the three months ended June 30, 2022 compared to 20% during the same period in 2021.

Research and development expenses increased $17.2 million, or 20%, during the six months ended June 30, 2022 compared to the same period in 2021.

The increase was primarily attributable to higher employee-related expenses, including share-based compensation expense, of $10.5 million, higher technology expenses to support our research and development of $5.1 million, and higher contractor spend of $1.8 million.

Research and development expenses as a percentage of net revenues were 27% during the six months ended June 30, 2022 compared to 22% during the same period in 2021.

Sales and Marketing

Sales and marketing expenses increased by $13.6 million, or 63%, during the three months ended June 30, 2022, compared to the same period in 2021.

The increase was primarily attributable to increased international marketing spend, including incremental marketing spend from Busuu, of $6.3 million, higher employee-related expenses, including share-based compensation expense, of $2.9 million, and higher other depreciation and amortization expense of $2.6 million.

Sales and marketing expenses as a percentage of net revenues were 21% during the three months ended March 31, 2022 compared to 13% during the same period in 2021.

Sales and marketing expenses as a percentage of net revenues were 18% during the three months ended June 30, 2022 compared to 11% during the same period in 2021.

Sales and marketing expenses increased by $29.9 million, or 62%, during the six months ended June 30, 2022, compared to the same period in 2021.

The increase was primarily attributable to increased international marketing spend, including incremental marketing spend from Busuu, of $16.4 million, higher employee-related expenses, including share-based compensation expense, of $5.9 million, and higher other depreciation and amortization expense of $4.8 million.

Sales and marketing expenses as a percentage of net revenues were 20% during the six months ended June 30, 2022 compared to 12% during the same period in 2021.

General and Administrative

General and administrative expenses increased $9.0 million, or 24%, during the three months ended March 31, 2022 compared to the same period in 2021.

The increase was primarily due to higher employee-related expenses, including share-based compensation expense, of $8.6 million.

General and administrative expenses as a percentage of net revenues were 23% during the three months ended March 31, 2022 compared to 19% during the same period in 2021.

The increases in employee-related operating expenses during the three months ended March 31, 2022, compared to the same period in 2021, are largely driven by incremental employees from our acquisition of Busuu.

General and administrative expenses increased $14.2 million, or 36%, during the three months ended June 30, 2022 compared to the same period in 2021.

The increase was primarily due to higher employee-related expenses, including share-based compensation expense, of $7.4 million, an impairment of lease related assets of $3.4 million, and higher professional fees of $1.6 million.

General and administrative expenses as a percentage of net revenues were 28% during the three months ended June 30, 2022 compared to 20% during the same period in 2021.

General and administrative expenses increased $23.2 million, or 30%, during the six months ended June 30, 2022 compared to the same period in 2021.

The increase was primarily due to higher employee-related expenses, including share-based compensation expense, of $16.0 million, an impairment of lease related assets of $3.4 million, and higher professional fees of $3.1 million.

General and administrative expenses as a percentage of net revenues were 25% during the six months ended June 30, 2022 compared to 20% during the same period in 2021.

The increases in employee-related operating expenses during the three and six months ended June 30, 2022, compared to the same periods in 2021, are largely driven by incremental employees from our acquisition of Busuu.

Interest Expense and Other Income (Expense), Net

1 unchanged sentence

Three Months Ended

March 31, Change

June 30, Change

2022 2021 $ %

Interest expense, net $ (1,616) $ (1,701) $ 85 (5) %

Other income (expense), net 1,809 1,920 (111) (6) %

Total interest expense, net and other income (expense), net $ 193 $ 219 $ (26) (12) %

Six Months Ended June 30, Change

2022 2021 $ %

Interest expense, net $ (3,213) $ (3,630) $ 417 (11) %

Other income (expense), net 7,989 (75,288) 83,277 n/m

2 unchanged sentences

*n/m - not meaningful

Interest expense, net decreased $0.3 million, or 17%, during the three months ended March 31, 2022, compared to the same period in 2021, primary due to the full redemption of the 2023 notes in 2021.

Other income (expense), net increased $83.4 million during the three months ended March 31, 2022, compared to the same period in 2021, primarily due to the absence of the $78.2 million loss on early extinguishment of debt of a portion of the 2025 notes and the $7.1 million net loss on the change in fair value of derivative instruments.

Interest expense, net decreased $0.1 million and $0.4 million, during the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021, primary due to the full redemption of the 2023 notes in 2021.

Other income (expense), net remained relatively flat during the three months ended June 30, 2022 compared to the same period in 2021 and decreased $83.3 million during the six months ended June 30, 2022 compared to the same period in 2021, primarily due to the absence of the $78.2 million loss on early extinguishment of debt of a portion of the 2025 notes and the $7.1 million net loss on the change in fair value of derivative instruments, partially offset by the absence of the $5.3 million gain on the sale of the strategic equity investment and the $4.6 million gain on foreign currency remeasurement of purchase consideration related to our acquisition of Busuu.

Provision for Income Taxes

1 unchanged sentence

Three Months Ended

March 31, Change

June 30, Change

2022 2021 $ %

Provision for income taxes $ (60) $ (2,225) $ 2,165 (97) %

Provision for income taxes increased $1.4 million, or 49%, during the three months ended March 31, 2022 compared to the same period in 2021 primarily due to base erosion and anti-abuse taxes partially offset by a decrease in withholding taxes.

Six Months Ended June 30, Change

2022 2021 $ %

Provision for income taxes $ (4,277) $ (5,046) $ 769 (15) %

Provision for income taxes decreased $2.2 million, or 97%, during the three months ended June 30, 2022 compared to the same period in 2021 primarily due to a decrease in our Indian tax rate and a decrease in our estimate of the base erosion and anti-abuse taxes for the year ending December 31, 2022 partially offset by an increase in state taxes.

Provision for income taxes decreased $0.8 million, or 15%, during the six months ended June 30, 2022 compared to the same period in 2021 primarily due to a decrease in withholding taxes related to the March 2021 sale of our strategic equity investment and a decrease in our Indian tax rate partially offset by an increase in state taxes.

We continue to maintain a full valuation allowance against our deferred tax assets and quarterly assess the need for such valuation allowance.

Given our current and anticipated future earnings, we believe that there is a reasonable possibility that within the next 24 months, sufficient positive evidence may become available that results in a conclusion that all or a portion of the valuation allowance will be released, which would result in the recognition of net deferred tax assets on our condensed consolidated balance sheets and a benefit to provision for income taxes in the period the release is recorded.

The timing and amount of the valuation allowance release are based on obtaining sufficient positive evidence, including but not limited to, the level of forecasted profitability in future periods.

Liquidity and Capital Resources

As of March 31, 2022, our principal sources of liquidity were cash, cash equivalents, and investments totaling $1.6 billion, which were held for working capital purposes.

As of June 30, 2022, our principal sources of liquidity were cash, cash equivalents, and investments totaling $1.6 billion, which were held for working capital purposes.

The substantial majority of our net revenues are from e-commerce transactions with students, which are settled immediately through payment processors, as opposed to our accounts payable, which are settled based on contractual payment terms with our suppliers.

In November 2021, our board of directors approved a $500.0 million increase to our existing securities repurchase program authorizing the repurchase of up to $1.0 billion of our common stock and/or convertible notes, through open market purchases, block trades, and/or privately negotiated transactions or pursuant to Rule 10b5-1 plans, in compliance with applicable securities laws and other legal requirements.

In June 2022, our board of directors approved a $1.0 billion increase to our existing securities repurchase program authorizing the repurchase of up to $2.0 billion of our common stock and/or convertible notes, through open market purchases, block trades, and/or privately negotiated transactions or pursuant to Rule 10b5-1 plans, in compliance with applicable securities laws and other legal requirements.

The timing, volume, and nature of the repurchases will be determined by management based on the capital needs of the business, market conditions, applicable legal requirements, and other factors.

During the three months ended March 31, 2022 and year ended December 31, 2021, we entered into accelerated share repurchase programs to repurchase a total of $600.0 million of our outstanding common stock.

Additionally, in 2021 we have repurchased $57.4 million and $100.0 million of aggregate principal amount of the 2023 notes and 2025 notes, respectively, in privately negotiated transactions for an aggregate consideration of $149.6 million and $184.9 million, respectively.

$65.5 million remains under the repurchase program, which has no expiration date and will continue until otherwise suspended, terminated or modified at any time for any reason by our board of directors.

During the six months ended June 30, 2022 and year ended December 31, 2021, we entered into accelerated share repurchase programs to repurchase a total of $600.0 million of our outstanding common stock.

Additionally, in 2021 we repurchased $57.4 million and $100.0 million of aggregate principal amount of the 2023 notes and 2025 notes, respectively, in privately negotiated transactions for an aggregate consideration of $149.6 million and $184.9 million, respectively.

$1.1 billion remains under the repurchase program, which has no expiration date and will continue until otherwise suspended, terminated or modified at any time for any reason by our board of directors.

In February 2021, we completed an equity offering in which we raised net proceeds of $1,091.5 million, after deducting underwriting discounts and commissions and offering expenses (2021 equity offering).

1 unchanged sentence

The 2026 notes and 2025 notes mature on September 1, 2026 and March 15, 2025, respectively, unless converted, redeemed or repurchased in accordance with their terms prior to such dates.

As of March 31, 2022, we have incurred cumulative losses of $331.4 million from our operations and we may incur additional losses in the future.

As of June 30, 2022, we have incurred cumulative losses of $324.0 million from our operations and we may incur additional losses in the future.

Our operations have been financed primarily by our initial public offering of our common stock (IPO), our 2017 follow-on public offering, our convertible senior notes offerings, our 2021 equity offering, and cash generated from operations.

6 unchanged sentences

Most of our cash, cash equivalents, and investments are held in the United States.

As of March 31, 2022, our foreign subsidiaries held an insignificant amount of cash in foreign jurisdictions.

As of June 30, 2022, our foreign subsidiaries held an insignificant amount of cash in foreign jurisdictions.

We currently do not intend or foresee a need to repatriate these foreign funds;

3 unchanged sentences

The following table sets forth our cash flows (in thousands):

Three Months Ended

Six Months Ended

Condensed Consolidated Statements of Cash Flows Data:

3 unchanged sentences

Cash Flows from Operating Activities

Net cash provided by operating activities during the three months ended March 31, 2022 was $80.0 million.

Our net income of $5.7 million was increased by the change in our prepaid expenses and other current assets of $21.7 million.

Net cash provided by operating activities during the six months ended June 30, 2022 was $143.8 million.

Our net income of $13.2 million was increased by the change in our prepaid expenses of $28.8 million.

We also had significant non-cash operating expenses including share-based compensation expense of $64.2 million and other depreciation and amortization expense of $41.9 million.

Net cash provided by operating activities during the three months ended March 31, 2021 was $73.6 million.

Our net loss of $65.2 million was offset by significant non-cash operating expenses including print textbook depreciation expense of $3.8 million, other depreciation and amortization expense of $14.8 million, share-based compensation expense of $23.1 million, the loss on early extinguishment of debt of $78.2 million, the net loss on the change in fair value of derivative instruments of $7.1 million, and the net loss on textbook library of $4.0 million, which was primarily due to increased write-downs, partially offset by the gain on sale of strategic equity investment of $5.3 million.

Net cash provided by operating activities during the six months ended June 30, 2021 was $144.5 million.

Our net loss of $32.4 million was offset by significant non-cash operating expenses including the loss on early extinguishment of debt of $78.2 million, share-based compensation expense of $51.6 million, other depreciation and amortization expense of $30.2 million, the net loss on the change in fair value of derivative instruments of $7.1 million, print textbook depreciation expense of $6.6 million, and the net loss on textbook library of $4.2 million, which was primarily due to increased write-downs, partially offset by the gain on sale of strategic equity investment of $5.3 million.

Cash Flows from Investing Activities

Net cash used in investing activities during the three months ended March 31, 2022 was $363.1 million and was related to the acquisition of a business of $401.1 million, the purchases of investments of $273.3 million, the purchases of property and equipment of $29.5 million, and the purchases of textbooks of $3.7 million, partially offset by the maturity of investments of $342.1 million and proceeds from the disposition of textbooks of $2.5 million.

Net cash used in investing activities during the three months ended March 31, 2021 was $765.0 million and was related to the purchases of investments of $925.7 million, the purchases of property and equipment of $19.0 million, the acquisition of business of $7.9 million and the purchases of textbooks of $4.5 million, partially offset by the maturity of investments of $181.3 million, proceeds from the sale of strategic equity investment of $6.8 million, and proceeds from the disposition of textbooks of $4.0 million.

Net cash used in investing activities during the six months ended June 30, 2022 was $293.8 million and was related to the acquisition of a business of $401.1 million, the purchases of investments of $356.6 million, the purchases of property and equipment of $57.3 million, and the purchases of textbooks of $3.8 million, partially offset by the maturities of investments of $522.5 million and proceeds from the disposition of textbooks of $2.5 million.

Net cash used in investing activities during the six months ended June 30, 2021 was $574.8 million and was related to the purchases of investments of $984.6 million, the purchases of property and equipment of $46.6 million, the acquisition of business of $7.9 million and the purchases of textbooks of $5.0 million, partially offset by the maturities of investments of $455.5 million, proceeds from the sale of strategic equity investment of $7.1 million, and proceeds from the disposition of textbooks of $6.7 million.

Cash Flows from Financing Activities

Net cash used in financing activities during the three months ended March 31, 2022 was $307.5 million and was primarily related to the repurchases of common stock of $300.5 million and payment of $7.5 million in taxes related to the net share settlement of equity awards.

Net cash provided by financing activities during the three months ended March 31, 2021 was $867.6 million and was related to the net proceeds from our equity offering of $1,091.5 million, proceeds from 2023 notes and 2025 notes capped call instruments of $24.8 million, and proceeds from the issuance of common stock under stock plans of $0.3 million, partially offset by the repayment of a portion of our 2023 notes and 2025 notes of $189.8 million and payment of $59.2 million in taxes related to the net share settlement of equity awards.

Net cash used in financing activities during the six months ended June 30, 2022 was $306.1 million and was primarily related to the repurchases of common stock of $300.5 million and payment of $10.2 million in taxes related to the net share settlement of equity awards, partially offset by proceeds from issuance of common stock under stock plans of $4.6 million.

Net cash provided by financing activities during the six months ended June 30, 2021 was $790.3 million and was related to the net proceeds from our equity offering of $1,091.5 million, proceeds from 2023 notes and 2025 notes capped call instruments of $69.0 million, and proceeds from the issuance of common stock under stock plans of $5.3 million, partially offset by the repayment of a portion of our 2023 notes and 2025 notes of $300.8 million and payment of $74.6 million in taxes related to the net share settlement of equity awards.

Critical Accounting Policies, Significant Judgments and Estimates

8 unchanged sentences

Our actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes in our critical accounting policies and estimates during the three months ended March 31, 2022 as compared to the critical accounting policies and estimates disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no material changes in our critical accounting policies and estimates during the six months ended June 30, 2022 as compared to the critical accounting policies and estimates disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2021.

Recent Accounting Pronouncements

1 unchanged sentence

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no other material changes in our market risk during the three months ended March 31, 2022, compared to the disclosures in Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” contained in our Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no other material changes in our market risk during the six months ended June 30, 2022, compared to the disclosures in Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” contained in our Annual Report on Form 10-K for the year ended December 31, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis