What changed in this filing

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Item 1. Financial Statements

2022-11-01 compared with 2022-08-04 · 137 added, 91 removed, 525 unchanged (30% of the section changed)

2 unchanged sentences

(in thousands, except for number of shares and par value)

September 30,

2022 December 31,

2 unchanged sentences

Short-term investments 871,408 691,781

Accounts receivable, net of allowance of $ 234 and $ 153 at June 30, 2022 and December 31, 2021, respectively

Accounts receivable, net of allowance of $ 298 and $ 153 at September 30, 2022 and December 31, 2021, respectively

22,187 17,850

8 unchanged sentences

Right of use assets 18,144 18,062

Deferred tax assets 166,965 1,365

Other assets 21,680 19,670

17 unchanged sentences

400,000,000 shares authorized;

126,343,933 and 136,951,956 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

125,423,860 and 136,951,956 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 1,220,688 1,449,305

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

7 unchanged sentences

Total operating expenses 130,971 104,479 414,448 317,694

Income from operations 7,343 34,770 12,719 51,549

(Loss) income from operations ( 11,435 ) 361 1,284 51,910

Interest expense, net and other income (expense), net:

2 unchanged sentences

Total interest expense, net and other income (expense), net 95,733 7,037 100,509 ( 71,881 )

Income (loss) before provision for income taxes 7,536 34,989 17,495 ( 27,369 )

Provision for income taxes ( 60 ) ( 2,225 ) ( 4,277 ) ( 5,046 )

Income (loss) before benefit from (provision for) income taxes 84,298 7,398 101,793 ( 19,971 )

Benefit from (provision for) income taxes 167,264 ( 747 ) 162,987 ( 5,793 )

Net income (loss) $ 251,562 $ 6,651 $ 264,780 $ ( 25,764 )

6 unchanged sentences

See Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income (loss) $ 251,562 $ 6,651 $ 264,780 $ ( 25,764 )

Other comprehensive (loss) income

Change in net unrealized (loss) gain on investments, net of tax ( 2,333 ) 375 ( 15,250 ) ( 1,519 )

Other comprehensive loss

Change in net unrealized loss on investments, net of tax ( 1,946 ) ( 455 ) ( 17,196 ) ( 1,974 )

Change in foreign currency translation adjustments, net of tax ( 31,056 ) ( 127 ) ( 79,340 ) ( 1,108 )

Other comprehensive (loss) income ( 31,946 ) 268 ( 63,534 ) ( 2,500 )

Total comprehensive (loss) income $ ( 24,470 ) $ 33,032 $ ( 50,316 ) $ ( 34,915 )

Other comprehensive loss ( 33,002 ) ( 582 ) ( 96,536 ) ( 3,082 )

Total comprehensive income (loss) $ 218,560 $ 6,069 $ 168,244 $ ( 28,846 )

See Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

(in thousands)

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Value Additional Paid-In

1 unchanged sentence

Deficit Total Stockholders’ Equity

Balances at March 31, 2022

Balances at June 30, 2022

126,344 $ 126 $ 1,211,506 $ ( 68,868 ) $ ( 323,973 ) $ 818,791

Repurchases of common stock ( 1,147 ) ( 1 ) ( 23,077 ) — — ( 23,078 )

Issuance of common stock upon exercise of stock options and ESPP 265 — 4,102 — — 4,102

Net share settlement of equity awards 227 — ( 2,555 ) — — ( 2,555 )

2 unchanged sentences

Net income — — — — 251,562 251,562

Balances at June 30, 2022

Balances at September 30, 2022

125,424 $ 125 $ 1,220,688 $ ( 101,870 ) $ ( 72,411 ) $ 1,046,532

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Value Additional Paid-In

1 unchanged sentence

Deficit Total Stockholders’ Equity

Balances at March 31, 2021 141,317 $ 141 $ 1,645,352 $ ( 1,238 ) $ ( 400,912 ) $ 1,243,343

Equity component on conversions of 2023 notes and 2025 notes — — ( 225,615 ) — — ( 225,615 )

Issuance of common stock upon conversions of 2023 notes 2,857 3 224,281 — — 224,284

Net proceeds from capped call related to conversions of 2023 notes and 2025 notes — — 44,192 — — 44,192

Balances at June 30, 2021

144,621 $ 145 $ 1,706,855 $ ( 970 ) $ ( 368,148 ) $ 1,337,882

Issuance of common stock upon exercise of stock options and ESPP 14 — 106 — — 106

1 unchanged sentence

Share-based compensation expense — — 25,157 — — 25,157

Other comprehensive income — — — 268 — 268

Other comprehensive loss — — — ( 582 ) — ( 582 )

Net income — — — — 6,651 6,651

Balances at June 30, 2021

Balances at September 30, 2021

144,901 $ 145 $ 1,717,421 $ ( 1,552 ) $ ( 361,497 ) $ 1,354,517

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Value Additional Paid-In

9 unchanged sentences

Net income — — — — 264,780 264,780

Balances at June 30, 2022

Balances at September 30, 2022

125,424 $ 125 $ 1,220,688 $ ( 101,870 ) $ ( 72,411 ) $ 1,046,532

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Value Additional Paid-In

13 unchanged sentences

Net loss — — — — ( 25,764 ) ( 25,764 )

Balances at June 30, 2021

Balances at September 30, 2021

144,901 $ 145 $ 1,717,421 $ ( 1,552 ) $ ( 361,497 ) $ 1,354,517

2 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities

7 unchanged sentences

Impairment on lease related assets 3,411 —

Loss on early extinguishment of debt — 78,152

(Gain) loss on early extinguishment of debt ( 93,519 ) 78,152

Loss on change in fair value of derivative instruments, net — 7,148

Loss from write-off of property and equipment 3,117 1,857

Tax benefit related to release of valuation allowance ( 174,601 ) —

Deferred income taxes 6,376 563

Gain on sale of strategic equity investment — ( 12,496 )

1 unchanged sentence

Operating lease expense, net of accretion 4,746 4,527

Restructuring charges — 1,851

Other non-cash items 619 ( 65 )

14 unchanged sentences

Maturities of investments 783,912 893,315

Purchase of strategic equity investment ( 6,000 ) —

Proceeds from sale of strategic equity investment — 16,076

8 unchanged sentences

Repurchases of common stock ( 323,528 ) —

Payment of escrow related to acquisition — ( 7,451 )

Net cash (used in) provided by financing activities ( 732,949 ) 768,299

3 unchanged sentences

Cash, cash equivalents and restricted cash, end of period $ 71,513 $ 715,600

Six Months Ended

Nine Months Ended

September 30,

Supplemental cash flow data:

9 unchanged sentences

Issuance of common stock related to repayment of convertible senior notes $ — $ 235,521

September 30,

Reconciliation of cash, cash equivalents and restricted cash:

18 unchanged sentences

Significant intercompany balances and transactions have been eliminated.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, including normal recurring adjustments, necessary to present fairly our financial position as of June 30, 2022, our results of operations, results of comprehensive (loss) income, and stockholders' equity for the three and six months ended June 30, 2022 and 2021 and cash flows for the six months ended June 30, 2022 and 2021.

Our results of operations, results of comprehensive (loss) income, stockholders' equity, and cash flows for the six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, including normal recurring adjustments, necessary to present fairly our financial position as of September 30, 2022, our results of operations, results of comprehensive income (loss), and stockholders' equity for the three and nine months ended September 30, 2022 and 2021 and cash flows for the nine months ended September 30, 2022 and 2021.

Our results of operations, results of comprehensive income (loss), stockholders' equity, and cash flows for the nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year.

We have a single operating and reportable segment and operating unit structure.

8 unchanged sentences

Actual results could differ from these estimates, and such differences could be material to our financial position and results of operations.

There have been no material changes in our use of estimates during the six months ended June 30, 2022 as compared to the use of estimates disclosed in Part II, Item 8 “Consolidated Financial Statements and Supplementary Data” contained in our Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no material changes in our use of estimates during the nine months ended September 30, 2022 as compared to the use of estimates disclosed in Part II, Item 8 “Consolidated Financial Statements and Supplementary Data” contained in our Annual Report on Form 10-K for the year ended December 31, 2021.

Condensed Consolidated Statements of Operations Details

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Loss on early extinguishment of debt $ — $ — $ — $ ( 78,152 )

Gain (loss) on early extinguishment of debt (1)

$ 93,519 $ — $ 93,519 $ ( 78,152 )

Loss on change in fair value of derivative instruments, net — — — ( 7,148 )

5 unchanged sentences

$ 97,258 $ 8,670 $ 105,247 $ ( 66,618 )

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

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

1 unchanged sentence

Right of use (ROU) assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

During the three months ended June 30, 2022, we announced the closure of our San Francisco office and determined that the carrying amount of the ROU asset was not recoverable.

During the nine months ended September 30, 2022, we announced the closure of our San Francisco office and determined that the carrying amount of the ROU asset was not recoverable.

As a result, we recorded an impairment charge of $ 3.4 million, consisting of a $ 2.0 million impairment of a ROU asset and $ 1.4 million write-off of leasehold improvements, included in general and administrative expense on our condensed consolidated statement of operations.

2 unchanged sentences

Recently Issued Accounting Pronouncements Not Yet Adopted

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

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

Recently Adopted Accounting Pronouncements

14 unchanged sentences

Three Months Ended

June 30, Change

September 30, Change

2022 2021 $ %

2 unchanged sentences

Total net revenues $ 164,739 $ 171,942 $ ( 7,203 ) ( 4 )

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2022 2021 $ %

2 unchanged sentences

Total net revenues $ 561,704 $ 568,798 $ ( 7,094 ) ( 1 )

During the three and six months ended June 30, 2022, we recognized $ 42.2 million and $ 32.9 million, respectively, of revenues that were included in our deferred revenue balance at the beginning of each respective reporting period.

During the three and six months ended June 30, 2021 we recognized $ 44.1 million and $ 32.0 million, respectively, of revenues that were included in our deferred revenue balance at the beginning of each respective reporting period.

During the three and six months ended June 30, 2022, we recognized $ 0.3 million and $ 5.1 million, respectively, of operating lease income from print textbook rentals that we owned.

During the three and six months ended June 30, 2021, we recognized $ 10.0 million and $ 20.7 million, respectively, of operating lease income from print textbook rentals that we owned.

During the three and nine months ended September 30, 2022, we recognized $ 35.2 million and $ 33.8 million, respectively, of revenues that were included in our deferred revenue balance at the beginning of each respective reporting period.

During the three and nine months ended September 30, 2021 we recognized $ 31.3 million and $ 32.6 million, respectively, of revenues that were included in our deferred revenue balance at the beginning of each respective reporting period.

During the three and nine months ended September 30, 2022, we recognized no operating lease income and $ 5.1 million of operating lease income, respectively, from print textbook rentals that we owned.

During the three and nine months ended September 30, 2021, we recognized $ 6.2 million and $ 26.9 million, respectively, of operating lease income from print textbook rentals that we owned.

The decreases in operating lease income are primarily due to the transition of our Required Materials product line.

2 unchanged sentences

The following table presents our accounts receivable, net, contract assets and deferred revenue balances (in thousands, except percentages):

September 30,

2022 December 31, 2021 $ %

2 unchanged sentences

Deferred revenue 60,475 35,143 25,332 72

During the six months ended June 30, 2022 our accounts receivable, net balance decreased by $ 1.0 million, or 6 %, primarily due to timing of billings and seasonality of our business.

During the six months ended June 30, 2022, our contract assets balance decreased by $ 1.2 million, or 9 %, primarily due to our Thinkful service.

During the six months ended June 30, 2022, our deferred revenue balance increased by $ 18.2 million, or 52 %, primarily due to acquired deferred revenue in conjunction with our acquisition of Busuu, increased bookings, and seasonality of our business.

During the nine months ended September 30, 2022 our accounts receivable, net balance increased by $ 4.3 million, or 24 %, primarily due to timing of billings and seasonality of our business.

During the nine months ended September 30, 2022, our contract assets balance decreased by $ 1.5 million, or 11 %, primarily due to our Thinkful service.

During the nine months ended September 30, 2022, our deferred revenue balance increased by $ 25.3 million, or 72 %, primarily due to acquired deferred revenue in conjunction with our acquisition of Busuu, increased bookings, and seasonality of our business.

Net Income (Loss) Per Share

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

6 unchanged sentences

Net income (loss) $ 251,562 $ 6,651 $ 264,780 $ ( 25,764 )

Convertible senior notes interest expense, net of tax 1,212 1,212 — —

Convertible senior notes activity, net of tax (1)

( 69,042 ) — ( 66,630 ) —

Net income (loss), diluted

8 unchanged sentences

$ 1.23 $ 0.05 $ 1.31 $ ( 0.18 )

(1) Includes the gain on early extinguishment on our 2026 notes and interest expense on our notes, net of tax.

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

The following potential weighted-average shares of common stock outstanding were excluded from the computation of diluted net income (loss) per share because including them would have been anti-dilutive (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

3 unchanged sentences

Cash and Cash Equivalents, and Investments and Fair Value Measurements

The following tables show our cash and cash equivalents, and investments’ fair value level classification, adjusted cost, unrealized gain, unrealized loss and fair value as of June 30, 2022 and December 31, 2021 (in thousands except for fair value levels):

June 30, 2022

The following tables show our cash and cash equivalents, and investments’ fair value level classification, adjusted cost, unrealized gain, unrealized loss and fair value as of September 30, 2022 and December 31, 2021 (in thousands except for fair value levels):

September 30, 2022

Fair Value Level Adjusted Cost Unrealized Gain Unrealized Loss Fair Value

2 unchanged sentences

Money market funds Level 1 34,218 — — 34,218

Commercial paper Level 2 157,234 — ( 33 ) 157,201

Total cash and cash equivalents $ 69,349 $ — $ — $ 69,349

7 unchanged sentences

treasury securities Level 1 101,890 — ( 1,907 ) 99,983

Agency bonds Level 2 34,119 57 — 34,176

Total long-term investments $ 292,696 $ 57 $ ( 5,972 ) $ 286,781

14 unchanged sentences

Total long-term investments $ 749,377 $ — $ ( 3,384 ) $ 745,993

As of June 30, 2022, we determined that the declines in the market value of our investment portfolio were not driven by credit related factors.

During the three and six months ended June 30, 2022 and 2021 we did not recognize any losses on our investments due to credit related factors.

During the three and six months ended June 30, 2022 and 2021, our gross realized gains and losses on investments were not significant.

The following table shows our cash equivalents and investments' adjusted cost and fair value by contractual maturity as of June 30, 2022 (in thousands):

As of September 30, 2022, we determined that the declines in the market value of our investment portfolio were not driven by credit related factors.

During the three and nine months ended September 30, 2022 and 2021 we did not recognize any losses on our investments due to credit related factors.

During the three and nine months ended September 30, 2022 and 2021, our realized gains and losses on investments were not significant.

The following table shows our cash equivalents and investments' adjusted cost and fair value by contractual maturity as of September 30, 2022 (in thousands):

Adjusted Cost Fair Value

4 unchanged sentences

Investments not due at a single maturity date in the preceding table consisted of money market funds.

Strategic Investment

In July 2022, we completed an investment of $ 6.0 million in Knack Technologies, Inc.

(Knack), a privately held U.S.

based peer-to-peer tutoring platform for higher education institutions.

We do not have the ability to exercise significant influence over Knack's operating and financial policies and have elected to account for our investment at cost as it does not have a readily determinable fair value.

We did not record any impairment charges during the three months ended September 30, 2022, as there were no significant identified events or changes in circumstances that would be considered an indicator for impairment.

There were no observable price changes in orderly transactions for the identical or similar investments of the same issuer during the three months ended September 30, 2022.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

2 unchanged sentences

We consider the fair value of the notes to be a Level 2 measurement due to the limited trading activity.

The estimated fair value of the 2026 notes as of June 30, 2022 and December 31, 2021 was $ 725.0 million and $ 840.0 million, respectively.

The estimated fair value of the 2025 notes as of June 30, 2022 and December 31, 2021 was $ 588.3 million and $ 682.2 million, respectively.

The estimated fair value of the 2026 notes as of September 30, 2022 and December 31, 2021 was $ 370.0 million and $ 840.0 million, respectively.

The estimated fair value of the 2025 notes as of September 30, 2022 and December 31, 2021 was $ 595.0 million and $ 682.2 million, respectively.

For further information on the notes, refer to Note 8, “Convertible Senior Notes.”

26 unchanged sentences

Total acquired intangible assets $ 71,600 68

During the six months ended June 30, 2022 and year ended December 31, 2021, we incurred acquisition-related expenses of $ 0.6 million and $ 5.3 million, respectively, associated with our acquisition of Busuu, which have been included in general and administrative expense on our condensed consolidated statement of operations.

During the nine months ended September 30, 2022 and year ended December 31, 2021, we incurred acquisition-related expenses of $ 0.6 million and $ 5.3 million, respectively, associated with our acquisition of Busuu, which have been included in general and administrative expense on our condensed consolidated statement of operations.

The purchase consideration was paid in Euros, which is different from our functional currency of United States Dollars.

1 unchanged sentence

The Busuu purchase agreement provides for additional payments of up to approximately $ 25.5 million, subject to the continued employment of certain key employees.

These payments are not included in the fair value of the purchase consideration but rather are expensed ratably as acquisition-related compensation costs and classified based on the seller's job function, on our condensed consolidated statement of operations.

As of June 30, 2022, we have recorded approximately $ 3.6 million within accrued liabilities on our condensed consolidated balance sheets for these payments.

These payments are not included in the fair value of the purchase consideration but rather are expensed ratably as acquisition-related compensation costs and classified based on the employees' job function, on our condensed consolidated statement of operations.

As of September 30, 2022, we have recorded approximately $ 5.3 million within accrued liabilities on our condensed consolidated balance sheets for these payments.

Since the acquisition date, we have recorded revenues and net loss from Busuu of $ 29.0 million and $ 28.7 million, respectively.

1 unchanged sentence

The following unaudited supplemental pro forma revenues and earnings is for informational purposes only and presents our combined results as if the acquisition of Busuu had occurred on January 1, 2021.

During the three and six months ended June 30, 2022, our unaudited supplemental pro forma revenues from Busuu would have been $ 194.8 million and $ 397.7 million, respectively.

During the three and six months ended June 30, 2021, our unaudited supplemental pro forma revenues from Busuu would have been $ 208.7 million and $ 417.3 million, respectively.

During the three and six months ended June 30, 2022, our unaudited supplemental pro forma earnings would have been a net income of $ 8.2 million and $ 13.6 million, respectively.

During the three and six months ended June 30, 2021, our unaudited supplemental pro forma earnings would have been a net income of $ 22.4 million and net loss of $ 51.7 million, respectively.

During the three and nine months ended September 30, 2022, our unaudited supplemental pro forma revenues would have been $ 164.7 million and $ 562.4 million, respectively.

During the three and nine months ended September 30, 2021, our unaudited supplemental pro forma revenues would have been $ 184.2 million and $ 601.5 million, respectively.

During the three and nine months ended September 30, 2022, our unaudited supplemental pro forma earnings would have been a net income of $ 253.6 million and $ 267.3 million, respectively.

During the three and nine months ended September 30, 2021, our unaudited supplemental pro forma earnings would have been a net loss of $ 3.9 million and $ 55.6 million, respectively.

The unaudited supplemental pro forma earnings 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.

1 unchanged sentence

Goodwill consists of the following (in thousands):

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Beginning balance $ 289,763

5 unchanged sentences

Intangible assets consist of the following (in thousands, except weighted-average amortization period):

June 30, 2022

September 30, 2022

Weighted-Average Amortization Period (in months) Gross Carrying Amount Accumulated Amortization Foreign Currency Translation Adjustment Net Carrying Amount

11 unchanged sentences

Developed technologies 76 $ 57,521 $ ( 31,790 ) $ — $ 25,731

Content library 60 12,230 ( 6,836 ) — 5,394

Content libraries 60 12,230 ( 6,836 ) — 5,394

Customer lists 47 16,190 ( 12,432 ) — 3,758

2 unchanged sentences

Total intangible assets, net 65 $ 101,154 $ ( 60,588 ) $ — $ 40,566

During the three and six months ended June 30, 2022, amortization expense related to our finite-lived intangible assets totaled approximately $ 6.8 million and $ 13.2 million, respectively.

During the three and six months ended June 30, 2021, amortization expense related to our finite-lived intangible assets totaled approximately $ 3.2 million and $ 7.6 million, respectively.

As of June 30, 2022, the estimated future amortization expense related to our finite-lived intangible assets is as follows (in thousands):

Remaining six months of 2022 $ 12,893

During the three and nine months ended September 30, 2022, amortization expense related to our finite-lived intangible assets totaled approximately $ 6.5 million and $ 19.7 million, respectively.

During the three and nine months ended September 30, 2021, amortization expense related to our finite-lived intangible assets totaled approximately $ 3.0 million and $ 10.7 million, respectively.

As of September 30, 2022, the estimated future amortization expense related to our finite-lived intangible assets is as follows (in thousands):

Remaining three months of 2022 $ 5,950

Thereafter 14,467

4 unchanged sentences

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

Upon board of directors approval in April 2022, our net textbook library and unrecognized deferred revenue related to print textbook transactions met the criteria to be classified as a held for sale asset group which had a carrying amount of $ 7.7 million.

Upon board of directors approval of the transaction with GT in April 2022, our net textbook library and unrecognized deferred revenue related to print textbook transactions met the criteria to be classified as a held for sale asset group which had a carrying amount of $ 7.7 million.

During the three months ended June 30, 2022, we subsequently sold the held for sale asset group to GT at a gain of $ 4.4 million, subject to certain adjustments, included in cost of revenues on our condensed consolidated statement of operations.

4 unchanged sentences

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, together with the 2026 notes, the notes) and in April 2019, the initial purchasers fully exercised their option to purchase $ 100 million of additional 2025 notes for aggregate total principal amount of $ 800 million.

$ 800 million.

The notes were issued in private placements to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended.

22 unchanged sentences

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.

During the three months ended June 30, 2022, the conditions allowing holders of the 2026 notes and 2025 notes to convert were not met and therefore the 2026 notes and 2025 notes are not convertible the following quarter.

In September 2022, in connection with our securities repurchase program, we extinguished $ 500.0 million aggregate principal amount of the 2026 notes in privately-negotiated transactions for $ 399.9 million, which was paid to the holders in cash.

We also incurred approximately $ 1.3 million in fees resulting in total consideration of $ 401.2 million.

The carrying amount of the extinguished 2026 notes was $ 494.7 million resulting in a $ 93.5 million gain on early extinguishment of debt.

We elected to reacquire and not cancel the extinguished 2026 notes and left the associated capped call transactions outstanding.

As of September 30, 2022, we had 9,297,800 shares remaining underlying the 2026 notes capped call transactions.

During the three months ended September 30, 2022, the conditions allowing holders of the 2026 notes and 2025 notes to convert were not met and therefore the 2026 notes and 2025 notes are not convertible the following quarter.

During the year ended December 31, 2021, we issued 2,983,011 shares of our common stock related to the redemption of our 2023 notes.

The net carrying amount of the notes is as follows (in thousands):

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

2026 Notes 2025 Notes 2026 Notes 2025 Notes

3 unchanged sentences

The following tables set forth the total interest expense recognized related to the notes (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

10 unchanged sentences

Concurrently with the offering of the 2026 notes and 2025 notes, we used $ 103.4 million and $ 97.2 million, respectively, of the net proceeds to enter into privately negotiated capped call transactions which are expected to reduce or offset potential dilution to holders of our common stock upon conversion of the notes 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 as of June 30, 2022, cover 9,297,800 and 13,576,513 shares of our common stock for the 2026 notes and 2025 notes, respectively.

The capped call transactions automatically exercise upon conversion of the notes and as of September 30, 2022, cover 9,297,800 and 13,576,513 shares of our common stock for the 2026 notes and 2025 notes, respectively.

These are intended to effectively increase the overall conversion price from $ 107.55 to $ 156.44 per share for the 2026 notes and $ 51.56 to $ 79.32 per share for the 2025 notes.

16 unchanged sentences

On March 29, 2022, the Court entered an order staying the Choi Matter during the pendency of the Leventhal Matter.

On December 22, 2021, Steven Leventhal, individually and on behalf of all others similarly situated, filed a purported securities fraud class action on behalf of all purchasers of Chegg common stock between May 5, 2020 and November 1, 2021, inclusive, against Chegg and certain of its current and former officers in the United States District Court for the Northern District of California (Case No.

On December 22, 2021, Steven Leventhal, individually and on behalf of all others similarly situated, filed a putative securities fraud class action on behalf of all purchasers of Chegg common stock between May 5, 2020 and November 1, 2021, inclusive, against Chegg and certain of its current and former officers in the United States District Court for the Northern District of California (Case No.

5:21-cv-09953), alleging that Chegg and several of its officers made materially false and misleading statements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Leventhal Matter”).

On September 7, 2022, Judge Edward J.

Davila appointed the lead plaintiff and approved lead counsel in this matter.

The parties agreed upon a scheduling for amending the complaint and motion to dismiss briefing in early 2023, and with a hearing slated for June 2023.

The plaintiff in this matter seeks unspecified compensatory damages, costs, and expenses, including counsel and expert fees.

9 unchanged sentences

We have provided the FTC with the requested responses to interrogatories and follow-up questions and have produced documents pertaining to data breach incidents and our data security and privacy practices generally.

We have agreed to enter into a Consent Order with the FTC related to consumer privacy and data security, which has been announced by the FTC but has not yet been published on the Federal Register.

No COPPA provisions nor monetary fines are included in the Consent Order.

On May 12, 2020, we received notice that 15,107 arbitration demands were filed against us on April 30, 2020 by individuals all represented by the same legal counsel.

11 unchanged sentences

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.

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, operating results and/or financial condition.

6 unchanged sentences

We believe the fair value of these indemnification agreements is immaterial.

We have not recorded any liabilities for these agreements as of June 30, 2022.

We have not recorded any liabilities for these agreements as of September 30, 2022.

Stockholders' Equity

2 unchanged sentences

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.

$ 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.

During the three months ended September 30, 2022, we repurchased $ 500.0 million aggregate principal amount of the 2026 notes in privately-negotiated transactions for $ 399.9 million.

Additionally, we repurchased 1,146,803 shares of our common stock in open market transactions for $ 23.1 million.

As of September 30, 2022, we had $ 642.6 million remaining 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.

Accelerated Share Repurchases

12 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

4 unchanged sentences

Total share-based compensation expense $ 34,170 $ 24,512 $ 98,341 $ 76,157

During the three and six months ended June 30, 2022, we capitalized share-based compensation expense of $ 2.3 million and $ 4.1 million, respectively.

During the three and six months ended June 30, 2021, we capitalized share-based compensation expense of $ 0.7 million and $ 1.2 million, respectively.

During the three and nine months ended September 30, 2022, we capitalized share-based compensation expense of $ 0.7 million and $ 4.8 million, respectively.

During the three and nine months ended September 30, 2021, we capitalized share-based compensation expense of $ 0.6 million and $ 1.8 million, respectively.

RSU and PSU Activity

6 unchanged sentences

Forfeited ( 1,612,877 ) 39.31

Balance at June 30, 2022 9,846,912 $ 38.49

As of June 30, 2022, our total unrecognized share-based compensation expense related to RSUs and PSUs was approximately $ 265.3 million, which will be recognized over the remaining weighted-average vesting period of approximately 2.5 years.

Subsequent Event

In July 2022, we completed a $ 6.0 million investment in Knack Technologies, Inc., a privately held U.S.

based peer-to-peer tutoring platform for higher education institutions.

The initial accounting for the investment is in process as of the issuance date of our financial statements and therefore we are unable to make any additional disclosures.

Balance at September 30, 2022 9,773,073 $ 36.80

As of September 30, 2022, our total unrecognized share-based compensation expense related to RSUs and PSUs was approximately $ 238.0 million, which will be recognized over the remaining weighted-average vesting period of approximately 2.4 years.

During the three and nine months ended September 30, 2022, we recorded a benefit from income taxes of $ 167.3 million and $ 163.0 million, respectively.

During the three and nine months ended September 30, 2021, we recorded a provision for income taxes of $ 0.7 million and $ 5.8 million, respectively.

During the three and nine months ended September 30, 2022, the benefit from income taxes was primarily due to the $ 174.6 million release of the valuation allowance as a discrete non-cash income tax benefit on certain U.S.

and state deferred tax assets.

Previously, we maintained a valuation allowance against our deferred tax assets until we expected that it would be more-likely-than not that they would be realized.

The release of the valuation allowance is the result of our expectation that our domestic operations will continue to be profitable and is based on a detailed evaluation of all available evidence.

The principal indicator leading to the release is the recent cumulative earnings of U.S.

and certain state jurisdictions and the forecasted earnings in these jurisdictions.

We continue to maintain a valuation allowance against our California deferred tax assets and our anticipated capital loss temporary differences.

We will continue to quarterly assess the need for such valuation allowance.

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 1. Financial Statements