What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-01 compared with 2022-08-04 · 90 added, 88 removed, 183 unchanged (49% of the section changed)

14 unchanged sentences

Our Chegg Math Solver and Mathway subscription services help students understand math by providing a step-by-step math solver and calculator.

We also offer our Chegg Study Pack as a premium subscription bundle of our Chegg Study, Chegg Writing, and Chegg Math Solver services, which also includes additional features such as flashcards, concept videos, and practice questions and quizzes.

Our Thinkful skills-based learning platform offers professional courses focused on the most in-demand technology skills.

1 unchanged sentence

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.

During the three and nine months ended September 30, 2022, we generated net revenues of $164.7 million and $561.7 million, respectively.

During the three and nine months ended September 30, 2021, we generated net revenues of $171.9 million and $568.8 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.

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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.

ability to achieve these long-term objectives is subject to numerous risks and uncertainties.

These include our ability to attract, retain, and increasingly engage the student population, reduced traffic to our services, and other factors, such as the COVID-19 pandemic and global macroeconomic conditions, which continue to evolve and affect our business and results of operations.

Further, the education industry has experienced a slowdown as a result of decreased enrollments, which have not returned to pre-pandemic levels.

Employment opportunities, compensation and other factors have led to steadily decreasing enrollments.

Moreover, 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.

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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 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.

In the aggregate, Chegg Services revenues were 97% and 95% of net revenues during the three and nine months ended September 30, 2022, respectively, and 85% during both the three and nine months ended September 30, 2021.

Required Materials

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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.

In the aggregate, Required Materials revenues were 3% and 5% of net revenues during the three and nine months ended September 30, 2022, respectively, and 15% during both the three and nine months ended September 30, 2021.

Seasonality of Our Business

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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Total operating expenses 130,971 80 104,479 61 414,448 74 317,694 56

Income from operations 7,343 4 34,770 18 12,719 3 51,549 13

(Loss) income from operations (11,435) (7) 361 — 1,284 — 51,910 9

Total interest expense, net and other income (expense), net 95,733 58 7,037 4 100,509 18 (71,881) (13)

Income (loss) before provision for income taxes 7,536 4 34,989 18 17,495 4 (27,369) (7)

Provision for income taxes (60) — (2,225) (1) (4,277) (1) (5,046) (1)

Income (loss) before benefit from (provision for) income taxes 84,298 51 7,398 4 101,793 18 (19,971) (4)

Benefit from (provision for) income taxes 167,264 102 (747) — 162,987 29 (5,793) (1)

Net income (loss) $ 251,562 153 % $ 6,651 4 % $ 264,780 47 % $ (25,764) (5) %

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

Three and Six Months Ended June 30, 2022 and 2021

Three and Nine Months Ended September 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

June 30, Change

September 30, Change

2022 2021 $ %

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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)

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.

Chegg Services revenues increased $12.5 million, or 8% and $50.5 million, or 10% during the three and nine months ended September 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.

Chegg Services revenues were 97% and 95% of net revenues during the three and nine months ended September 30, 2022, respectively, and 85% of net revenues during both the three and nine months ended September 30, 2021.

Required Materials revenues decreased $19.7 million, or 78% and $57.6 million or 67%, during the three and nine months ended September 30, 2022 compared to the same periods in 2021.

The decrease was primarily due to lower revenues from print textbooks as a result of our partnership with GT beginning in April 2022 and lower unit volumes driven by decreased college enrollments.

Required Materials revenues were 3% and 5% of net revenues during the three and nine months ended September 30, 2022, respectively, and 15% of net revenues during both the three and nine months ended September 30, 2021.

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.

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Three Months Ended

June 30, Change

September 30, Change

2022 2021 $ %

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$ 653 $ 393 $ 260 66 %

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2022 2021 $ %

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$ 1,945 $ 1,174 $ 771 66 %

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.

As a result of our partnership with GT, cost of revenues decreased due to lower order fulfillment fees, net change in the gain on textbook library, lower print textbook depreciation expense, and lower cost of textbooks purchased by students.

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

Cost of revenues decreased $21.9 million, or 33%, during the three months ended September 30, 2022, compared to the same period in 2021.

The decrease was primarily attributable to lower order fulfillment fees of $11.7 million driven by lower unit volumes, lower cost of textbooks purchased by students of $5.6 million, net change in the gain on textbook library of $4.5 million, lower transitional logistic charges of $2.7 million, and lower print textbook depreciation expense of $2.4 million, partially offset by higher other depreciation and amortization expense of $4.0 million, and incremental cost of tutors, as a result of our acquisition of Busuu, of $2.0 million.

Gross margins increased to 73% during the three months ended September 30, 2022, from 61% during the same period in 2021.

Cost of revenues decreased $53.2 million, or 27%, during the nine months ended September 30, 2022, compared to the same period in 2021.

The decrease was primarily attributable to lower order fulfillment fees of $33.8 million driven by lower unit volumes, net change in the gain on textbook library of $13.7 million, driven by the sale of print textbooks to GT in April 2022 and lower write-downs, lower cost of textbooks purchased by students of $10.6 million, lower print textbook depreciation expense of $7.4 million, lower transitional logistic charges of $5.4 million, lower customer support fees of $1.6 million, partially offset by higher other depreciation and amortization expense of $11.6 million, incremental cost of tutors, as a result of our acquisition of Busuu, of $6.7 million and higher web hosting fees of $2.1 million.

Gross margins increased to 74% during the nine months ended September 30, 2022, from 65% during the same period in 2021.

Operating Expenses

1 unchanged sentence

Three Months Ended

June 30, Change

September 30, Change

2022 2021 $ %

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Share-based compensation expense $ 33,517 $ 24,119 $ 9,398 39 %

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2022 2021 $ %

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Share-based compensation expense $ 96,396 $ 74,983 $ 21,413 29 %

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

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.

Research and development expenses increased $2.2 million, or 5%, during the three months ended September 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 $3.2 million.

Research and development expenses as a percentage of net revenues were 28% during the three months ended September 30, 2022 compared to 25% during the same period in 2021.

Research and development expenses increased $19.3 million, or 15%, during the nine months ended September 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 $13.7 million and higher technology expenses to support our research and development of $5.3 million.

Research and development expenses as a percentage of net revenues were 27% during the nine months ended September 30, 2022 compared to 23% 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 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.

Sales and marketing expenses increased by $4.6 million, or 17%, during the three months ended September 30, 2022, compared to the same period in 2021.

The increase was primarily attributable to higher other depreciation and amortization expense of $2.5 million and higher employee-related expenses, including share-based compensation expense, of $2.1 million.

Sales and marketing expenses as a percentage of net revenues were 19% during the three months ended September 30, 2022 compared to 16% during the same period in 2021.

Sales and marketing expenses increased by $34.4 million, or 46%, during the nine months ended September 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 $15.7 million, higher employee-related expenses, including share-based compensation expense, of $8.1 million, and higher other depreciation and amortization expense of $7.3 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.

Sales and marketing expenses as a percentage of net revenues were 20% during the nine months ended September 30, 2022 compared to 13% during the same period in 2021.

General and Administrative

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.

General and administrative expenses increased $19.8 million, or 58%, during the three months ended September 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 $15.7 million, and higher professional fees of $2.1 million.

General and administrative expenses as a percentage of net revenues were 33% during the three months ended September 30, 2022 compared to 20% during the same period in 2021.

General and administrative expenses increased $43.0 million, or 39%, during the nine months ended September 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 $31.7 million, higher professional fees of $5.1 million, and an impairment of lease related assets of $3.4 million.

General and administrative expenses as a percentage of net revenues were 27% during the nine months ended September 30, 2022 compared to 20% during the same period in 2021.

Interest Expense and Other Income (Expense), Net

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Three Months Ended

June 30, Change

September 30, Change

2022 2021 $ %

Interest expense, net $ (1,525) $ (1,633) $ 108 (7) %

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

Other income (expense), net 97,258 8,670 88,588 n/m

Total interest expense, net and other income (expense), net $ 95,733 $ 7,037 $ 88,696 n/m

Nine Months Ended September 30, Change

2022 2021 $ %

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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

The following tables set forth our provision for income taxes for the periods shown (in thousands, except percentages):

Interest expense, net remained relatively flat during the three months ended September 30, 2022 compared to the same period in 2021, and decreased $0.5 million, or 10%, during the nine months ended September 30, 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 $88.6 million during the three months ended September 30, 2022 compared to the same period in 2021 primarily due to the $93.5 million gain on early extinguishment of a portion of the 2026 notes and $2.3 million increase in interest income partially offset by the absence of the $7.2 million gain on the sale of the strategic equity investment.

Other income (expense), net increased $171.9 million during the nine months ended September 30, 2022, compared to the same period in 2021, primarily due to the $93.5 million gain on early extinguishment of a portion of the 2026 notes, the absence of the $78.2 million loss on early extinguishment of debt of a portion of the 2025 notes, the $7.1 million net loss on the change in fair value of derivative instruments, the $4.6 million gain on foreign currency remeasurement of purchase consideration related to our acquisition of Busuu, and $1.9 million increase in interest income partially offset by the absence of the $12.5 million gain on the sale of the strategic equity investments.

Benefit from (Provision for) Income Taxes

The following tables set forth our benefit from (provision for) income taxes for the periods shown (in thousands, except percentages):

Three Months Ended

June 30, Change

September 30, Change

2022 2021 $ %

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

Six Months Ended June 30, Change

Benefit from (provision for) income taxes $ 167,264 $ (747) $ 168,011 n/m

Nine Months Ended September 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.

Benefit from (provision for) income taxes $ 162,987 $ (5,793) $ 168,780 n/m

______________________________________

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Benefit from (provision for) income taxes decreased $168.0 million and $168.8 million, during the three and nine months ended September 30, 2022 compared to the same periods in 2021 primarily due to the release of the valuation allowance against a substantial amount of our U.S.

and certain state jurisdictions deferred tax assets.

See Note 12, “Income Taxes,” of our accompanying Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements (unaudited)” of this Quarterly Report on Form 10-Q for additional information.

Liquidity and Capital Resources

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.

As of September 30, 2022, our principal sources of liquidity were cash, cash equivalents, and investments totaling $1.2 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.

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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 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.

We've entered into accelerated share repurchase programs to repurchase 19,965,836 shares of our common stock for $600.0 million and open market repurchases of 1,146,803 shares of our common stock for $23.1 million.

Additionally, we've repurchased $500.0 million principal amount of the 2026 notes, $100.0 million principal amount of the 2025 notes, and $57.4 million principal amount of the 2023 notes in privately-negotiated transactions for aggregate consideration of $734.4 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.

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).

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

As of September 30, 2022, we have incurred cumulative losses of $72.4 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.

There were no material changes in our commitments under contractual obligations, as 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.

Aside from the repurchased $500.0 million aggregate principal amount of the 2026 notes, there were no material changes in our commitments under contractual obligations, as 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.

We believe that our existing sources of liquidity will be sufficient to fund our operations and debt service obligations for at least the next 12 months.

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

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

As of September 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;

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

Six Months Ended

Nine Months Ended

September 30,

Condensed Consolidated Statements of Cash Flows Data:

3 unchanged sentences

Cash Flows from Operating Activities

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 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.

Net cash provided by operating activities during the nine months ended September 30, 2022 was $181.7 million.

Our net income of $264.8 million was increased by significant non-cash operating expenses including share-based compensation expense of $98.3 million and other depreciation and amortization expense of $64.3 million, partially offset by the gain on early extinguishment of debt of $93.5 million and the tax benefit related to release of valuation allowance of $174.6 million.

Net cash provided by operating activities during the nine months ended September 30, 2021 was $208.1 million.

Our net loss of $25.8 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 $76.2 million, other depreciation and amortization expense of $46.3 million, print textbook depreciation expense of $9.0 million, the net loss on textbook library of $8.8 million, which was primarily due to increased write-downs, the net loss on the change in fair value of derivative instruments of $7.1 million, operating lease expense, net of accretion of $4.5 million, and amortization of debt issuance costs of $4.5 million, partially offset by the gain on sale of our strategic equity investments of $12.5 million.

Cash Flows from Investing Activities

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.

Net cash used in investing activities during the nine months ended September 30, 2022 was $237.8 million and was related to the acquisition of a business of $401.1 million, the purchases of investments of $534.0 million, the purchases of property and equipment of $79.2 million and the purchase of a strategic equity investment of $6.0 million, partially offset by the maturities of investments of $783.9 million.

Net cash used in investing activities during the nine months ended September 30, 2021 was $742.5 million and was related to the purchases of investments of $1,574.1 million, the purchases of property and equipment of $67.1 million, the purchases of textbooks of $10.7 million and the acquisition of a business of $7.9 million, partially offset by the maturity of investments of $893.3 million, proceeds from the sale of our strategic equity investments of $16.1 million, and proceeds from the disposition of textbooks of $7.8 million.

Cash Flows from Financing Activities

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.

Net cash used in financing activities during the nine months ended September 30, 2022 was $732.9 million and was primarily related to the repayment of a portion of our 2026 notes of $401.2 million, repurchases of common stock of $323.5 million and payment of $12.8 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 nine months ended September 30, 2021 was $768.3 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 $5.4 million, partially offset by the repayment of a portion of our 2023 notes and 2025 notes of $300.8 million, payment of $89.3 million in taxes related to the net share settlement of equity awards and payment of escrow related to an acquisition of $7.5 million.

Critical Accounting Policies, Significant Judgments and Estimates

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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 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.

Aside from the release of the valuation allowance on deferred tax assets as described in Note 12, “Income Taxes,” of our accompanying Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q, there have been no material changes in our critical accounting policies and estimates during the nine months ended September 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

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

There have been no other material changes in our market risk during the nine months ended September 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