CHEGG, INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes included in Part I, Item 1, “Financial Statements (unaudited)” of this Quarterly Report on Form 10-Q. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. See the section titled “Note about Forward-Looking Statements” for additional information. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q. Overview Millions of people all around the world Learn with Chegg. Our mission is to improve learning and learning outcomes by putting students first. We support life-long learners starting with their academic journey and extending into their careers. The Chegg platform provides products and services to support learners to help them better understand their academic course materials, and also provides personal and professional development skills training, to help them achieve their learning goals. Students subscribe to our subscription services, collectively referred to as our Chegg Services, which can be accessed internationally through our websites and on mobile devices. Our primary Chegg Services include Chegg Study, Chegg Writing, Chegg Math Solver, Chegg Study Pack, Busuu, Mathway and Thinkful. Our Chegg Study subscription service provides “Expert Questions and Answers” and step-by-step “Textbook Solutions,” helping students with their course work. When students need writing help, including plagiarism detection scans and creating citations for their papers, they can use our Chegg Writing subscription service. 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, practice questions and quizzes, and instructor-created materials through Uversity. Our Thinkful skills-based learning platform offers professional courses focused on the most in-demand technology skills. 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 through our print textbook partners. 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. 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. 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 24 Table of Contents 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. 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. We have presented revenues for our two product lines, Chegg Services and Required Materials, based on how students view us and the utilization of our products by them. More detail on our two product lines is discussed in the next two sections titled “Chegg Services” and “Required Materials.” Chegg Services Our Chegg Services product line for students primarily includes Chegg Study, Chegg Writing, Chegg Math Solver, Chegg Study Pack, Busuu, Mathway, and Thinkful. Students typically pay to access Chegg Services on a monthly basis. 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 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 Our Required Materials product line includes revenues from print textbooks and eTextbooks. 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 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 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. 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. 25 Table of Contents Results of Operations The following table summarizes our historical condensed consolidated statements of operations (in thousands, except percentage of total net revenues): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net revenues $ 164,739 100 % $ 171,942 100 % $ 561,704 100 % $ 568,798 100 % Cost of revenues (1) 45,203 27 67,102 39 145,972 26 199,194 35 Gross profit 119,536 73 104,840 61 415,732 74 369,604 65 Operating expenses: Research and development (1) 45,426 28 43,269 25 150,321 27 130,995 23 Sales and marketing (1) 31,803 19 27,239 16 109,580 20 75,139 13 General and administrative (1) 53,742 33 33,971 20 154,547 27 111,560 20 Total operating expenses 130,971 80 104,479 61 414,448 74 317,694 56 (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 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) % (1) Includes share-based compensation expense as follows: Cost of revenues $ 653 $ 393 $ 1,945 $ 1,174 Research and development 9,172 8,917 30,954 25,976 Sales and marketing 2,771 3,051 11,176 9,625 General and administrative 21,574 12,151 54,266 39,382 Total share-based compensation expense $ 34,170 $ 24,512 $ 98,341 $ 76,157 26 Table of Contents Three and Nine Months Ended September 30, 2022 and 2021 Net Revenues 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 September 30, Change 2022 2021 $ % Chegg Services $ 159,264 $ 146,790 $ 12,474 8 % Required Materials 5,475 25,152 (19,677) (78) Total net revenues $ 164,739 $ 171,942 $ (7,203) (4) Nine Months Ended September 30, Change 2022 2021 $ % Chegg Services $ 533,152 $ 482,654 $ 50,498 10 % Required Materials 28,552 86,144 (57,592) (67) Total net revenues $ 561,704 $ 568,798 $ (7,094) (1) 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 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. Cost of Revenues The following table sets forth our cost of revenues for the periods shown (in thousands, except percentages): Three Months Ended September 30, Change 2022 2021 $ % Cost of revenues (1) $ 45,203 $ 67,102 $ (21,899) (33) % (1) Includes share-based compensation expense of: $ 653 $ 393 $ 260 66 % Nine Months Ended September 30, Change 2022 2021 $ % Cost of revenues (1) $ 145,972 $ 199,194 $ (53,222) (27) % (1) Includes share-based compensation expense of: $ 1,945 $ 1,174 $ 771 66 % 27 Table of Contents 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. 28 Table of Contents Operating Expenses The following table sets forth our total operating expenses for the periods shown (in thousands, except percentages): Three Months Ended September 30, Change 2022 2021 $ % Research and development (1) $ 45,426 $ 43,269 $ 2,157 5 % Sales and marketing (1) 31,803 27,239 4,564 17 General and administrative (1) 53,742 33,971 19,771 58 Total operating expenses $ 130,971 $ 104,479 $ 26,492 25 % (1) Includes share-based compensation expense of: Research and development $ 9,172 $ 8,917 $ 255 3 % Sales and marketing 2,771 3,051 (280) (9) General and administrative 21,574 12,151 9,423 78 Share-based compensation expense $ 33,517 $ 24,119 $ 9,398 39 % Nine Months Ended September 30, Change 2022 2021 $ % Research and development (1) $ 150,321 $ 130,995 $ 19,326 15 % Sales and marketing (1) 109,580 75,139 34,441 46 General and administrative (1) 154,547 111,560 42,987 39 Total operating expenses $ 414,448 $ 317,694 $ 96,754 30 % (1) Includes share-based compensation expense of: Research and development $ 30,954 $ 25,976 $ 4,978 19 % Sales and marketing 11,176 9,625 1,551 16 General and administrative 54,266 39,382 14,884 38 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 $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 $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. 29 Table of Contents 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 nine months ended September 30, 2022 compared to 13% during the same period in 2021. General and Administrative 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 The following table sets forth our interest expense and other income (expense), net, for the periods shown (in thousands, except percentages): Three Months Ended September 30, Change 2022 2021 $ % Interest expense, net $ (1,525) $ (1,633) $ 108 (7) % 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 $ % Interest expense, net $ (4,738) $ (5,263) $ 525 (10) % Other income (expense), net 105,247 (66,618) 171,865 n/m Total interest expense, net and other income (expense), net $ 100,509 $ (71,881) $ 172,390 n/m ______________________________________ *n/m - not meaningful 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. 30 Table of Contents 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 September 30, Change 2022 2021 $ % Benefit from (provision for) income taxes $ 167,264 $ (747) $ 168,011 n/m Nine Months Ended September 30, Change 2022 2021 $ % Benefit from (provision for) income taxes $ 162,987 $ (5,793) $ 168,780 n/m ______________________________________ *n/m - not meaningful 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 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. 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. 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). In August 2020 and March/April 2019, we closed offerings of our 2026 notes and 2025 notes, generating net proceeds of approximately $984.1 million and $780.2 million, respectively, in each case after deducting the initial purchasers’ discount and estimated offering expenses payable by us. 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 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. 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. 31 Table of Contents 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. Our future capital requirements will depend on many factors, including our rate of revenue growth, our investments in research and development activities, our acquisition of new products and services, and our sales and marketing activities. To the extent that existing cash and cash from operations are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Additional funds may not be available on terms favorable to us or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, operating cash flows and financial condition. Most of our cash, cash equivalents, and investments are held in the United States. 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; however, as a result of the Tax Cuts and Jobs Act, we anticipate the U.S. federal impact to be minimal if these foreign funds are repatriated. In addition, based on our current and future needs, we believe our current funding and capital resources for our international operations are adequate. The following table sets forth our cash flows (in thousands): Nine Months Ended September 30, 2022 2021 Condensed Consolidated Statements of Cash Flows Data: Net cash provided by operating activities $ 181,716 $ 208,123 Net cash used in investing activities (237,775) (742,537) Net cash (used in) provided by financing activities (732,949) 768,299 Cash Flows from Operating Activities 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 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. 32 Table of Contents Cash Flows from Financing Activities 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 Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing basis, we evaluate our estimates and assumptions. The current COVID-19 pandemic has caused uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained. Our actual results may differ from these estimates under different assumptions or conditions. 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 For relevant recent accounting pronouncements, see Note 1, “Background and Basis of Presentation,” 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. 33 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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.