What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-01 compared with 2022-11-01 · 146 added, 341 removed, 321 unchanged (60% of the section changed)

2 unchanged sentences

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

September 30,

2023 December 31,

2 unchanged sentences

Short-term investments 277,864 583,973

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

Accounts receivable, net of allowance of $ 344 and $ 394 at March 31, 2023 and December 31, 2022, respectively

22,000 23,515

3 unchanged sentences

Long-term investments 613,863 216,233

Textbook library, net — 11,241

Property and equipment, net 201,305 204,383

22 unchanged sentences

400,000,000 shares authorized;

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

119,628,297 and 126,473,827 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,120,344 1,244,504

7 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net revenues $ 187,601 $ 202,244

7 unchanged sentences

(Loss) income from operations ( 4,446 ) 5,376

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

Interest expense, net and other income, net:

Interest expense, net ( 1,268 ) ( 1,597 )

Other income (expense), net 97,258 8,670 105,247 ( 66,618 )

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

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 )

Net income (loss) per share

Other income, net 12,076 6,180

Total interest expense, net and other income, net 10,808 4,583

Income before provision for income taxes 6,362 9,959

Provision for income taxes ( 4,176 ) ( 4,217 )

Net income $ 2,186 $ 5,742

Net income per share

Basic $ 0.02 $ 0.04

Diluted $ 0.02 $ 0.04

Weighted average shares used to compute net income (loss) per share

Weighted average shares used to compute net income per share

Basic 123,710 132,162

4 unchanged sentences

Three 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

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

Net income $ 2,186 $ 5,742

Other comprehensive income (loss)

Change in net unrealized gain (loss) on investments, net of tax 3,812 ( 12,917 )

Change in foreign currency translation adjustments, net of tax 8,338 ( 18,671 )

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

Other comprehensive income (loss) 12,150 ( 31,588 )

Total comprehensive income (loss) $ 14,336 $ ( 25,846 )

2 unchanged sentences

(in thousands)

Three Months Ended September 30, 2022

Three Months Ended March 31, 2023

Value Additional Paid-In

1 unchanged sentence

Deficit Total Stockholders’ Equity

Balances at June 30, 2022

Balances at December 31, 2022

126,474 $ 126 $ 1,244,504 $ ( 57,488 ) $ ( 70,553 ) $ 1,116,589

Repurchases of common stock ( 7,600 ) ( 7 ) ( 151,304 ) — — ( 151,311 )

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

Share-based compensation expense — — 34,814 — — 34,814

Other comprehensive loss — — — ( 33,002 ) — ( 33,002 )

Net income — — — — 251,562 251,562

Balances at September 30, 2022

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

Three Months Ended September 30, 2021

Value Additional Paid-In

Capital Accumulated Other Comprehensive Loss Accumulated

Deficit Total Stockholders’ Equity

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

Issuance of common stock upon exercise of stock options 18 — 144 — — 144

Net share settlement of equity awards 736 1 ( 7,736 ) — — ( 7,735 )

Share-based compensation expense — — 34,736 — — 34,736

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

Other comprehensive income — — — 12,150 — 12,150

Net income — — — — 2,186 2,186

Balances at September 30, 2021

Balances at March 31, 2023

119,628 $ 120 $ 1,120,344 $ ( 45,338 ) $ ( 68,367 ) $ 1,006,759

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2022

Value Additional Paid-In

4 unchanged sentences

Repurchases of common stock ( 10,725 ) ( 11 ) ( 300,439 ) — — ( 300,450 )

Issuance of common stock upon exercise of stock options and ESPP 319 — 4,557 — — 4,557

Issuance of common stock upon exercise of stock options 54 — 455 — — 455

Net share settlement of equity awards 401 1 ( 7,467 ) — — ( 7,466 )

2 unchanged sentences

Net income — — — — 5,742 5,742

Balances at September 30, 2022

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

Nine Months Ended September 30, 2021

Value Additional Paid-In

Capital Accumulated Other Comprehensive Loss Accumulated

Deficit Total Stockholders’ Equity

Balances at December 31, 2020

129,344 $ 129 $ 1,030,577 $ 1,530 $ ( 422,601 ) $ 609,635

Cumulative-effect adjustment related to adoption of ASU 2020-06 — — ( 465,006 ) — 86,868 ( 378,138 )

Issuance of common stock in connection with equity offering, net of offering costs 10,975 11 1,091,455 — — 1,091,466

Equity component on conversions of 2023 notes and 2025 notes — — ( 236,920 ) — — ( 236,920 )

Issuance of common stock upon conversions of 2023 notes 2,983 3 235,518 — — 235,521

Net proceeds from capped call related to conversions of 2023 notes and 2025 notes — — 67,769 — — 67,769

Issuance of common stock upon exercise of stock options and ESPP 178 — 5,371 — — 5,371

Net share settlement of equity awards 1,421 2 ( 89,339 ) — — ( 89,337 )

Share-based compensation expense — — 77,996 — — 77,996

Other comprehensive loss — — — ( 3,082 ) — ( 3,082 )

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

Balances at September 30, 2021

Balances at March 31, 2022

126,682 $ 127 $ 1,176,765 $ ( 36,922 ) $ ( 331,449 ) $ 808,521

2 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities

Net income (loss) $ 264,780 $ ( 25,764 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Print textbook depreciation expense 1,610 9,024

Other depreciation and amortization expense 64,295 46,273

Net income $ 2,186 $ 5,742

Adjustments to reconcile net income to net cash provided by operating activities:

Share-based compensation expense 33,746 33,084

Other depreciation and amortization expense 25,543 20,285

Deferred income taxes 3,441 ( 746 )

Operating lease expense, net of accretion 1,496 1,640

Amortization of debt issuance costs 1,057 1,382

Gain on foreign currency remeasurement of purchase consideration — ( 4,628 )

Impairment on lease related assets 3,411 —

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

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

Print textbook depreciation expense — 1,521

Loss from write-off of property and equipment 120 626

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 )

(Gain) loss on textbook library, net ( 4,976 ) 8,765

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

Restructuring charges — 1,851

Gain on textbook library, net — ( 610 )

Other non-cash items ( 5 ) 9

Change in assets and liabilities, net of effect of acquisition of businesses:

Change in assets and liabilities, net of effect of acquisition of business:

Accounts receivable 1,578 292

12 unchanged sentences

Maturities of investments 407,759 342,059

Purchase of strategic equity investment ( 6,000 ) —

Proceeds from sale of strategic equity investment — 16,076

Acquisition of businesses, net of cash acquired ( 401,125 ) ( 7,891 )

Acquisition of business, net of cash acquired — ( 401,125 )

Net cash used in investing activities ( 106,779 ) ( 363,072 )

2 unchanged sentences

Payment of taxes related to the net share settlement of equity awards ( 7,736 ) ( 7,467 )

Proceeds from equity offering, net of offering costs — 1,091,466

Repayment of convertible senior notes ( 401,203 ) ( 300,755 )

Proceeds from exercise of convertible senior notes capped call — 69,005

Repurchases of common stock ( 151,311 ) ( 300,450 )

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

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

Net cash used in financing activities ( 158,902 ) ( 307,461 )

Effect of exchange rate changes 187 4,628

Net (decrease) increase in cash, cash equivalents and restricted cash ( 784,380 ) 233,885

Net decrease in cash, cash equivalents and restricted cash ( 192,334 ) ( 585,870 )

Cash, cash equivalents and restricted cash, beginning of period 475,854 855,893

Cash, cash equivalents and restricted cash, end of period $ 283,520 $ 270,023

Nine Months Ended

September 30,

Three Months Ended

Supplemental cash flow data:

8 unchanged sentences

Accrued purchases of long-lived assets $ 3,941 $ 5,778

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

September 30,

Reconciliation of cash, cash equivalents and restricted cash:

7 unchanged sentences

Company and Background

(Chegg, the Company, we, us, or our), headquartered in Santa Clara, California, was incorporated as a Delaware corporation in July 2005.

(“we,” “us,” “our,” “Company” or “Chegg”), headquartered in Santa Clara, California, was incorporated as a Delaware corporation in July 2005.

Millions of people all around the world Learn with Chegg.

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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 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.

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 March 31, 2023, our results of operations, results of comprehensive income (loss), stockholders' equity and cash flows for the three months ended March 31, 2023 and 2022.

Our results of operations, results of comprehensive income (loss), stockholders' equity, and cash flows for the three months ended March 31, 2023 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 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.

There have been no material changes in our use of estimates during the three months ended March 31, 2023 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, 2022.

Reclassification of Prior Period Presentation

In order to conform with current period presentation, $ 0.7 million of deferred tax assets during the three months ended March 31, 2022 has been reclassified from other non-cash items on our condensed consolidated statements of cash flows.

This change in presentation does not affect previously reported results.

During the three months ended March 31, 2023, we extended our existing lease agreement related to our corporate headquarters in Santa Clara and reassessed lease terms related to office spaces internationally in India, resulting in the recording of $ 12.4 million of right of use assets in exchange for lease liabilities.

The aggregate future minimum lease payments and reconciliation to operating lease liabilities as of March 31, 2023, are as follows (in thousands):

March 31, 2023

Remaining nine months of 2023 $ 6,388

Thereafter 1,902

Total future minimum lease payments 34,245

Less imputed interest ( 4,322 )

Total lease liabilities $ 29,923

Condensed Consolidated Statements of Operations Details

Other income (expense), net consists of the following (in thousands):

Other income, net consists of the following (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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 )

Gain on sale of strategic equity investments — 7,158 — 12,496

Gain on foreign currency remeasurement of purchase consideration (2)

Interest income $ 11,263 $ 1,477

Other 2 27 ( 146 ) 801

Total other income (expense), net

Gain on foreign currency remeasurement of purchase consideration — 4,628

Total other income, net

$ 12,076 $ 6,180

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

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

Impairment of Lease Related Assets

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 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.

Our intent and ability to sublease the office as well as the local market conditions were factored in when measuring the amount of impairment.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

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

There were no accounting pronouncements issued during the three months ended March 31, 2023 that would have a material impact on our financial statements.

Recently Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, Business Combinations-Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805).

The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Accounting Standards Codification (ASC) Topic 606 as if the acquirer had originated the contracts.

The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted.

We early adopted ASU 2021-08 on January 1, 2022 and applied it to our acquisition of Busuu.

The most significant impacts were an increase in contract liabilities, contained within deferred revenue, and goodwill.

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.

ASU 2021-04 aims to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange based on the economic substance of the modification or exchange.

Early adoption is permitted and the guidance must be applied prospectively to all modifications or exchanges that occur on or after the date of adoption.

The guidance is effective for annual periods beginning after December 15, 2021.

We adopted ASU 2021-04 on January 1, 2022 under the prospective method of adoption and there was no impact to our results of operations as we did not modify or exchange any freestanding equity-classified written call options.

We did not adopt any new standards or updates issued during the three months ended March 31, 2023 that had a material impact on our financial statements.

Revenue Recognition

1 unchanged sentence

The majority of our revenues are recognized over time as services are performed, with certain revenues being recognized at a point in time.

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

We have changed our revenue disaggregation to Subscription Services and Skills and Other to better reflect the nature and timing of revenue and cash flows.

Subscription Services includes revenues from our Chegg Study Pack, Chegg Study, Chegg Writing, Chegg Math, and Busuu offerings.

Skills and Other includes revenues from our Skills, advertising services, print textbooks and eTextbooks offerings.

We no longer present our Required Materials product line separately as we no longer have significant revenue from our print textbook and eTextbooks offerings.

The following table sets forth our total net revenues for the periods shown disaggregated for our Subscription Services and Skills and Other 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

March 31, Change

2023 2022 $ %

Chegg Services $ 533,152 $ 482,654 $ 50,498 10 %

Required Materials 28,552 86,144 ( 57,592 ) ( 67 )

Subscription Services $ 168,440 $ 173,037 $ ( 4,597 ) ( 3 ) %

Skills and Other 19,161 29,207 ( 10,046 ) ( 34 )

Total net revenues $ 187,601 $ 202,244 $ ( 14,643 ) ( 7 )

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.

For further information, refer to Note 7, “Required Materials Transition.”

During the three months ended March 31, 2023 and 2022, we recognized revenues of $ 39.1 million and $ 30.9 million, respectively, that were included in our deferred revenue balance at the beginning of each respective reporting period.

Contract Balances

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

September 30,

2023 December 31, 2022 $ %

2 unchanged sentences

Deferred revenue 58,568 56,273 2,295 4

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

The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):

During the three months ended March 31, 2023 our accounts receivable, net balance decreased by $ 1.5 million, or 6 %, primarily due to timing of billings and seasonality of our business.

During the three months ended March 31, 2023, our contract assets balance decreased by $ 0.4 million, or 4 %, primarily due to our Thinkful service.

During the three months ended March 31, 2023, our deferred revenue balance increased by $ 2.3 million, or 4 %, primarily due to timing of bookings and seasonality of our business.

Net Income Per Share

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):

Three Months Ended

September 30, Nine Months Ended

September 30,

$ 2,186 $ 5,742

Net income (loss)

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

Weighted average shares used to compute net income (loss) per share, basic

126,132 144,746 128,166 140,775

Net income (loss) per share, basic

$ 1.99 $ 0.05 $ 2.07 $ ( 0.18 )

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

Convertible senior notes activity, net of tax (1)

Weighted average shares used to compute net income per share, basic

123,710 132,162

Net income (loss), diluted

Net income per share, basic

$ 0.02 $ 0.04

Weighted average shares used to compute net income (loss) per share, basic

Net income $ 2,186 $ 5,742

Weighted average shares used to compute net income per share, basic

123,710 132,162

Shares related to stock plan activity 594 1,108

Shares related to convertible senior notes 21,409 — 22,381 —

Weighted average shares used to compute net income (loss) per share, diluted

Weighted average shares used to compute net income per share, diluted

124,304 133,270

Net income (loss) per share, diluted

Net income per share, diluted

$ 0.02 $ 0.04

(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):

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Shares related to stock plan activity 6,283 2,300

1 unchanged sentence

Total common stock equivalents 24,509 25,175

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 September 30, 2022 and December 31, 2021 (in thousands except for fair value levels):

September 30, 2022

Cash and Cash Equivalents, 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 March 31, 2023 and December 31, 2022 (in thousands except for fair value levels):

March 31, 2023

Fair Value Level Adjusted Cost Unrealized Gain Unrealized Loss Fair Value

2 unchanged sentences

Money market funds Level 1 149,731 — — 149,731

Commercial paper Level 2 100,216 — ( 38 ) 100,178

Total cash and cash equivalents $ 281,340 $ — $ ( 38 ) $ 281,302

Short-term investments:

Commercial paper Level 2 $ 11,720 $ — $ ( 114 ) $ 11,606

Corporate debt securities Level 2 $ 214,883 $ — $ ( 2,435 ) $ 212,448

treasury securities Level 1 30,190 — ( 21 ) 30,169

Agency bonds Level 2 35,253 — ( 6 ) 35,247

Total short-term investments $ 280,326 $ — $ ( 2,462 ) $ 277,864

13 unchanged sentences

Corporate debt securities Level 2 491,459 — ( 4,130 ) 487,329

Agency bonds Level 2 15,500 2 — 15,502

treasury securities Level 1 85,271 — ( 342 ) 84,929

Total short-term investments $ 588,474 $ — $ ( 4,501 ) $ 583,973

2 unchanged sentences

treasury securities Level 1 30,633 122 — 30,755

Agency bonds Level 2 60,635 — ( 141 ) 60,494

Total long-term investments $ 217,003 $ 280 $ ( 1,050 ) $ 216,233

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):

As of March 31, 2023, we determined that the unrealized losses on our investments were not driven by credit related factors.

During the three months ended March 31, 2023 and 2022, we did not recognize any losses on our investments due to credit related factors.

During the three months ended March 31, 2023 and 2022, 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 March 31, 2023 (in thousands):

Adjusted Cost Fair Value

Due in 1 year or less $ 886,612 $ 871,408

Due in 1-2 years 292,696 286,781

Due within one year $ 380,542 $ 378,042

Due after one year through three years 612,822 613,863

Investments not due at a single maturity date 149,731 149,731

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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.

We did not record any impairment charges during the three months ended March 31, 2023, 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 March 31, 2023.

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 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.

The estimated fair value of the 2026 notes as of March 31, 2023 and December 31, 2022 was $ 393.1 million and $ 385.0 million, respectively.

The estimated fair value of the 2025 notes as of March 31, 2023 and December 31, 2022 was $ 617.7 million and $ 640.5 million, respectively.

For further information on the notes, refer to Note 5, “Convertible Senior Notes.”

On January 13, 2022, we completed our acquisition of 100 % of the outstanding shares of Busuu Online S.L (Busuu) in cash, 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.

The acquisition helps to expand our existing offerings and global reach through language learning, allowing us to drive further into international markets.

The following table presents the preliminary allocation of purchase consideration recorded on our condensed consolidated balance sheet as of the acquisition date (in thousands):

Cash and cash equivalents $ 20,525

Accounts receivable 2,446

Right of use assets 2,715

Other acquired assets 3,710

Acquired intangible assets 71,600

Total identifiable assets acquired 100,996

Accounts payable ( 5,174 )

Accrued liabilities (1)

Deferred revenue ( 16,761 )

Long term operating lease liabilities ( 2,038 )

Other long-term liabilities (1)

Net identifiable assets acquired 53,413

Goodwill 368,237

Total fair value of purchase consideration $ 421,650

(1) During the three months ended June 30, 2022, we recorded a $ 0.8 million decrease to accrued liabilities and a $ 1.7 million increase to other long-term liabilities as a result of measurement period adjustments to the fair value of the initial liabilities related to taxes.

The estimates and assumptions regarding the fair value of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income taxes, and goodwill are subject to change as we obtain additional information during the measurement period, which usually lasts for up to one year from the acquisition date.

Goodwill is primarily attributable to the potential for expanding our offerings to include an online language learning platform and global reach allowing us to drive further into international markets.

Substantially all of the amounts recorded for intangible assets and goodwill are deductible for tax purposes.

The following table presents the details of the allocation of purchase consideration to the acquired intangible assets (in thousands, except weighted-average amortization period):

Amount Weighted-Average Amortization Period (in months)

Trade name $ 4,600 72

Customer lists 18,000 24

Developed technology 49,000 84

Total acquired intangible assets $ 71,600 68

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.

We initially funded an equivalent of $ 417.0 million that was remeasured at $ 421.7 million at closing, which is included in our statement of cash flows as a cash outflow from investing activities net of cash acquired, resulting in a $ 4.6 million gain included in other income (expense), net on our condensed consolidated statement of operations.

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 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.

These results should not be taken as representative of future results of operations of the combined company.

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 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.

Goodwill and Intangible Assets

Goodwill consists of the following (in thousands):

Nine Months Ended September 30, 2022

Beginning balance $ 289,763

Initial addition due to acquisition 367,376

Foreign currency translation adjustment ( 68,298 )

Measurement period adjustments related to prior acquisition (1)

Ending balance $ 589,702

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

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

September 30, 2022

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

Developed technologies 80 $ 106,703 $ ( 41,306 ) $ ( 8,638 ) $ 56,759

Content libraries 60 12,230 ( 8,670 ) — 3,560

Customer lists 35 34,190 ( 19,527 ) ( 2,385 ) 12,278

Trade and domain names 52 16,213 ( 10,928 ) ( 836 ) 4,449

Indefinite-lived trade name — 3,600 — — 3,600

Total intangible assets, net 67 $ 172,936 $ ( 80,431 ) $ ( 11,859 ) $ 80,646

December 31, 2021

Weighted-Average Amortization

(in months) Gross

Amount Accumulated

Amortization Foreign Currency Translation Adjustment Net

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

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

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

Trade and domain names 44 11,613 ( 9,530 ) — 2,083

Indefinite-lived trade name — 3,600 — — 3,600

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

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

Total $ 77,046

Required Materials Transition

In April 2022, we entered into definitive agreements regarding the sale of our print textbook library and partnership with GT Marketplace, LLC (GT) for our Required Materials product line.

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 for $ 14 million, subject to payment terms and certain adjustments, 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.

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.

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.

Convertible Senior Notes

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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.

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

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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.

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.

During the three months ended March 31, 2023, 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.

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

2026 Notes 2025 Notes 2026 Notes 2025 Notes

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Net carrying amount $ 495,488 $ 694,162 $ 495,163 $ 693,430

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

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

2022 2021 2022 2021

Contractual interest expense $ — $ — $ — $ —

Amortization of issuance costs 556 663 1,863 1,970

Total 2026 notes interest expense $ 556 $ 663 $ 1,863 $ 1,970

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

Three Months Ended March 31,

Contractual interest expense $ — $ —

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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 September 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 March 31, 2023, 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.

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Such matters may include, but not be limited to, claims, disputes, or investigations related to warranty, refund, breach of contract, employment, intellectual property, government regulation, or compliance or other matters.

On March 30, 2022, Joseph Robinson, derivatively on behalf of Chegg, filed a shareholder derivative complaint against Chegg and certain of its current and former directors and officers in the United States District Court for the Northern District of California, alleging breaches of fiduciary duties, among others (the “Robinson Matter”).

The Robinson Matter has been consolidated with the Choi Matter (described below) and has been stayed on the same terms.

On March 1, 2023, Plaintiff Shiva Stein, derivatively on behalf of Chegg, filed a stockholder derivative complaint in the Court of Chancery of the State of Delaware (Case No.

2023-0244-NAC) asserting breach of fiduciary duty, unjust enrichment, and waste of corporate asset claims against members of Chegg’s Board and certain Chegg officers.

The matter is stayed.

The Company disputes these claims and intends to vigorously defend itself in this matter.

On January 12, 2022, Rak Joon Choi, derivatively on behalf of Chegg, filed a shareholder derivative complaint against Chegg and certain of its current and former directors and officers in the United States District Court for the Northern District of California, alleging breaches of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, among others (the “Choi Matter”).

On February 14, 2023, Plaintiff Brian Stansell, individually and on behalf of other similarly situated stockholders of Chegg, filed a putative class action complaint in the Court of Chancery of the State of Delaware (Case No.

2023-0180) on behalf of all Chegg stockholders who were eligible to vote at Chegg's 2022 Annual Stockholders' Meeting, asserting breach of fiduciary duty claims against the members of Chegg's Board.

The Company disputes these claims and intends to vigorously defend itself in this matter.

On March 1, 2022, the court entered an order deeming the Choi Matter related to the Leventhal Matter (described below).

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 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.

On December 27, 2022, Plaintiff Sheri Moyer, individually and on behalf of all others similarly situated, filed a putative consumer class action in the United States District Court for the Northern District of California (Case No.

22-cv-09123) on behalf of all purchasers of a Chegg product or service as part of an automatic renewal plan or continuous service offer within the past four years.

The Company disputes these claims and intends to vigorously defend itself in this matter.

On November 9, 2022, Plaintiff Joshua Keller, individually and on behalf of all others similarly situated, filed a putative class action in the United States District Court for the Northern District of California (Case No.

22-cv-06986) on behalf of

individuals whose data was allegedly impacted by past data breaches.

The Company disputes these claims and intends to vigorously defend itself in this matter.

On March 30, 2022, Joseph Robinson, derivatively on behalf of Chegg, filed a shareholder derivative complaint against Chegg and certain of its current and former directors and officers in the United States District Court for the Northern District of California, alleging violations of securities laws and breaches of fiduciary duties.

On February 22, 2023, Plaintiff filed an Amended Shareholder Derivative Complaint.

This matter has been consolidated with Choi, below, and both matters are stayed.

The Company disputes these claims and intends to vigorously defend itself in this matter.

On January 12, 2022, Rak Joon Choi, derivatively on behalf of Chegg, filed a shareholder derivative complaint against Chegg and certain of its current and former directors and officers in the United States District Court for the Northern District of California, alleging violations of securities laws, breaches of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets.

On February 22, 2023, Plaintiff filed an Amended Shareholder Derivative Complaint.

This matter has been consolidated with Robinson, above, and both matters are stayed.

The Company disputes these claims and intends to vigorously defend itself in this 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.

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.

On September 7, 2022, KBC Asset Management and The Pompano Beach Police & Firefighters Retirement System were appointed as lead plaintiff in the case.

On December 8, 2022, Plaintiff filed his Amended Complaint and seeks unspecified compensatory damages, costs, and expenses, including counsel and expert fees.

The Company disputes these claims and intends to vigorously defend itself in this matter.

On September 13, 2021, Pearson Education, Inc.

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The Company filed its answer to the Pearson Complaint on November 19, 2021.

On June 29, 2022, Pearson filed a Motion for Leave to File Amended Complaint which seeks to add Bedford, Freeman & Worth Publishing Group, LLC d/b/a Macmillan Learning (“Macmillan Learning”) as a plaintiff, add an additional claim for relief on behalf of both Pearson and Macmillan Learning for copyright infringement, and add allegations regarding Pearson’s original complaint.

Pearson’s June 29, 2022 Motion for Leave to File Amended Complaint seeking to add Bedford, Freeman & Worth Publishing Group, LLC d/b/a Macmillan Learning as a plaintiff was denied.

The Company disputes these claims and intends to vigorously defend itself in this matter.

On June 18, 2020, we received a Civil Investigative Demand (CID) from the Federal Trade Commission (FTC) to determine whether we may have violated Section 5 of the FTC Act or the Children's Online Privacy Protection Act (COPPA), as they relate to deceptive or unfair acts or practices related to consumer privacy and/or data security.

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.

Each individual claimant claimed to have suffered more than $ 25 thousand in damages as a result of the unauthorized access of certain items of their user data in April 2018.

On July 1, 2020, an additional 1,007 arbitration demands were filed by the same counsel, making identical allegations.

On August 12, 2020, an additional 577 arbitration demands were filed by the same counsel, making identical allegations.

Related cases were filed by the same counsel in Maryland and California.

We disputed that these claimants had a valid basis for seeking arbitration, asserted that they have acted in bad faith and have been working with the Maryland and California courts and plaintiffs’ counsel on resolution of these claims.

The Maryland case is now closed.

On August 22, 2021, Chegg and the claimants' legal counsel, on behalf of its clients, entered into a settlement agreement, pursuant to which each eligible claimant that signs a release agreement agrees, among other things, to dismiss with prejudice all claims against Chegg that such claimant currently maintains in exchange for such claimant's pro rata portion of the settlement amount.

Claimants had until January 26, 2022 to sign their release agreements.

As a result of the settlement, all but four petitions to compel arbitration in the California action were dismissed with prejudice.

On June 18, 2020, we received a Civil Investigative Demand (CID) from the Federal Trade Commission (FTC) regarding certain alleged deceptive or unfair acts or practices related to consumer privacy and/or data security.

On October 31, 2022, the FTC published the parties’ agreed-upon consent order regarding Chegg’s privacy and data security practices.

On January 27, 2023, the FTC finalized its order ("Final Order") requiring Chegg to implement a comprehensive information security program, limit the data the Company can collect and retain, offer users multifactor authentication to secure their accounts, and allow users to request access to and delete their data.

No monetary penalties or fines were included in the Final Order.

We have not recorded any loss contingency accruals related to the above matters as we do not believe that a loss is probable in these matters.

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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.

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

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

We have not recorded any liabilities for these agreements as of March 31, 2023.

Stockholders' Equity

Securities Repurchase Program

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

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

During the three months ended 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

Share Repurchases

On February 23, 2023, we entered into an accelerated share repurchase (ASR) agreement with a financial institution (2023 ASR).

We accounted for the 2023 ASR as two separate transactions, a repurchase of our common stock and an equity-linked contract indexed to our common stock that met certain accounting criteria for classification in stockholders' equity.

Upon execution, we paid a fixed amount of $ 300.0 million and received an initial delivery of 8,562,255 shares of our common stock over the following three business days, which were retired immediately.

Upon execution, we paid a fixed amount of $ 150.0 million and received an initial delivery of 7,599,747 shares of our common stock, which were retired immediately.

The initial delivery of shares of our common stock represented approximately 80 percent of the fixed amount paid of $ 150.0 million, which was based on the share price of our common stock on the date of execution.

The 2022 ASR was recorded as a reduction to additional paid in capital on our condensed consolidated statements of stockholders’ equity.

The 2022 ASR settled during the three months ended June 30, 2022 and we received an additional delivery of 837,001 shares of our common stock, which were retired immediately.

The 2022 ASR resulted in a total repurchase of 9,399,256 shares of our common stock at a volume-weighted-average price, less an agreed upon discount, $ 31.9174 per share.

We were not required to make any additional cash payments or delivery of common stock to the financial institutions upon settlement.

On December 3, 2021, we entered into an ASR agreement with a financial institution (2021 ASR) to repurchase $ 300.0 million of our outstanding common stock.

The 2021 ASR settled during the three months ended March 31, 2022 and we received an additional delivery of 2,163,219 shares of our common stock.

The 2023 ASR, along with $ 1.3 million in associated costs, primarily consisting of an estimated 1 % excise tax, were recorded as a reduction to additional paid in capital on our condensed consolidated statements of stockholders’ equity.

On February 22, 2022 and December 3, 2021, we entered into ASR agreements with financial institutions.

During the year ended December 31, 2022, we received a total of 11,562,475 shares of our common stock from these ASR agreements, which were retired immediately.

Additionally, during the year ended December 31, 2022, we repurchased 1,146,803 shares of our common stock in open market transactions.

Securities Repurchase Program

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.

As of March 31, 2023, we had $ 492.6 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.

Share-based Compensation Expense

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Cost of revenues $ 527 $ 623

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Total share-based compensation expense $ 33,746 $ 33,084

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

During the three months ended March 31, 2023 and 2022, we capitalized share-based compensation expense of $ 1.0 million and $ 1.8 million, respectively.

As of March 31, 2023, our total unrecognized share-based compensation expense related to RSUs and PSUs was approximately $ 207.0 million, which will be recognized over the remaining weighted-average vesting period of approximately 2.2 years.

Activity for RSUs and PSUs is as follows:

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Forfeited ( 447,107 ) 34.03

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.

Balance at March 31, 2023 9,147,558 32.48

Subsequent Event

In May 2023, we entered into a $ 15.0 million commitment to invest in Sound Ventures AI Fund, L.P., a limited partnership that invests in artificial intelligence companies.

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.

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