What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-01 compared with 2022-11-01 · 90 added, 166 removed, 107 unchanged (71% of the section changed)

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

We plan to continue to invest in the expansion of our offerings and technology platform 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 our Subscription Services, will enable us to sustain profitability and remain cash-flow positive in the long-term.

Our ability to achieve these long-term objectives is subject to numerous risks and uncertainties including our ability to attract, retain, and increasingly engage the student population, reduced traffic to our services, and other factors, such as the rapidly changing development of artificial intelligence technologies and global macroeconomic conditions, which continue to evolve and affect our business and results of operations.

Student interest in and usage of artificial intelligence technologies have increased, which we believe has and may continue to negatively impact the number of subscriber acquisitions.

As a result, we are experiencing an adverse effect on our operating results, growth and financial condition, which may continue.

These risks and uncertainties are described in greater detail in Part I, Item 1A, “Risk Factors.”

During the three months ended March 31, 2023 and 2022, we generated net revenues of $187.6 million and $202.2 million, respectively.

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 expect to have significant revenue from our print textbook and eTextbooks offerings.

We have presented revenues for our two product lines, Subscription Services and Skills and Other, 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 “Subscription Services” and “Skills and Other.”

Subscription Services

Our Subscription Services can be accessed internationally through our websites and on mobile devices and include Chegg Study Pack, Chegg Study, Chegg Writing, Chegg Math, and Busuu.

Students typically pay to access Subscription Services on a monthly basis.

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.

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.

Our Chegg Math subscription service, including Mathway, helps 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 services, which also includes additional features such as flashcards, concept videos, practice questions and quizzes, and instructor-created materials through Uversity.

Our Busuu language learning platform 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.

Subscription Services revenues were 90% and 86% of net revenues during the three months ended March 31, 2023 and 2022, respectively.

Skills and Other

Our Skills and Other product line includes revenues from Skills, advertising services, print textbooks and eTextbooks.

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

We work with leading brands and programmatic partners to deliver advertising across our platforms.

We also provide a platform for students to rent or buy print textbooks and eTextbooks, which helps students save money compared to the cost of buying new.

Skills and Other revenues were 10% and 14% of net revenues during the three months ended March 31, 2023 and 2022, respectively.

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.

Revenues from Subscription Services are primarily recognized ratably over the subscription term which 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.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net revenues $ 187,601 100 % $ 202,244 100 %

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(Loss) income from operations (4,446) (2) 5,376 3

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) %

Total interest expense, net and other income, net 10,808 5 4,583 2

Income before provision for income taxes 6,362 3 9,959 5

Provision for income taxes (4,176) (2) (4,217) (2)

Net income $ 2,186 1 % $ 5,742 3 %

(1) Includes share-based compensation expense as follows:

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

Three and Nine Months Ended September 30, 2022 and 2021

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

Three Months Ended March 31, 2023 and 2022

The following table sets forth our total net revenues for the periods shown 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)

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.

Subscription Services revenues decreased $4.6 million, or 3% during the three months ended March 31, 2023, compared to the same period in 2022.

The decrease was primarily due to a decrease in overall students subscribing to Chegg Study and Chegg Study Pack.

As a result of an increase in student interest and usage of artificial intelligence technologies, we are currently experiencing an adverse impact to our business and results of operations, which may continue in the future.

Subscription Services revenues were 90% and 86% of net revenues during the three months ended March 31, 2023 and 2022, respectively.

Skills and Other revenues decreased $10.0 million, or 34%, during the three months ended March 31, 2023 compared to the same period in 2022.

The decrease was primarily due to lower revenues from print textbooks and eTextbooks as a result of recognizing revenue on a net basis from our partnership with GT Marketplace, LLC that began in April 2022, and lower advertising revenues, partially offset by an increase in revenues related to our Skills offering.

Skills and Other revenues were 10% and 14% of net revenues during the three months ended March 31, 2023 and 2022, respectively.

Cost of Revenues

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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

March 31, Change

2023 2022 $ %

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$ 527 $ 623 $ (96) (15) %

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.

Cost of revenues decreased $5.9 million, or 11%, during the three months ended March 31, 2023, compared to the same period in 2022.

The decrease was primarily attributable to the absence of print textbook and eTextbook related costs of $10.3 million and lower web hosting fees of $2.3 million, partially offset by higher other depreciation and amortization expense of $5.3 million.

Gross margins increased to 74% during the three months ended March 31, 2023, from 73% during the same period in 2022.

Operating Expenses

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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

March 31, Change

2023 2022 $ %

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Share-based compensation expense $ 33,219 $ 32,461 $ 758 2

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.

Research and development expenses decreased $5.5 million, or 11%, during the three months ended March 31, 2023 compared to the same period in 2022.

The decrease was primarily attributable to lower employee-related expenses, including share-based compensation expense, of $2.1 million.

Research and development expenses as a percentage of net revenues were 25% during the three months ended March 31, 2023 compared to 26% during the same period in 2022.

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.

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.

Sales and marketing expenses decreased by $5.5 million, or 13%, during the three months ended March 31, 2023, compared to the same period in 2022.

The decrease was primarily attributable to lower marketing expenses of $3.5 million and lower employee-related expenses, including share-based compensation expense, of $1.2 million.

Sales and marketing expenses as a percentage of net revenues were 20% during the three months ended March 31, 2023 compared to 21% during the same period in 2022.

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):

General and administrative expenses increased $12.1 million, or 26%, during the three months ended March 31, 2023 compared to the same period in 2022.

The increase was primarily due to higher employee-related expenses, including share-based compensation expense, of $9.6 million and higher information technology service expenses of $1.4 million.

General and administrative expenses as a percentage of net revenues were 31% during the three months ended March 31, 2023 compared to 23% during the same period in 2022.

Interest Expense and Other Income, Net

The following table sets forth our interest expense and other income, 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

March 31, Change

2023 2022 $ %

Interest expense, net $ (1,268) $ (1,597) $ 329 (21) %

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

______________________________________

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Interest expense, net remained relatively flat during the three months ended September 30, 2022 compared to the same period in 2021, and decreased $0.5 million, or 10%, during the nine months ended September 30, 2022, compared to the same period in 2021, primary due to the full redemption of the 2023 notes in 2021.

Other income (expense), net increased $88.6 million during the three months ended September 30, 2022 compared to the same period in 2021 primarily due to the $93.5 million gain on early extinguishment of a portion of the 2026 notes and $2.3 million increase in interest income partially offset by the absence of the $7.2 million gain on the sale of the strategic equity investment.

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

Benefit from (Provision for) Income Taxes

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

Other income, net 12,076 6,180 5,896 95

Total interest expense, net and other income, net $ 10,808 $ 4,583 $ 6,225 136

Interest expense, net decreased $0.3 million, or 21%, during the three months ended March 31, 2023 compared to the same period in 2022, primarily due to the partial extinguishment of the 2026 notes in 2022.

Other income, net increased $5.9 million, or 95%, during the three months ended March 31, 2023 compared to the same period in 2022 primarily due to an increase in interest income of $9.8 million, partially offset by the absence of the $4.6 million gain on foreign currency remeasurement of purchase consideration related to our acquisition of Busuu.

Provision for Income Taxes

The following table sets forth our 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

March 31, Change

2023 2022 $ %

*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.

Provision for income taxes $ (4,176) $ (4,217) $ 41 (1) %

Provision for income taxes remained relatively flat during the three months ended March 31, 2023 compared to the same period in 2022, however, there were significant changes due to the benefit of releasing uncertain tax positions in India partially offset by the absence of a valuation allowance benefit in the current quarter as a result of releasing our valuation allowance against a substantial amount of our U.S.

deferred tax assets in 2022.

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.

As of March 31, 2023, our principal sources of liquidity were cash, cash equivalents, and investments totaling $1.2 billion, which were held for working capital purposes.

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

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

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.

We have entered into accelerated share repurchase programs with financial institutions for $750.0 million, repurchased shares in open market transactions for $23.1 million and repurchased our convertible senior notes in privately-negotiated transactions for aggregate consideration of $734.4 million.

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.

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

1 unchanged sentence

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

As of September 30, 2022, we have incurred cumulative losses of $72.4 million from our operations and we may incur additional losses in the future.

As of March 31, 2023, we have incurred cumulative losses of $68.4 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.

Aside from the changes in operating lease obligations as disclosed in 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, there were no other 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, 2022.

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

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

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

As of March 31, 2023, our foreign subsidiaries held an insignificant amount of cash in foreign jurisdictions.

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

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

Nine Months Ended

September 30,

Three Months Ended

Condensed Consolidated Statements of Cash Flows Data:

1 unchanged sentence

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

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

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

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.

Net cash provided by operating activities during the three months ended March 31, 2023 was $73.2 million.

Our net income of $2.2 million was increased by significant non-cash operating expenses including share-based compensation expense of $33.7 million and other depreciation and amortization expense of $25.5 million.

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

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

We also had significant non-cash operating expenses including share-based compensation expense of $33.1 million and other depreciation and amortization expense of $20.3 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.

Net cash used in investing activities during the three months ended March 31, 2023 was $106.8 million and was related to the purchases of investments of $497.4 million and the purchases of property and equipment of $17.2 million, partially offset by the maturities of investments of $407.8 million.

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

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.

Net cash used in financing activities during the three months ended March 31, 2023 was $158.9 million and was primarily related to the repurchases of common stock of $151.3 million and payment of $7.7 million in taxes related to the net share settlement of equity awards.

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

Critical Accounting Policies, Significant Judgments and Estimates

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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.

There have been no material changes in our critical accounting policies and estimates during the three months ended March 31, 2023 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, 2022.

Recent Accounting Pronouncements

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no other material changes in our market risk during the 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.

There have been no material changes in our market risk during the three months ended March 31, 2023, 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, 2022.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis