CHEGG, INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the related notes included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. We have omitted discussion of the earliest of the three years of financial condition and results of operations and this information can be found in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 24, 2025, which is available free of charge on the SEC's website at sec.gov and on our website at investor.chegg.com. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. See the section titled “Note about Forward-Looking Statements” in this Annual Report on Form 10-K for additional information. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A, “Risk Factors.” Overview Chegg is a learning platform helping businesses bring new skills to their workforce and giving lifelong learners and students the skills and confidence to succeed. Focused on the large and growing skilling market, Chegg offers innovative tools for workplace readiness, professional upskilling, and language learning. Chegg also continues to offer students artificial intelligence (AI)-driven, personalized support. Chegg remains committed to its mission of improving learning outcomes and career opportunities for millions of people around the world. Our long-term strategy is focused on helping learners achieve better outcomes by combining academic support with practical, career-relevant skills across the learning lifecycle. We are evolving our platform to support learners both in the classroom and beyond, leveraging AI to deliver faster, more personalized, and more effective learning experiences. We continue to invest in expanding our skilling offerings and integrating them with our core academic services to provide a differentiated, end-to-end solution that supports the whole learner. Our use of AI in our platform is designed to enable us to scale personalized support, improve learning outcomes, and increase course completion while maintaining high standards of quality and accuracy. We believe these investments position us to drive deeper engagement, expand our addressable market, and return the business to sustainable revenue growth over time. Our ability to achieve these long-term objectives is subject to numerous risks and uncertainties, which are described in greater detail below and in Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K. Our service and product offerings fall into two categories: Chegg Skilling and Academic Services, which are described below. We have changed our revenue disaggregation from Subscription Services and Skills and Other to Chegg Skilling and Academic Services to better reflect the nature of revenue and cash flows. Chegg Skilling Our language learning platform provides subscribers access to a premium language learning platform that offers comprehensive support through self-paced lessons, live classes with expert tutors and a community of members to practice alongside. A team of leading experts have developed our online learning instruction to bring students from novice to advanced speakers in a fast-paced, enjoyable environment and we currently offer comprehensive courses taught by highly qualified teachers in 14 languages. We also provide workforce skilling programs that help employers develop and retain talent. Our workforce skilling programs align workforce needs with learner outcomes by combining in-demand technical skills such as AI, coding, data analytics, and cybersecurity, with foundational business and human-centered durable skills. We keep our portfolio current by working closely with employers, including Fortune 1000 companies, to understand emerging role requirements and workforce needs. Programs feature engaging, modular online content, practice opportunities, and support. Our platform tracks learner progress in real time, delivering predictive nudges and timely interventions that improve engagement, retention, and completion rates. Our approach is informed by learning science to help skills stick, so learners can apply what they learn with confidence at work. 38 Table of Contents Academic Services Our legacy academic learning services are headlined by Chegg Study Pack, a premium subscription bundle that includes all of the benefits of Chegg Study, Chegg Writing and Chegg Math. Chegg Study subscribers have access to personalized, step-by-step learning support powered by AI, computational engines, and subject matter experts. Subscribers engage with our conversational experience that delivers the right support at the right time. Our Chegg Writing subscription service consists of a suite of essential tools including plagiarism detection scans, grammar and writing fluency checking, expert personalized writing feedback, and premium citation generation. Subscribers can also have a writing professional proofread papers for personalized feedback. Our Chegg Math subscription service provides students with a computational engine to help them understand and solve math problems. We also work with leading brands and programmatic partners to deliver advertising across our platforms. Conclusion of Process to Explore Strategic Alternatives On February 24, 2025, we announced that we were undertaking a strategic review process and exploring a range of alternatives to maximize shareholder value, including being acquired, undertaking a go-private transaction, or remaining as a standalone public company. On October 27, 2025, we announced that our Board unanimously approved the conclusion of its review of strategic alternatives in support of the evolution of our business, including into a skilling-focused business-to-business organization, building on existing relationships with businesses in professional language learning, workplace readiness and AI-related skills courses. In connection with this transformation, we are restructuring the way we operate our academic learning products. Business Updates and Developments Recent technological shifts, notably Google's AI Overviews search experience, or AIO, and continued increase in adoption of free and paid generative AI services by students, have created and are expected to continue to create headwinds for our industry and our business, most notably a reduction in traffic to our website and customers subscribing to our services. In August 2024, Google broadly rolled out AIO, which displays AI-generated content at the top of its search results. This experience, which includes questions and solutions for education, keeps users on Google search results versus leading them onto our site. AIO’s prevalence has grown and will only continue to increase. We expect Google to continue its shift from being a search origination point to the destination, which we believe has materially adversely affected our business, operating results and financial condition. In addition, across our industry, there has been a continued increase in the adoption of free and paid generative AI products for academic support, and students are increasingly turning to generative AI for academic support, such as homework and exams, as well as assistance in other areas of daily life. This issue impacts education technology companies broadly, where students see generative AI products like ChatGPT and others as strong alternatives to vertically specialized solutions for education such as Chegg. These developments have negatively impacted our industry and our business and are expected to continue to impact our overall traffic and accelerate the decline in the number of new subscribers that sign up for our services, resulting in continued negative impacts to our growth, business, operating results and financial condition. See Part I, Item 1A, “Risk Factors” for additional details. In May 2025 and October 2025, we announced workforce reductions that resulted in management approved restructuring plans, which also included the closure of our offices in the United States. During the year ended December 31, 2025, we recorded $51.5 million of restructuring charges and for fiscal year 2026, we expect to realize cost savings as a result of the restructuring plans. See Part I, Item 1A, “Risk Factors”, “Note 9. Leases”, and “Note 15. Restructuring Charges” of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional information. During the years ended December 31, 2025, and 2024, we generated net revenues of $376.9 million and $617.6 million, respectively, and in the same periods had net losses of $103.4 million and $837.1 million, respectively. Components of Results of Operations Net Revenues We recognize revenues net of allowances for refunds or charge backs from our payment processors who process payments from credit cards, debit cards, and PayPal. Revenues from our language learning platform and Academic Services are primarily recognized ratably over the monthly subscription period. Revenues from our workforce skilling programs are 39 Table of Contents recognized over the delivery period, adjusted for an estimate of non-redemption, or upon fulfillment. Revenues from advertising services and content licensing are recognized upon fulfillment. Cost of Revenues Cost of revenues consists primarily of expenses associated with the delivery and distribution of our products and services including content amortization expense, web hosting fees, customer support fees, payment processing costs, amortization of acquired intangible assets, employee-related expenses, which includes salaries, benefits and share-based compensation expense, contractor costs, and other direct costs related to providing content or services. In addition, cost of revenues includes allocated information technology and facilities costs. Operating Expenses We classify our operating expenses into three categories: research and development, sales and marketing, and general and administrative. One of the most significant components of our operating expenses is employee-related expenses, which include salaries, benefits, and share-based compensation expense. We allocate certain costs to each expense category, primarily based on the headcount in each group at the end of a period. Research and Development Research and development expenses consist of employee-related expenses, which includes salaries, benefits, and share-based compensation expense for employees on our product, engineering, and technical teams who are responsible for maintaining our website, developing new products, and improving existing products. Research and development expenses also include technology costs to support our research and development, web hosting fees, contractor costs, and outside services. We expense substantially all of our research and development expenses as they are incurred. Our research and development expenses continue to support new products and services as well as expand our infrastructure capabilities to support back-end processes associated with our revenue transactions and internal systems. Sales and Marketing Sales and marketing expenses consist of user and advertiser-facing marketing and promotional expenditures through a number of targeted online marketing channels, sponsored search, display advertising, social media campaigns, and other initiatives. We incur employee-related expenses, which includes salaries, benefits and share-based compensation expenses for our employees engaged in marketing, business development and sales, and sales support functions. Our marketing expenses are largely variable and to the extent there is increased or decreased competition for these traffic sources, or to the extent our mix of these channels shifts, we could see a corresponding change in our sales and marketing expenses. General and Administrative General and administrative expenses consist of employee-related expenses, which includes salaries, benefits and share-based compensation expense for certain executives as well as our finance, legal, human resources and other administrative employees. In addition, general and administrative expenses include outside services, legal and accounting services, and facilities expense. Impairment Expense Impairment expense consists of impairments of goodwill, intangible assets, and property and equipment, net. Interest Expense, Net and Other Income, Net Interest expense, net consists primarily of the amortization of debt issuance costs related to the convertible senior notes. Other income, net consists primarily of interest income, gains on early extinguishment of the convertible senior notes, and realized gains and losses on the sale of our investments. Provision For Income Taxes Provision for income taxes consists primarily of state income taxes in the United States and income taxes in certain non-U.S. jurisdictions. 40 Table of Contents Results of Operations The following table presents our historical consolidated statements of operations (in thousands, except percentage of total net revenues): Years Ended December 31, 2025 2024 Net revenues $ 376,908 100 % $ 617,574 100 % Cost of revenues (1) 152,151 40 180,927 29 Gross profit 224,757 60 436,647 71 Operating expenses: Research and development (1) 93,453 25 170,431 28 Sales and marketing (1) 68,754 18 108,329 18 General and administrative (1) 177,406 47 217,756 35 Impairment expense 2,000 1 677,239 n/m Total operating expenses 341,613 91 1,173,755 n/m Loss from operations (116,856) (31) (737,108) n/m Total interest expense, net and other income, net 16,714 4 48,742 9 Loss before provision for income taxes (100,142) (27) (688,366) n/m Provision for income taxes (3,279) (1) (148,702) n/m Net loss $ (103,421) (28) % $ (837,068) n/m (1) Includes share-based compensation expense and restructuring charges as follows: Share-based compensation expense: Cost of revenues $ 503 $ 1,786 Research and development 6,812 28,044 Sales and marketing 2,174 7,466 General and administrative 22,375 47,318 Total share-based compensation expense $ 31,864 $ 84,614 Restructuring charges: Cost of revenues $ 2,099 $ 762 Research and development 15,376 11,387 Sales and marketing 4,793 2,630 General and administrative 29,271 9,824 Total restructuring charges $ 51,539 $ 24,603 _______________________________________ *n/m - not meaningful 41 Table of Contents Years Ended December 31, 2025 and 2024 Net Revenues The following table presents our total net revenues for the periods shown for our Chegg Skilling and Academic Services product lines (in thousands, except percentages): Years Ended December 31, Change in 2025 2025 2024 $ % Chegg Skilling $ 68,654 $ 73,959 $ (5,305) (7) % Academic Services 308,254 543,615 (235,361) (43) Total net revenues $ 376,908 $ 617,574 $ (240,666) (39) Chegg Skilling revenues decreased by $5.3 million, or 7%, during the year ended December 31, 2025 compared to the same period in 2024. The decrease was due to lower revenues of $8.9 million related to our workforce skilling platform primarily related to reduced direct-to-consumer transactions, partially offset by an increase of revenue of $3.6 million from our language learning platform primarily related to business-to-business growth. Chegg Skilling revenues as a percentage of net revenues were 18% during the year ended December 31, 2025 compared to 12% during the same period in 2024. Academic Services revenues decreased by $235.4 million, or 43%, during the year ended December 31, 2025, compared to the same period in 2024. The decrease was primarily due to a decrease in subscription revenue of $223.8 million primarily related to reduced traffic which led to fewer subscribers, a decrease in advertising services revenue of $18.0 million due to lower fulfillment, and a decrease of print textbook and eTextbook revenue of $4.4 million because we no longer provide this platform, partially offset by content licensing revenue of $10.8 million. Academic Services revenues as a percentage of net revenues were 82% during the year ended December 31, 2025 compared to 88% during the same period in 2024. Cost of Revenues The following table presents our cost of revenues for the periods shown (in thousands, except percentages): Years Ended December 31, Change in 2025 2025 2024 $ % Cost of revenues (1) $ 152,151 $ 180,927 $ (28,776) (16) % (1) Includes share-based compensation expense of: $ 503 $ 1,786 $ (1,283) (72) % (1) Includes restructuring charges of: $ 2,099 $ 762 $ 1,337 175 % Cost of revenues decreased $28.8 million, or 16%, during the year ended December 31, 2025, compared to the same period in 2024. The decrease was primarily due to lower payment processing and other order fees of $16.3 million, which is primarily due to the decrease in subscribers who have paid to access our services, lower employee-related expenses of $4.6 million, lower web hosting fees of $4.0 million, lower write-offs of content and internally developed software of $3.1 million, lower contractor spend of $2.4 million, and lower advertising services revenue costs of $1.0 million, partially offset by higher depreciation and amortization expense of $3.2 million and higher restructuring charges of $1.3 million. Gross margins decreased to 60% during the year ended December 31, 2025, from 71% during the same period in 2024. 42 Table of Contents Operating Expenses The following table presents our total operating expenses for the periods shown (in thousands, except percentages): Years Ended December 31, Change in 2025 2025 2024 $ % Research and development (1) $ 93,453 $ 170,431 $ (76,978) (45) % Sales and marketing (1) 68,754 108,329 (39,575) (37) General and administrative (1) 177,406 217,756 (40,350) (19) Impairment expense 2,000 677,239 (675,239) (100) Total operating expenses $ 341,613 $ 1,173,755 $ (832,142) (71) (1) Includes share-based compensation expense of: Research and development $ 6,812 $ 28,044 $ (21,232) (76) % Sales and marketing 2,174 7,466 (5,292) (71) General and administrative 22,375 47,318 (24,943) (53) Total share-based compensation expense $ 31,361 $ 82,828 $ (51,467) (62) (1) Includes restructuring charges of: Research and development $ 15,376 $ 11,387 $ 3,989 35 % Sales and marketing 4,793 2,630 2,163 82 General and administrative 29,271 9,824 19,447 198 Total restructuring charges $ 49,440 $ 23,841 $ 25,599 107 Operating expenses decreased $832.1 million, or 71% during the year ended December 31, 2025, compared to the same period in 2024, primarily due to the absence of impairment expense of $677.2 million recognized in 2024. The remaining decreases were primarily related to lower employee-related expenses and contractor spend as a result of the restructuring plans. See “Note 7. Goodwill and Intangible Assets” and “Note 15 . Restructuring Charges” included in our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional information regarding impairment expense and the restructuring plans, respectively. Research and Development Research and development expenses decreased $77.0 million, or 45%, during the year ended December 31, 2025 compared to the same period in 2024. The decrease was primarily due to lower employee-related expenses of $65.4 million, including share-based compensation expense, lower contractor spend of $6.2 million, lower web hosting fees of $4.1 million, lower technology expenses of $3.3 million, and lower depreciation and amortization expense of $1.2 million, partially offset by higher restructuring charges of $4.0 million. Research and development expenses as a percentage of net revenues were 25% during the year ended December 31, 2025 compared to 28% during the same period in 2024. Sales and Marketing Sales and marketing expenses decreased by $39.6 million, or 37%, during the year ended December 31, 2025, compared to the same period in 2024. The decrease was primarily due to lower paid marketing expenses of $22.1 million, lower employee-related expenses of $14.3 million including share-based compensation expense, lower indirect marketing expenses of $2.7 million, and lower depreciation and amortization expense of $1.3 million, partially offset by higher restructuring charges of $2.2 million. Sales and marketing expenses as a percentage of net revenues were 18% during each of the years ended December 31, 2025 and 2024. 43 Table of Contents General and Administrative General and administrative expenses decreased $40.4 million, or 19%, during the year ended December 31, 2025 compared to the same period in 2024. The decrease was primarily due to lower employee-related expenses of $50.9 million including share-based compensation expense, lower professional fees of $6.0 million, lower loss contingency accruals of $4.5 million, lower contractor spend of $3.0 million, and lower facility expenses of $2.9 million, partially offset by higher restructuring charges of $19.4 million, an impairment loss on our equity investment of $6.0 million, and higher impairments of lease-related assets of $1.8 million. General and administrative expenses as a percentage of net revenues were 47% during the year ended December 31, 2025 compared to 35% during the same period in 2024. Impairment Expense Impairment expense was $2.0 million during the year ended December 31, 2025, consisting of impairment of property and equipment. Impairment expense was $677.2 million during the year ended December 31, 2024 consisting of impairments of goodwill, intangible assets, and other related property and equipment. See “Note 6. Property and Equipment, Net” and “Note 7. Goodwill and Intangible Assets” of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional information. Interest Expense, Net and Other Income, Net The following table presents our interest expense, net, and other income, net, for the periods shown (in thousands, except percentages): Years Ended December 31, Change in 2025 2025 2024 $ % Interest expense, net $ (590) $ (2,590) $ 2,000 (77) % Other income, net 17,304 51,332 (34,028) (66) Total interest expense, net and other income, net $ 16,714 $ 48,742 $ (32,028) (66) Interest expense, net decreased by $2.0 million, or 77%, during the year ended December 31, 2025, compared to the same period in 2024. The decrease was primarily due lower interest expense recognized as a result of the maturity of the 2025 notes and the early extinguishment of a portion of the 2026 notes. Other income, net decreased $34.0 million, or 66%, during the year ended December 31, 2025 compared to the same period in 2024, primarily due to a decrease in interest income of $19.2 million due to lower investment balances, a decrease in gain on early extinguishment of a portion of the 2026 notes of $11.7 million, and the absence of a gain on the sale of our equity investment of $3.8 million. See “Note 8. Convertible Senior Notes,” of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional information on the gain on early extinguishment of a portion of the 2026 notes and the maturity of the 2025 notes. Provision for income taxes The following table presents our provision for income taxes for the periods shown (in thousands, except percentages): Years Ended December 31, Change in 2025 2025 2024 $ % Provision for income taxes $ (3,279) $ (148,702) $ 145,423 n/m _______________________________________ *n/m - not meaningful Provision for income taxes decreased by $145.4 million during the year ended December 31, 2025 compared to the same period in 2024, primarily due to the establishment of a valuation allowance against our U.S. federal and state deferred tax assets in 2024. 44 Table of Contents Liquidity and Capital Resources The following table presents our cash, cash equivalents and investments and convertible senior notes as of the periods shown (in thousands, except percentages): As of December 31, Change in 2025 2025 2024 $ % Cash, cash equivalents, investments $ 85,212 $ 528,374 $ (443,162) (84) % Convertible senior notes, net (1) 53,765 485,949 (432,184) (89) _____________________________________________________ (1) Consists of the current and long-term portion. Cash, cash equivalents, and investments decreased $443.2 million, or 84%, during the year ended December 31, 2025 primarily due to the maturity of the 2025 notes and early extinguishment of a portion of the 2026 notes of $424.8 million and purchases of property and equipment of $28.1 million, partially offset by the net cash provided by operating activities of $15.5 million. Convertible senior notes, net decreased $432.2 million, or 89%, during the year ended December 31, 2025 primarily due to the maturity of the 2025 notes and the early extinguishment of a portion of the 2026 notes. The 2026 notes mature on September 1, 2026 unless converted, redeemed, or repurchased in accordance with their terms prior to such date. Holders of the 2026 notes may convert their notes at any time on or after June 1, 2026 until the close of business on the second scheduled trading day immediately preceding the respective maturity dates. See “Note 8. Convertible Senior Notes” of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional information on our 2026 notes. On February 13, 2026, we entered into an individual, privately negotiated repurchase agreement with a holder of our outstanding 2026 notes to repurchase $20.0 million in aggregate principal amount of the 2026 notes for an aggregate cash repurchase price of $19.4 million (the “Notes Repurchase Transaction”). The Notes Repurchase Transaction was entered into in connection with our previously announced securities repurchase program and closed on February 20, 2026. Following the closing, $33.9 million aggregate principal amount of the 2026 notes remain outstanding and $122.4 million remain available under our securities repurchase program. As of December 31, 2025, our principal sources of liquidity were cash, cash equivalents, and investments totaling $85.2 million, which were held for working capital purposes. We believe that our existing sources of liquidity will be sufficient to fund our operations and debt service obligations for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, our investments in research and development activities, our acquisition of new products and services, and our sales and marketing activities. To the extent that existing sources of liquidity are insufficient to fund our future operations, we may need to raise additional funds through public or private equity or debt financing. Additional funds may not be available on terms favorable to us or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, operating cash flows and financial condition. As of December 31, 2025, we have incurred cumulative losses of $992.9 million from our operations and we may incur additional losses in the future. Most of our cash, cash equivalents, and investments are held in the United States. In December 2025, our subsidiary in India distributed an additional $10.8 million to the United States, resulting in a remittance of $1.6 million in withholding tax. As of December 31, 2025, the net cumulative tax expense related to future distribution amounts is $1.1 million. This reflects our continued assessment of cash needs and the absence of an indefinite reinvestment assertion for our subsidiary in India. As a result of the Tax Cuts and Jobs Act, we anticipate the U.S. federal impact for the remaining foreign jurisdictions to be minimal if these funds are repatriated. In addition, based on our current and future needs, we believe our current funding and capital resources for our international operations are adequate. 45 Table of Contents The following table presents our contractual obligations and other commitments as of December 31, 2025 (in thousands): Total Next 12 Months Beyond 12 Months Convertible senior notes (1) $ 53,860 $ 53,860 $ — Purchase obligations (2) 81,767 25,852 55,915 Operating lease obligations (3) 22,511 4,795 17,716 Total contractual obligations $ 158,138 $ 84,507 $ 73,631 _____________________________________________________ (1) Consists of the remaining principal amount due upon maturity. As of December 31, 2025, our convertible senior notes are recorded on our consolidated balance sheets at the carrying amounts of $53.8 million. (2) Represents contractual obligations primarily related to information technology services. (3) Our corporate offices are leased under operating leases, which expire at various dates through 2033. In addition, we are also subject to certain legal proceedings and claims, including in the ordinary course of business, and record a liability when we believe that a loss is probable and reasonably estimable. See “Note 10. Commitments and Contingencies" of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional information. The following table presents our consolidated statements of cash flows data for the periods shown (in thousands, except percentages): Years Ended December 31, Change in 2025 2025 2024 $ % Net cash provided by operating activities $ 15,490 $ 125,205 $ (109,715) (88) % Net cash provided by investing activities 282,297 11,345 270,952 n/m Net cash used in financing activities (428,479) (109,142) (319,337) n/m The substantial majority of our cash inflows from operating activities are from e-commerce transactions with learners, which are settled immediately through payment processors, as opposed to cash outflows from bill payments, which are settled based on contractual payment terms with our suppliers. Net cash provided by operating activities decreased $109.7 million, or 88%, during the year ended December 31, 2025, compared to the same period in 2024 and was primarily related to the net effect of a decrease in net loss of $733.6 million, a decrease in impairment expense of $675.2 million, and a decrease in deferred tax assets of $142.3 million. Net cash provided by investing activities increased $271.0 million during the year ended December 31, 2025, compared to the same period in 2024 and was primarily related to fewer purchases of investments of $170.2 million, higher proceeds from the sale of investments of $111.1 million, and fewer purchases of property and equipment of $46.8 million, partially offset by a lower cash from investment maturities of $41.6 million and the absence of proceeds from the sale of our equity investment of $15.5 million. Net cash used in financing activities increased $319.3 million during the year ended December 31, 2025, compared to the same period in 2024 and was primarily related to higher repayments of our convertible senior notes of $328.3 million, partially offset by lower taxes paid related to the net share settlement of equity awards of $6.6 million and the absence of repurchases of our common stock of $2.6 million. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions. 46 Table of Contents An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We believe that assumptions and estimates of the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. For further information on all of our significant accounting policies, see “Note 2. Significant Accounting Policies”, of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Revenue Recognition and Deferred Revenue For sales of third-party products, we evaluate whether we are acting as a principal or an agent. Where our role in a transaction is that of principal, revenues are recognized on a gross basis. This requires revenue to comprise the gross value of the transaction billed to the customer, after trade discounts, with any related expenditure charged as a cost of revenues. Where our role in a transaction is that of an agent, revenues are recognized on a net basis with revenues representing the margin earned. Our determination is based on our evaluation of whether we control the specified goods or services prior to transferring them to the customer. There are significant judgments involved in determining whether we control the specified goods or services prior to transferring them to the customer including whether we have the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service. For all of our offerings, aside from print textbooks and eTextbooks which are no longer provided, we control our services and recognize revenues and cost of revenues on a gross basis. Some of our customer arrangements include multiple performance obligations. We have determined these performance obligations qualify as distinct performance obligations, as the customer can benefit from the service on its own or together with other resources that are readily available to the customer, and our promise to transfer the service is separately identifiable from other promises in the contract. For these arrangements that contain multiple performance obligations, we allocate the transaction price based on the relative standalone selling price (SSP) method by comparing the SSP of each distinct performance obligation to the total value of the contract. We determine the SSP based on our historical pricing and discounting practices for the distinct performance obligation when sold separately. If the SSP is not directly observable, we estimate the SSP by considering information such as market conditions, and information about the customer. Some of our customer arrangements may include an amount of variable consideration in addition to a fixed revenue share that we earn. This variable consideration can either increase or decrease the total transaction price depending on the nature of the variable consideration. We estimate the amount of variable consideration that we will earn at the inception of the contract, adjusted during each period, and include an estimated amount each period. In determining this estimate, we consider the single most likely amount in a range of possible amounts. This estimated amount of variable consideration requires management to make a judgment based on the forecasted amount of consideration that we expect we will earn as well as the time period in which we can reasonably rely on the accuracy of the forecast. Our estimate of variable consideration is constrained to only include the amount of variable consideration for which it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur, as the amounts that we could potentially earn in outer years can change significantly based on factors that are out of our control. If our forecasts are inaccurate, the estimated amount of variable consideration could be inaccurate, which could impact our revenue recognition in a given period. Impairment of Intangible Assets and Long-Lived Assets Intangible assets and long-lived assets are tested for impairment, at the asset group level, at least annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Factors that we consider include the recognition of goodwill impairment charges or planned changes in the use of the asset group. When measuring the recoverability, we make assumptions regarding our estimated future undiscounted cash flows expected to be generated by the asset group. If the asset group is not recoverable, we proceed to estimating the fair value of the asset group, which includes assumptions regarding future growth rates and the amount and timing of expected future cash flow. If our estimates or related assumptions are inaccurate, our conclusion on whether these assets are recoverable or impaired could be incorrect, which could impact whether we recognize an impairment in a given period. Goodwill Goodwill is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. In our qualitative assessment, we consider factors including economic conditions, industry and 47 Table of Contents market conditions and developments, overall financial performance and other relevant entity-specific events in determining whether it is more likely than not that the fair value of our reporting unit is less than the carrying amount. Our qualitative assessment requires management to make judgments based on the factors listed above in our determination of whether events or changes in circumstances indicate that the carrying values may not be recoverable. If our qualitative assessment concludes that it is more likely than not that the fair value is less than the carrying amount, a quantitative assessment is performed. Performing a quantitative impairment test includes the determination of fair value and involves significant estimates and assumptions including, among others, forecasted revenue growth rates, operating margins and capital expenditures, and discount rates used to calculate projected future cash flows. If the carrying value exceeds the fair value, an impairment loss is recognized in an amount equal to the excess. If estimates or related assumptions change, this could have a significant impact on either the fair value of our reporting unit, the amount of any goodwill impairment, or both. Share-based Compensation Expense We measure and recognize share-based compensation expense for all awards made to employees, directors and consultants, including restricted stock units (RSUs), performance-based RSUs (PSUs) with either a market-based condition or financial and strategic performance target and our employee stock purchase plan (ESPP) based on estimated fair values. We estimate a forfeiture rate to calculate the share-based compensation expense related to our awards. Estimated forfeitures are determined based on historical data and we continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors. Quarterly changes in the estimated forfeiture rate can have a significant impact on our share-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the share-based compensation expense recognized in the financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the share-based compensation expense recognized in the financial statements. Share-based compensation expense for PSUs with a market-based condition is recognized regardless of whether the market condition is satisfied subject to continuing service over the requisite service period. Share-based compensation expense recognized related to PSUs with a financial and strategic performance target is subject to the achievement of performance objectives and requires significant judgment by management in determining the current level of attainment of such performance objectives. Management may consider factors such as the latest financial forecasts and general business trends in the assessment of PSU award attainment. Subsequent changes to these considerations may have a material impact on the amount of share-based compensation expense recognized in the period, which may lead to volatility of share-based compensation expense period-to-period. If the performance objectives are not met or service is no longer provided, no share-based compensation expense will be recognized, and any previously recognized share-based compensation expense will be reversed. We will continue to use judgment in evaluating the assumptions related to our share-based compensation expense on a prospective basis. As we continue to accumulate additional data related to our common stock, we may refine our estimates, which could materially impact our future share-based compensation expense. Provision for Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements or tax returns. In estimating future tax consequences, we generally consider all expected future events other than enactments or changes in the tax law or rates. In assessing the realization of deferred tax assets, we consider whether it is more likely than not that all or some portion of deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Valuation allowances are provided to reduce deferred tax assets to the amount that is more likely than not to be realized. In assessing the need for a valuation allowance, we consider all available evidence including future reversals of existing taxable temporary differences, projected future taxable income, taxable income in prior carryback years if permitted under the tax law, and tax-planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. We record uncertain tax positions on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of technical merits of the position and (2) for those tax positions 48 Table of Contents that meet the more likely than not recognition threshold, we recognize the tax benefit as the largest amount that is cumulative more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The calculation of tax expense and liabilities involves dealing with uncertainties in the application of complex global tax regulations. We recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. Significant judgment is required in determining our provision for income taxes and evaluating our uncertain tax positions. To the extent that the final tax outcome of these matters may differ from the amounts that were initially recorded, such differences will impact the income tax provision in the period in which such determination is made. As a result, significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period. Recent Accounting Pronouncements For relevant recent accounting pronouncements, see “Note 2. Significant Accounting Policies”, of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.