UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2021~~March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission file number 001-36180

CHEGG, INC.

(Exact name of registrant as specified in its charter)


Delaware						20-3237489
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

3990 Freedom Circle

Santa Clara, CA, 95054

(Address of principal executive offices)

(408) 855-5700

(Registrant’s telephone number, including area code)


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value per share	CHGG	The New York Stock Exchange

•Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

•Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

•Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer ~~(Do not check if a smaller reporting company)~~	☐	Smaller reporting company	☐
Emerging growth company	☐

•If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

•Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

•As of ~~August 6, 2021,~~April 25, 2022, the Registrant had ~~144,677,794~~125,894,774 outstanding shares of Common Stock.

Table of Contents

~~TABLE OF CONTENTS~~

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited):

Condensed Consolidated Balance Sheets - ~~June 30, 2021~~ March 31, 2022 and December 31, ~~2020~~2 021

Condensed Consolidated Statements of Operations - for the Three ~~and Six~~ Months Ended ~~June 30, 2021~~ March 31, 2022 and ~~2020~~2 021

Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss - for the Three ~~and Six~~ Months Ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2 021

Condensed Consolidated Statements of Stockholder's Equity - for the Three ~~and Six~~ Months Ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2 021

Condensed Consolidated Statements of Cash Flows - for the ~~Six~~Three Months Ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2 021

Notes to Condensed Consolidated Financial Statements

109

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

2622

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3630

Item 4.

Controls and Procedures

3630

PART II - OTHER INFORMATION

Unregistered Sales of Equity Securities and Use of Proceeds

Unless the context requires otherwise, the words “we,” “us,” “our,” ~~“Company,”~~“Company” and “Chegg” refer to Chegg, Inc. and its subsidiaries taken as a whole.

Chegg, Chegg.com, Chegg Study, internships.com, Research Ready, EasyBib, the Chegg “C” logo, Busuu and Thinkful, are some of our trademarks ~~that may be~~ used in this Quarterly Report on Form 10-Q. Solely for convenience, our trademarks, trade names and service marks ~~that may be~~ referred to in this Quarterly Report on Form 10-Q appear without the ®, ™ and SM symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names. Other trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

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NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, our objectives for future operations, and the impact of the ongoing coronavirus (COVID-19) pandemic on our financial condition and results of operations are forward-looking statements. The words “believe,” “may,” “will,” “would,” “could,” “estimate,” “continue,” “anticipate,” “intend,” “project,” “endeavor,” “expect,” “plans to,” “if,” “future,” “likely,” “potentially,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021. Moreover, we operate in a very competitive and rapidly changing ~~environment where new~~environment. New risks emerge from time to time, such as the COVID-19 global pandemic. Many of the risks and uncertainties are currently elevated by, and may or will continue to be elevated by, the current COVID-19 pandemic. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

Our forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to ~~update~~revise or ~~revise~~ publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CHEGG, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(unaudited)


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	840,056	$	479,853	Cash and cash equivalents	$	267,731	$	854,078
Short-term investments	Short-term investments	1,221,666		665,567		Short-term investments	915,431		691,781
Accounts receivable, net of allowance of $147 and $153 at June 30, 2021 and December 31, 2020, respectively		10,091		12,913
Accounts receivable, net of allowance of $156 and $153 at March 31, 2022 and December 31, 2021, respectively						Accounts receivable, net of allowance of $156 and $153 at March 31, 2022 and December 31, 2021, respectively	19,918		17,850
Prepaid expenses	Prepaid expenses	18,811		12,776		Prepaid expenses	28,882		35,093
Other current assets	Other current assets	25,643		11,846		Other current assets	14,671		23,846
Total current assets	Total current assets	2,116,267		1,182,955		Total current assets	1,246,633		1,622,648
Long-term investments	Long-term investments	484,853		523,628		Long-term investments	435,413		745,993
Textbook library, net	Textbook library, net	17,682		34,149		Textbook library, net	10,651		11,241
Property and equipment, net	Property and equipment, net	149,627		125,807		Property and equipment, net	187,743		169,938
Goodwill	Goodwill	290,725		285,214		Goodwill	641,284		289,763
Intangible assets, net	Intangible assets, net	46,620		51,249		Intangible assets, net	102,685		40,566
Right of use assets	Right of use assets	21,100		24,226		Right of use assets	18,879		18,062
Other assets	Other assets	24,073		24,030		Other assets	19,182		21,035
Total assets	Total assets	$	3,150,947	$	2,251,258	Total assets	$	2,662,470	$	2,919,246
Liabilities and stockholders' equity	Liabilities and stockholders' equity					Liabilities and stockholders' equity
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	6,211	$	8,547	Accounts payable	$	9,549	$	11,992
Deferred revenue	Deferred revenue	34,682		32,620		Deferred revenue	60,458		35,143
Accrued liabilities	Accrued liabilities	72,644		68,565		Accrued liabilities	85,424		67,209

Total current liabilities	Total current liabilities	113,537		109,732		Total current liabilities	155,431		114,344
Long-term liabilities	Long-term liabilities					Long-term liabilities
Convertible senior notes, net	Convertible senior notes, net	1,675,340		1,506,922		Convertible senior notes, net	1,679,534		1,678,155
Long-term operating lease liabilities	Long-term operating lease liabilities	15,811		19,264		Long-term operating lease liabilities	12,456		12,447
Other long-term liabilities	Other long-term liabilities	8,377		5,705		Other long-term liabilities	6,528		7,383
Total long-term liabilities	Total long-term liabilities	1,699,528		1,531,891		Total long-term liabilities	1,698,518		1,697,985
Total liabilities	Total liabilities	1,813,065		1,641,623		Total liabilities	1,853,949		1,812,329
Commitments and contingencies		0		0
Commitments and contingencies (Note 8)						Commitments and contingencies (Note 8)	0		0
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.001 par value per share, 10,000,000 shares authorized, 0 shares issued and outstanding		0		0
Common stock, $0.001 par value per share: 400,000,000 shares authorized; 144,621,425 and 129,343,524 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		145		129
Preferred stock, $0.001 par value per share, 10,000,000 shares authorized, no shares issued and outstanding						Preferred stock, $0.001 par value per share, 10,000,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.001 par value per share: 400,000,000 shares authorized; 126,681,972 and 136,951,956 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively						Common stock, $0.001 par value per share: 400,000,000 shares authorized; 126,681,972 and 136,951,956 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	127		137
Additional paid-in capital	Additional paid-in capital	1,706,855		1,030,577		Additional paid-in capital	1,176,765		1,449,305
Accumulated other comprehensive (loss) income		(970)		1,530
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(36,922)		(5,334)
Accumulated deficit	Accumulated deficit	(368,148)		(422,601)		Accumulated deficit	(331,449)		(337,191)
Total stockholders' equity	Total stockholders' equity	1,337,882		609,635		Total stockholders' equity	808,521		1,106,917
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	3,150,947	$	2,251,258	Total liabilities and stockholders' equity	$	2,662,470	$	2,919,246

See Notes to Condensed Consolidated Financial Statements.

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CHEGG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Net revenues	Net revenues	$	198,478	$	153,009	$	396,856	$	284,599	Net revenues	$	202,244	$	198,378
Cost of revenues	Cost of revenues	60,708		43,524		132,092		85,914		Cost of revenues	55,085		71,384
Gross profit	Gross profit	137,770		109,485		264,764		198,685		Gross profit	147,159		126,994
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	41,595		40,374		87,726		79,915		Research and development	52,415		46,131
Sales and marketing	Sales and marketing	21,686		15,758		47,900		35,996		Sales and marketing	42,498		26,214
General and administrative	General and administrative	39,719		31,292		77,589		57,437		General and administrative	46,870		37,870

Total operating expenses	Total operating expenses	103,000		87,424		213,215		173,348		Total operating expenses	141,783		110,215
Income from operations	Income from operations	34,770		22,061		51,549		25,337		Income from operations	5,376		16,779
Interest expense, net and other income (expense), net:	Interest expense, net and other income (expense), net:									Interest expense, net and other income (expense), net:
Interest expense, net	Interest expense, net	(1,701)		(13,425)		(3,630)		(26,852)		Interest expense, net	(1,597)		(1,929)
Other income (expense), net	Other income (expense), net	1,920		3,240		(75,288)		8,200		Other income (expense), net	6,180		(77,208)
Total interest expense, net and other income (expense), net	Total interest expense, net and other income (expense), net	219		(10,185)		(78,918)		(18,652)		Total interest expense, net and other income (expense), net	4,583		(79,137)
Income (loss) before provision for income taxes	Income (loss) before provision for income taxes	34,989		11,876		(27,369)		6,685		Income (loss) before provision for income taxes	9,959		(62,358)
Provision for income taxes	Provision for income taxes	2,225		1,287		5,046		1,809		Provision for income taxes	(4,217)		(2,821)
Net income (loss)	Net income (loss)	$	32,764	$	10,589	$	(32,415)	$	4,876	Net income (loss)	$	5,742	$	(65,179)
Net income (loss) per share	Net income (loss) per share									Net income (loss) per share
Basic	Basic	$	0.23	$	0.09	$	(0.23)	$	0.04	Basic	$	0.04	$	(0.49)
Diluted	Diluted	$	0.20	$	0.08	$	(0.23)	$	0.04	Diluted	$	0.04	$	(0.49)
Weighted average shares used to compute net income (loss) per share	Weighted average shares used to compute net income (loss) per share									Weighted average shares used to compute net income (loss) per share
Basic	Basic	143,112		123,842		138,756		123,135		Basic	132,162		134,352
Diluted	Diluted	168,282		133,851		138,756		132,674		Diluted	133,270		134,352

See Notes to Condensed Consolidated Financial Statements.

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CHEGG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(in thousands)

(unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net income (loss) $ 32,764 $ 10,589 $ (32,415) $ 4,876
Other comprehensive income (loss)
Change in net unrealized gain (loss) on investments, net of tax 375 6,831 (1,519) 3,564
Change in foreign currency translation adjustments, net of tax (107) 381 (981) (618)
Other comprehensive income (loss) 268 7,212 (2,500) 2,946
Total comprehensive income (loss) $ 33,032 $ 17,801 $ (34,915) $ 7,822


	Three Months Ended March 31,
	2022		2021
Net income (loss)	$	5,742	$	(65,179)
Other comprehensive loss
Change in net unrealized loss on investments, net of tax	(12,917)		(1,894)
Change in foreign currency translation adjustments, net of tax	(18,671)		(874)
Other comprehensive loss	(31,588)		(2,768)
Total comprehensive loss	$	(25,846)	$	(67,947)

See Notes to Condensed Consolidated Financial Statements.

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CHEGG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)

Three Months Ended June 30, 2021
Common Stock
Shares Par
Value Additional Paid-In
Capital Accumulated Other Comprehensive (Loss) Income Accumulated
Deficit Total Stockholders’ Equity
Balances at March 31, 2021 141,317 $ 141 $ 1,645,352 $ (1,238) $ (400,912) $ 1,243,343
Equity component on conversions of 2023 notes and 2025 notes — — (225,615) — — (225,615)
Issuance of common stock upon conversions of 2023 notes 2,857 3 224,281 — — 224,284
Net proceeds from capped call related to conversions of 2023 notes and 2025 notes — — 44,192 — — 44,192
Issuance of common stock upon exercise of stock options and ESPP 120 — 4,919 — — 4,919
Net share settlement of equity awards 327 1 (15,466) — — (15,465)
Share-based compensation expense — — 29,192 — — 29,192
Other comprehensive income — — — 268 — 268
Net income — — — — 32,764 32,764
Balances at June 30, 2021 144,621 $ 145 $ 1,706,855 $ (970) $ (368,148) $ 1,337,882


	Three Months Ended March 31, 2022
	Common Stock
	Shares	Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
Balances at December 31, 2021	136,952	$	137	$	1,449,305	$	(5,334)	$	(337,191)	$	1,106,917
Repurchases of common stock	(10,725)	(11)		(300,439)		—		—		(300,450)



Issuance of common stock upon exercise of stock options	54	—		455		—		—		455
Net share settlement of equity awards	401	1		(7,467)		—		—		(7,466)
Share-based compensation expense	—	—		34,911		—		—		34,911
Other comprehensive loss	—	—		—		(31,588)		—		(31,588)
Net income	—	—		—		—		5,742		5,742
Balances at March 31, 2022	126,682	$	127	$	1,176,765	$	(36,922)	$	(331,449)	$	808,521

Three Months Ended June 30, 2020
Common Stock
Shares Par
Value Additional Paid-In
Capital Accumulated Other Comprehensive (Loss) Income Accumulated
Deficit Total Stockholders’ Equity
Balances at March 31, 2020 123,543 $ 124 $ 890,258 $ (5,362) $ (422,093) $ 462,927
Issuance of common stock upon exercise of stock options and ESPP 312 — 5,372 — — 5,372
Net share settlement of equity awards 268 — (7,268) — — (7,268)
Share-based compensation expense — — 19,546 — — 19,546
Other comprehensive income — — — 7,212 — 7,212
Net income — — — — 10,589 10,589
Balances at June 30, 2020 124,123 $ 124 $ 907,908 $ 1,850 $ (411,504) $ 498,378

~~Table of Contents~~

Six Months Ended June 30, 2021
Common Stock
Shares Par
Value Additional Paid-In
Capital Accumulated Other Comprehensive (Loss) Income 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 conversion of 2023 notes 2,983 3 235,518 — — 235,521
Net proceeds from capped call related to conversions and extinguishments of 2023 notes and 2025 notes — — 67,769 — — 67,769
Issuance of common stock upon exercise of stock options and ESPP 164 — 5,265 — — 5,265
Net share settlement of equity awards 1,155 2 (74,642) — — (74,640)
Share-based compensation expense — — 52,839 — — 52,839
Other comprehensive loss — — — (2,500) — (2,500)
Net loss — — — — (32,415) (32,415)
Balances at June 30, 2021 144,621 $ 145 $ 1,706,855 $ (970) $ (368,148) $ 1,337,882

Six Months Ended June 30, 2020
Common Stock
Shares Par
Value Additional Paid-In
Capital Accumulated Other Comprehensive (Loss) Income Accumulated
Deficit Total Stockholders’ Equity
Balances at December 31, 2019 121,584 $ 122 $ 916,095 $ (1,096) $ (416,292) $ 498,829
Cumulative-effect adjustment related to adoption of ASU 2016-13 — — — — (88) (88)
Issuance of common stock upon exercise of stock options and ESPP 672 — 8,037 — — 8,037
Net share settlement of equity awards 1,867 2 (54,104) — — (54,102)
Share-based compensation expense — — 37,880 — — 37,880
Other comprehensive income — — — 2,946 — 2,946
Net income — — — — 4,876 4,876
Balances at June 30, 2020 124,123 $ 124 $ 907,908 $ 1,850 $ (411,504) $ 498,378


	Three Months Ended March 31, 2021
	Common Stock
	Shares	Par 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	—	—		(11,305)		—		—		(11,305)
Issuance of common stock upon conversions of 2023 notes	126	—		11,237		—		—		11,237
Net proceeds from capped call related to conversions of 2023 notes and 2025 notes	—	—		23,577		—		—		23,577
Issuance of common stock upon exercise of stock options	44	—		346		—		—		346
Net share settlement of equity awards	828	1		(59,176)		—		—		(59,175)
Share-based compensation expense	—	—		23,647		—		—		23,647
Other comprehensive loss	—	—		—		(2,768)		—		(2,768)
Net loss	—	—		—		—		(65,179)		(65,179)
Balances at March 31, 2021	141,317	$	141	$	1,645,352	$	(1,238)	$	(400,912)	$	1,243,343

See Notes to Condensed Consolidated Financial Statements.

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CHEGG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


		Six Months Ended June 30,				Three Months Ended March 31,
		2021		2020				2022		2021
Operating activities
Net (loss) income		$	(32,415)	$	4,876
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Cash flows from operating activities							Cash flows from operating activities
Net income (loss)							Net income (loss)	$	5,742	$	(65,179)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:							Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Print textbook depreciation expense	Print textbook depreciation expense	6,581		7,062			Print textbook depreciation expense	1,521		3,760
Other depreciation and amortization expense	Other depreciation and amortization expense	30,187		19,834			Other depreciation and amortization expense	20,285		14,846
Share-based compensation expense	Share-based compensation expense	51,645		37,880			Share-based compensation expense	33,084		23,100
Amortization of debt discount and issuance costs		3,097		25,892

Amortization of debt issuance costs							Amortization of debt issuance costs	1,382		1,626
Gain on foreign currency remeasurement of purchase consideration							Gain on foreign currency remeasurement of purchase consideration	(4,628)		—
Loss on early extinguishment of debt	Loss on early extinguishment of debt	78,152		0			Loss on early extinguishment of debt	—		78,152
Loss on change in fair value of derivative instruments, net	Loss on change in fair value of derivative instruments, net	7,148		0			Loss on change in fair value of derivative instruments, net	—		7,148
Loss from write-off of property and equipment	Loss from write-off of property and equipment	1,042		851			Loss from write-off of property and equipment	626		757

Gain on sale of strategic equity investment	Gain on sale of strategic equity investment	(5,338)		0			Gain on sale of strategic equity investment	—		(5,338)
Loss (gain) on textbook library, net		4,230		(1,371)
(Gain) loss on textbook library, net							(Gain) loss on textbook library, net	(610)		4,028
Operating lease expense, net of accretion							Operating lease expense, net of accretion	1,640		1,589

Operating lease expense, net of accretion		3,064		2,185
Other non-cash items	Other non-cash items	298		(427)			Other non-cash items	(737)		87
Change in assets and liabilities, net of effect of acquisition of business:
Change in assets and liabilities, net of effect of acquisition of businesses:							Change in assets and liabilities, net of effect of acquisition of businesses:
Accounts receivable	Accounts receivable	3,462		3,961			Accounts receivable	292		2,240
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(14,715)		(1,812)			Prepaid expenses and other current assets	21,722		(25,075)
Other assets	Other assets	7,220		(712)			Other assets	8,342		1,058
Accounts payable	Accounts payable	(3,139)		(574)			Accounts payable	(7,534)		6,597
Deferred revenue	Deferred revenue	2,062		8,117			Deferred revenue	8,554		15,988
Accrued liabilities	Accrued liabilities	4,197		17,389			Accrued liabilities	(7,555)		9,386

Other liabilities	Other liabilities	(2,277)		(946)			Other liabilities	(2,091)		(1,197)
Net cash provided by operating activities	Net cash provided by operating activities	144,501		122,205			Net cash provided by operating activities	80,035		73,573
Investing activities
Cash flows from investing activities							Cash flows from investing activities
Purchases of property and equipment	Purchases of property and equipment	(46,595)		(43,111)			Purchases of property and equipment	(29,533)		(18,984)
Purchases of textbooks	Purchases of textbooks	(5,018)		(38,668)			Purchases of textbooks	(3,692)		(4,527)
Proceeds from disposition of textbooks	Proceeds from disposition of textbooks	6,709		3,415			Proceeds from disposition of textbooks	2,499		4,038
Purchases of investments	Purchases of investments	(984,606)		(277,033)			Purchases of investments	(273,280)		(925,748)
Maturities of investments							Maturities of investments	342,059		181,315

Maturities of investments		455,536		271,711
Purchase of strategic equity investment		0		(2,000)
Proceeds from sale of strategic equity investment	Proceeds from sale of strategic equity investment	7,081		0			Proceeds from sale of strategic equity investment	—		6,845
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	(7,891)		(92,796)			Acquisition of businesses, net of cash acquired	(401,125)		(7,891)
Net cash used in investing activities	Net cash used in investing activities	(574,784)		(178,482)			Net cash used in investing activities	(363,072)		(764,952)
Financing activities
Cash flows from financing activities							Cash flows from financing activities
Proceeds from common stock issued under stock plans, net	Proceeds from common stock issued under stock plans, net	5,267		8,039			Proceeds from common stock issued under stock plans, net	456		347
Payment of taxes related to the net share settlement of equity awards	Payment of taxes related to the net share settlement of equity awards	(74,642)		(54,104)			Payment of taxes related to the net share settlement of equity awards	(7,467)		(59,176)

Proceeds from equity offering, net of offering costs	Proceeds from equity offering, net of offering costs	1,091,466		0			Proceeds from equity offering, net of offering costs	—		1,091,466
Repayment of convertible senior notes	Repayment of convertible senior notes	(300,751)		0			Repayment of convertible senior notes	—		(189,849)
Proceeds from exercise of convertible senior notes capped call	Proceeds from exercise of convertible senior notes capped call	69,004		0			Proceeds from exercise of convertible senior notes capped call	—		24,812

Net cash provided by (used in) financing activities		790,344		(46,065)
Net increase (decrease) in cash, cash equivalents and restricted cash		360,061		(102,342)
Repurchases of common stock							Repurchases of common stock	(300,450)		—
Net cash (used in) provided by financing activities							Net cash (used in) provided by financing activities	(307,461)		867,600
Effect of exchange rate changes							Effect of exchange rate changes	4,628		—
Net (decrease) increase in cash, cash equivalents and restricted cash							Net (decrease) increase in cash, cash equivalents and restricted cash	(585,870)		176,221
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	481,715		389,432			Cash, cash equivalents and restricted cash, beginning of period	855,893		481,715
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	841,776	$	287,090		Cash, cash equivalents and restricted cash, end of period	$	270,023	$	657,936


		Six Months Ended June 30,				Three Months Ended March 31,
		2021		2020				2022		2021
Supplemental cash flow data:	Supplemental cash flow data:						Supplemental cash flow data:
Cash paid during the period for:	Cash paid during the period for:						Cash paid during the period for:
Interest	Interest	$	615	$	931		Interest	$	437	$	502
Income taxes, net of refunds	Income taxes, net of refunds	$	4,268	$	1,247		Income taxes, net of refunds	$	1,101	$	3,063
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:						Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	4,030	$	3,350		Operating cash flows from operating leases	$	1,852	$	1,998
Right of use assets obtained in exchange for lease obligations:	Right of use assets obtained in exchange for lease obligations:						Right of use assets obtained in exchange for lease obligations:
Operating leases	Operating leases	$	0	$	1,713		Operating leases	$	2,715	$	—
Non-cash investing and financing activities:	Non-cash investing and financing activities:						Non-cash investing and financing activities:
Accrued purchases of long-lived assets	Accrued purchases of long-lived assets	$	2,341	$	754		Accrued purchases of long-lived assets	$	5,778	$	904
Accrued escrow related to acquisition		$	0	$	7,451
Issuance of common stock related to repayment of convertible senior notes							Issuance of common stock related to repayment of convertible senior notes	$	—	$	11,237

Issuance of common stock related to repayment of convertible senior notes		$	235,521	$	0


		June 30,				March 31,
		2021		2020				2022		2021
Reconciliation of cash, cash equivalents and restricted cash:	Reconciliation of cash, cash equivalents and restricted cash:						Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	Cash and cash equivalents	$	840,056	$	285,064		Cash and cash equivalents	$	267,731	$	656,168
Restricted cash included in other current assets	Restricted cash included in other current assets	0		308			Restricted cash included in other current assets	70		38
Restricted cash included in other assets	Restricted cash included in other assets	1,720		1,718			Restricted cash included in other assets	2,222		1,730
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	841,776	$	287,090		Total cash, cash equivalents and restricted cash	$	270,023	$	657,936

See Notes to Condensed Consolidated Financial Statements.

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CHEGG, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Background and Basis of Presentation

Company and Background

Chegg, Inc. (Chegg, the Company, we, us, or our), headquartered in Santa Clara, California, was incorporated as a Delaware corporation in July 2005. Millions of people all around the world Learn with Chegg. ~~We strive~~Our mission is to improve ~~educational~~learning and learning outcomes by putting ~~the student~~students first. We support ~~students on~~life-long learners starting with their academic journey ~~from high school to college~~ and extending into their ~~career with tools designed~~careers. The Chegg platform provides products and services to support learners to help them ~~learn~~better understand their academic course materials, ~~succeed in~~and also provides personal and professional development skills training, to help them achieve their ~~classes, save money on required materials, and learn the most in-demand skills. Our services are available online, anytime and anywhere.~~learning goals.

Basis of Presentation

The accompanying unaudited condensed consolidated ~~balance sheet as~~financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of ~~June 30, 2021,~~ the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated financial statements include the results of ~~operations, the condensed consolidated statements of comprehensive income (loss),~~Chegg, Inc. and ~~the condensed consolidated statements of stockholders' equity for the three~~its wholly-owned subsidiaries. Significant intercompany balances and ~~six months ended June 30, 2021 and 2020, the condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020, and the related footnote disclosures are unaudited.~~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 ~~June 30, 2021,~~March 31, 2022, our results of operations, results of comprehensive ~~income (loss), and~~loss, stockholders' equity ~~for the three and six months ended June 30, 2021 and 2020,~~ and cash flows for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021. Our results of operations, results of comprehensive ~~income (loss),~~loss, stockholders' equity, and cash flows for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 are not necessarily indicative of the results to be expected for the full year.

We ~~operate in~~have a single ~~segment. Our fiscal year ends on December 31~~operating and ~~in this report we refer to the year ended December 31, 2020 as 2020.~~

reportable segment and operating unit structure. The condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (the Annual Report on Form 10-K) filed with the ~~U.S. Securities and Exchange Commission (SEC).~~SEC.

~~Except for our policies on convertible senior notes, net, share-based compensation expense, and net income (loss) per share, there~~There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report on Form 10-K. ~~Our policies on convertible senior notes, net and net income (loss) per share were updated as a result of our adoption of Accounting Standards Update (ASU) 2020-06,~~ ~~Accounting for Convertible Instruments and Contracts in an Entity's Own Equity~~ on January 1, 2021 under the modified retrospective method. For further information on ASU 2020-06, see the section below titled “Recent Accounting Pronouncements” of this Note 1, “Background and Basis of Presentation.”

~~Convertible Senior Notes, net~~

In August 2020, we issued $1.0 billion in aggregate principal amount of 0% convertible senior notes due in 2026 (2026 notes). In March 2019, we issued $700 million in aggregate principal amount of 0.125% convertible senior notes due in 2025 (2025 notes) and in April 2019, the initial purchasers fully exercised their option to purchase $100 million of additional 2025 notes for aggregate total gross proceeds of $800 million. In April 2018, we issued $345 million in aggregate principal amount of 0.25% convertible senior notes due in 2023 (2023 notes). Collectively, the 2026 notes, 2025 notes, and the 2023 notes are referred to as the “notes.” The notes, including the embedded conversion features, are accounted for under the traditional convertible debt accounting model entirely as a liability net of unamortized issuance costs. The carrying amount of the liability is classified as a current liability if we have committed to settle with current assets; otherwise, we classify it as a long-term liability as we retain the election to settle conversion requests in shares of our common stock. The embedded conversion features are not remeasured as long as they do not meet the separation requirement of a derivative; otherwise, they are classified as derivative instruments and recorded at fair value with changes in fair value recorded in other income (expense), net on our condensed consolidated statements of operations. The fair value of any derivative instruments related to the notes are determined utilizing Level 2 inputs. Issuance costs are amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the term of the notes. In accounting for conversions of the notes, the carrying amount of the converted notes is reduced by the total consideration paid or issued for the respective converted notes and the

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difference is recorded to additional paid-in capital on our condensed consolidated balance sheets. In accounting for extinguishments of the notes, the reacquisition price of the extinguished notes is compared to the carrying amount of the respective extinguished notes and a gain or loss is recorded in other income (expense), net on our condensed consolidated statements of operations.

~~Share-based Compensation Expense~~

Share-based compensation expense for restricted stock units (RSUs), performance-based restricted stock units (PSUs) with either a market-based condition or financial performance targets, and the employee stock purchase plan (ESPP) is accounted for under the fair value method based on the grant-date fair value of the award. Share-based compensation expense for RSUs and PSUs with financial performance targets is measured based on the closing fair market value of the Company’s common stock, PSUs with a market-based condition is estimated using a Monte Carlo simulation model, and the ESPP is estimated using the Black-Scholes-Merton option pricing model. We recognize share-based compensation expense, subject to continuing service over the requisite service period, which is generally the vesting period, on a straight-line basis for RSUs and the ESPP and on a graded basis for PSUs. Share-based compensation expense for PSUs with a market-based condition is recognized regardless of whether the market condition is satisfied whereas share-based compensation expense for PSUs with financial performance targets is recognized upon estimated or actual achievement of such targets. These amounts are reduced by estimated forfeitures, which are estimated at the time of the grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

~~Net Income (Loss) Per Share~~

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by adjusting net income (loss) for all related interest expense and gains and losses recognized during the period, net of tax, and giving effect to all potential shares of common stock, including stock options, PSUs, RSUs, and shares related to convertible senior notes, to the extent dilutive. This assumes that all stock options and dilutive convertible shares were exercised or converted and is computed by applying the treasury stock method for outstanding stock options, PSUs, and RSUs, and the if-converted method for outstanding convertible senior notes. Under the treasury stock method, options, PSUs, and RSUs are assumed to be exercised or vested at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible senior notes are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).

Use of Estimates

The preparation of financial statements in conformity with ~~generally accepted accounting principles in the United States~~GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities; the disclosure of contingent liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience, knowledge of current business conditions, and various other factors we believe to be reasonable under the circumstances. These estimates are based on management’s knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ from these estimates, and such differences could be material to our financial position and results of operations. ~~Except for estimates related to the grant-date fair value of PSUs with a market-based condition, there~~There have been no material changes in our use of estimates during the ~~six~~three months ended ~~June 30, 2021~~March 31, 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, ~~2020.~~

~~Reclassification of Prior Period Presentation~~

In order to conform with current period presentation, $6.6 million of current operating lease liabilities have been reclassified to accrued liabilities on our condensed consolidated balance sheet as of December 31, 2020. This change in presentation does not affect previously reported results.2021.

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Condensed Consolidated Statements of Operations Details

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Loss on early extinguishment of debt~~(1)~~	Loss on early extinguishment of debt~~(1)~~	$	0	$	0	$	(78,152)	$	0	Loss on early extinguishment of debt~~(1)~~	$	—	$	(78,152)
Loss on change in fair value of derivative instruments, net~~(1)~~	Loss on change in fair value of derivative instruments, net~~(1)~~	0		0		(7,148)		0		Loss on change in fair value of derivative instruments, net~~(1)~~	—		(7,148)
Gain on sale of strategic equity investment(2)		0		0		5,338		0
Gain on sale of strategic equity investments										Gain on sale of strategic equity investments	—		5,338
Gain on foreign currency remeasurement of purchase consideration(1)										Gain on foreign currency remeasurement of purchase consideration(1)	4,628		—
Interest income	Interest income	1,851		3,193		3,900		8,049		Interest income	1,477		2,049
Other	Other	69		47		774		151		Other	75		705
Total other income (expense), net	Total other income (expense), net	$	1,920	$	3,240	$	(75,288)	$	8,200	Total other income (expense), net	$	6,180	$	(77,208)

(1) For further information, see Note 7,5, “~~Convertible Senior Notes.”~~

~~(2)~~ ~~For further information, see Note 4,“Cash and Cash Equivalents, and Investments.~~Acquisition.”

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

There were no accounting pronouncements issued during the three months ended March 31, 2022 that would have an impact on our financial statements.

Recently Adopted Accounting Pronouncements

In ~~May~~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~~.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,~~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 ~~are currently in the process of evaluating the impact of this guidance.~~did not modify or exchange any freestanding equity-classified written call options.

~~Recently Adopted Accounting Pronouncements~~

~~In August 2020, the FASB issued ASU 2020-06,~~ ~~Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. ASU 2020-06 simplifies the guidance in Accounting Standards Codification (ASC) 470-20,~~ ~~Debt - Debt with Conversion and Other Options~~. Under ASU 2020-06, convertible instruments with embedded conversion features, that are not required to be accounted for as a derivative or that do not result in a substantial premium, are no longer required to be separated from the host contract thereby eliminating the cash conversion feature model. Instead, these convertible debt instruments will be accounted for as a single liability measured at amortized cost under the traditional convertible debt accounting model. ASU 2020-06 also requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share.

We adopted ASU 2020-06 on January 1, 2021 under the modified retrospective method applied to convertible senior notes outstanding as of January 1, 2021 and have not changed previously disclosed amounts or provided additional disclosures for comparative periods. Adoption of ASU 2020-06 resulted in an increase to convertible senior notes of $378.1 million and a decrease to additional paid-in capital of $465.0 million due to the application of the traditional convertible debt model and no longer separating the embedded conversion feature. Accumulated deficit also decreased by $86.9 million due to the reduction in non-cash interest expense related to the debt discount and we expect interest expense to decrease in future periods. Refer to Note 7,~~“Convertible Senior Notes” for more information.~~

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Note 2. Revenues

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The majority of our revenues are recognized over time as services are performed, with certain revenues being recognized at a point in time.

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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):

Three Months Ended June 30, Change
2021 2020 $ %
Chegg Services $ 173,513 $ 126,004 $ 47,509 38 %
Required Materials 24,965 27,005 (2,040) (8)
Total net revenues $ 198,478 $ 153,009 $ 45,469 30


		Six Months Ended June 30,				Change					Three Months Ended March 31,				Change
		2021		2020		$		%			2022		2021		$		%
Chegg Services	Chegg Services	$	335,864	$	226,363	$	109,501	48	%	Chegg Services	$	184,812	$	162,351	$	22,461	14	%
Required Materials	Required Materials	60,992		58,236		2,756		5		Required Materials	17,432		36,027		(18,595)		(52)
Total net revenues	Total net revenues	$	396,856	$	284,599	$	112,257	39		Total net revenues	$	202,244	$	198,378	$	3,866	2

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, we recognized ~~$44.1~~$30.9 million and ~~$32.0~~$29.5 million, respectively, of revenues that were included in our deferred revenue balance at the beginning of each respective reporting period. During the three ~~and six~~ months ended ~~June 30, 2020, we recognized $33.4 million~~March 31, 2022 and ~~$17.8 million, respectively, of revenues that were included in our deferred revenue balance at the beginning of each reporting period. During the three and six months ended June 30,~~ 2021, we recognized ~~a reduction of revenues of $2.9~~$4.8 million and $3.4 million, respectively, from performance obligations satisfied in previous periods primarily due to a change in the estimated variable consideration ascribed to Thinkful. During the three and six months ended June 30, 2020, we recognized an immaterial amount of previously deferred revenues recognized from performance obligations satisfied in previous periods. During the three and six months ended June 30, 2021, we recognized $10.0 million and $20.7 million, respectively, of operating lease income from print textbook rentals that we own. During the three and six months ended June 30, 2020, we recognized $11.1 million and $23.4$10.7 million, respectively, of operating lease income from print textbook rentals that we own.

Contract Balances

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


						Change						Change
		June 30, 2021		December 31, 2020			$		%			March 31, 2022		December 31, 2021		$		%

Accounts receivable, net	Accounts receivable, net	$	10,091	$	12,913		$	(2,822)	(22)	%	Accounts receivable, net	$	19,918	$	17,850	$	2,068	12	%
Contract assets											Contract assets	13,670		14,231		(561)		(4)
Deferred revenue	Deferred revenue	34,682		32,620			2,062		6		Deferred revenue	60,458		35,143		25,315		72
Contract assets		16,398		13,243			3,155		24

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022 our accounts receivable, net balance ~~decreased~~increased by ~~$2.8~~$2.1 million, or ~~22%~~12%, primarily due to timing of billings and seasonality of our business. During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, our contract assets balance decreased by $0.6 million, or 4%, primarily due to our Thinkful service. During the three months ended March 31, 2022, our deferred revenue balance increased by ~~$2.1~~$25.3 million, or 6%72%, primarily due to acquired deferred revenue in conjunction with our acquisition of Busuu and increased bookings ~~driven by higher Chegg Services revenue. During the six months ended June 30, 2021,~~and seasonality of our ~~contract assets balance increased by $3.2 million, or 24%, primarily due to our Thinkful service.~~

business.

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Note 3. Net Income (Loss) Per Share

~~Adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity~~

We adopted ASU 2020-06 on January 1, 2021 under the modified retrospective method applied to convertible senior notes outstanding as of January 1, 2021 and have not changed previously disclosed amounts or provided additional disclosures for comparative periods. ASU 2020-06 requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share. Under the if-converted method, outstanding convertible senior notes are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).

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

Three Months Ended June 30, Six Months Ended June 30,
2021
2020(1)
2021
2020(1)
Basic
Numerator:
Net income (loss) $ 32,764 $ 10,589 $ (32,415) $ 4,876
Denominator:
Weighted average shares used to compute net income (loss) per share, basic 143,112 123,842 138,756 123,135
Net income (loss) per share, basic $ 0.23 $ 0.09 $ (0.23) $ 0.04
Diluted
Numerator:
Net income (loss) $ 32,764 $ 10,589 $ (32,415) $ 4,876
Convertible senior notes interest expense, net of tax 1,212 0 0 0
Net income (loss), diluted $ 33,976 $ 10,589 $ (32,415) $ 4,876
Denominator:
Weighted average shares used to compute net income (loss) per share, basic 143,112 123,842 138,756 123,135
Options to purchase common stock 504 958 0 1,013
PSUs and RSUs 1,791 2,707 0 3,175
Shares related to convertible senior notes 22,875 6,344 0 5,351
Weighted average shares used to compute net income (loss) per share, diluted 168,282 133,851 138,756 132,674
Net income (loss) per share, diluted $ 0.20 $ 0.08 $ (0.23) $ 0.04

~~(1)~~ ~~As noted above, prior period amounts have not been adjusted due to the adoption of ASU 2020-06 under the modified retrospective method.~~


	Three Months Ended March 31,
	2022		2021
Basic
Numerator:
Net income (loss)	$	5,742	$	(65,179)
Denominator:
Weighted average shares used to compute net income (loss) per share, basic	132,162		134,352

Net income (loss) per share, basic	$	0.04	$	(0.49)

Diluted
Numerator:
Net income (loss)	$	5,742	$	(65,179)


Denominator:
Weighted average shares used to compute net income (loss) per share, basic	132,162		134,352
Shares related to stock plan activity	1,108		—

Weighted average shares used to compute net income (loss) per share, diluted	133,270		134,352

Net income (loss) per share, diluted	$	0.04	$	(0.49)

~~Table of Contents~~

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):

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Options to purchase common stock 0 0 530 0
PSUs and RSUs 1,137 103 2,464 52
Shares related to convertible senior notes 268 0 25,901 0
Employee stock purchase plan 5 10 5 10
Total common stock equivalents 1,410 113 28,900 62


	Three Months Ended March 31,
	2022	2021
Shares related to stock plan activity	2,300	3,563
Shares related to convertible senior notes	22,875	28,818
Total common stock equivalents	25,175	32,381

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Note 4. 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 (in ~~thousands)~~thousands except for fair value levels):


		June 30, 2021									March 31, 2022
		Adjusted Cost		Unrealized Gain		Unrealized Loss		Fair Value			Fair Value Level	Adjusted Cost		Unrealized Gain		Unrealized Loss		Fair Value
Cash and cash equivalents:	Cash and cash equivalents:									Cash and cash equivalents:
Cash	Cash	$	33,022	$	0	$	0	$	33,022	Cash		$	39,413	$	—	$	—	$	39,413

Money market funds	Money market funds	807,034		0		0		807,034		Money market funds	Level 1	228,318		—		—		228,318

Total cash and cash equivalents	Total cash and cash equivalents	$	840,056	$	0	$	0	$	840,056	Total cash and cash equivalents		$	267,731	$	—	$	—	$	267,731
Short-term investments:	Short-term investments:									Short-term investments:
Commercial paper	Commercial paper	$	514,715	$	120	$	0	$	514,835	Commercial paper	Level 2	$	86,583	$	—	$	(443)	$	86,140
Corporate debt securities	Corporate debt securities	690,873		566		(130)		691,309		Corporate debt securities	Level 2	765,556		9		(6,045)		759,520

U.S. treasury securities										U.S. treasury securities	Level 1	54,718		—		(436)		54,282
Agency bonds	Agency bonds	15,501		21		0		15,522		Agency bonds	Level 2	15,501		—		(12)		15,489
Total short-term investments	Total short-term investments	$	1,221,089	$	707	$	(130)	$	1,221,666	Total short-term investments		$	922,358	$	9	$	(6,936)	$	915,431
Long-term investments:	Long-term investments:									Long-term investments:
Corporate debt securities	Corporate debt securities	$	476,143	$	75	$	(366)	$	475,852	Corporate debt securities	Level 2	$	346,032	$	—	$	(7,939)	$	338,093
U.S. treasury securities										U.S. treasury securities	Level 1	99,294		—		(1,974)		97,320

Agency bonds		9,000		1		0		9,001
Total long-term investments	Total long-term investments	$	485,143	$	76	$	(366)	$	484,853	Total long-term investments		$	445,326	$	—	$	(9,913)	$	435,413


		December 31, 2020									December 31, 2021
		Adjusted Cost		Unrealized Gain		Unrealized Loss		Fair Value			Fair Value Level	Adjusted Cost		Unrealized Gain		Unrealized Loss		Fair Value
Cash and cash equivalents:	Cash and cash equivalents:									Cash and cash equivalents:
Cash	Cash	$	15,054	$	0	$	0	$	15,054	Cash		$	30,324	$	—	$	—	$	30,324
Money market funds	Money market funds	464,799		0		0		464,799		Money market funds	Level 1	823,754		—		—		823,754

Total cash and cash equivalents	Total cash and cash equivalents	$	479,853	$	0	$	0	$	479,853	Total cash and cash equivalents		$	854,078	$	—	$	—	$	854,078
Short-term investments:	Short-term investments:									Short-term investments:
Commercial paper	Commercial paper	$	204,152	$	24	$	(6)	$	204,170	Commercial paper	Level 2	$	124,211	$	2	$	(33)	$	124,180
Corporate debt securities	Corporate debt securities	459,967		1,478		(48)		461,397		Corporate debt securities	Level 2	552,609		36		(546)		552,099

Agency bonds										Agency bonds	Level 2	15,500		2		—		15,502
Total short-term investments	Total short-term investments	$	664,119	$	1,502	$	(54)	$	665,567	Total short-term investments		$	692,320	$	40	$	(579)	$	691,781
Long-term investments:	Long-term investments:									Long-term investments:
Corporate debt securities	Corporate debt securities	$	484,275	$	605	$	(283)	$	484,597	Corporate debt securities	Level 2	$	724,517	$	—	$	(3,277)	$	721,240
U.S. treasury securities										U.S. treasury securities	Level 1	24,860		—		(107)		24,753

Agency bonds		38,995		36		0		39,031
Total long-term investments	Total long-term investments	$	523,270	$	641	$	(283)	$	523,628	Total long-term investments		$	749,377	$	—	$	(3,384)	$	745,993

As of March 31, 2022, we determined that the declines in the market value of our investment portfolio were not driven by credit related factors. During the three months ended March 31, 2022 and 2021 we did not recognize any losses on our investments due to credit related factors. During the three months ended March 31, 2022 and 2021, our gross realized gains and losses on investments were not significant.

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The following table shows our cash equivalents and investments' adjusted cost and fair value by contractual maturity as of ~~June 30, 2021~~March 31, 2022 (in thousands):


		Adjusted Cost		Fair Value			Adjusted Cost		Fair Value
Due in 1 year or less	Due in 1 year or less	$	1,221,089	$	1,221,666	Due in 1 year or less	$	922,358	$	915,431
Due in 1-2 years	Due in 1-2 years	485,143		484,853		Due in 1-2 years	445,326		435,413
Investments not due at a single maturity date	Investments not due at a single maturity date	807,034		807,034		Investments not due at a single maturity date	228,318		228,318
Total	Total	$	2,513,266	$	2,513,553	Total	$	1,596,002	$	1,579,162

Investments not due at a single maturity date in the preceding table consisted of money market funds.

As of June 30, 2021, we determined that the declines in the market value of our investment portfolio were not driven by credit related factors. When evaluating whether an investment's unrealized losses are related to credit factors, we review factors such as the extent to which fair value is below its cost basis, any changes to the credit rating of the security, adverse conditions specifically related to the security, changes in market interest rates and our intent to sell, or whether it is more likely than not we will be required to sell, before recovery of cost basis. We invest in highly rated securities with a minimum credit rating of A- and a weighted average maturity of less than twelve months. In addition, our investment policy limits the amount of our credit exposure to any one issuer or industry sector. The policy requires investments to be investment grade, with the primary objective of preserving capital and maintaining liquidity. Fair values were determined for each individual security in the investment portfolio. During the three and six months ended June 30, 2021 and 2020, we did not recognize any losses on our investments due to credit related factors.

~~Strategic Investments~~

In March 2020, we completed an investment of $2.0 million in TAPD, Inc., also known as Frank, a U.S.-based service that helps students access financial aid. Additionally, we previously invested $3.0 million in a foreign entity to explore expanding our reach internationally. In March 2021, we sold our investment in that foreign entity for total consideration of $8.3 million, resulting in a $5.3 million gain included within other income (expense), net on our condensed consolidated statements of operations. We received a cash payment, net of taxes withheld, of $7.1 million included within cash flows from investing activities on our condensed consolidated statements of cash flows. We did not record any impairment charges on our strategic investments during the three and six months ended June 30, 2021 and 2020, as there were no significant identified events or changes in circumstances that would be considered an indicator for impairment. We considered general market conditions as a result of the COVID-19 pandemic in our impairment analysis. There were no observable price changes in orderly transactions for the identical or similar investments of the same issuers during the three and six months ended June 30, 2021 and 2020.

~~Note 5. Fair Value Measurement~~

~~We have established a fair value hierarchy used to determine the fair value of our financial instruments as follows:~~

~~Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.~~

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

~~Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value; the inputs require significant management judgment or estimation.~~

~~A financial instrument’s classification within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.~~

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Financial instruments measured and recorded at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 are classified based on the valuation technique level in the tables below (in thousands):

June 30, 2021
Total Level 1 Level 2
Assets:
Cash equivalents:
Money market funds $ 807,034 $ 807,034 $ 0
Short-term investments:
Commercial paper 514,835 0 514,835
Corporate debt securities 691,309 0 691,309
Agency bonds 15,522 0 15,522
Long-term investments:
Corporate debt securities 475,852 0 475,852
Agency bonds 9,001 0 9,001
Total assets measured and recorded at fair value $ 2,513,553 $ 807,034 $ 1,706,519

December 31, 2020
Total Level 1 Level 2
Assets:
Cash equivalents:
Money market funds $ 464,799 $ 464,799 $ 0
Short-term investments:
Commercial paper 204,170 0 204,170
Corporate debt securities 461,397 0 461,397
Long-term investments:
Corporate debt securities 484,597 0 484,597
Agency bonds 39,031 0 39,031
Total assets measured and recorded at fair value $ 1,653,994 $ 464,799 $ 1,189,195

We value our investments based on quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. Other than our money market funds, we classify our fixed income available-for-sale investments as having Level 2 inputs. The valuation techniques used to measure the fair value of our investments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models such as discounted cash flow techniques. We do not hold any investments valued with a Level 3 input.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

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Financial Instruments Not Recorded at Fair Value on a Recurring Basis

We report our financial instruments at fair value with the exception of the notes. The estimated fair value of the notes was determined based on the trading price of the notes as of the last day of trading for the period. 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 March 31, 2022 and December 31, 2021 was $818.8 million and $840.0 million, respectively. The estimated fair value of the 2025 notes as of March 31, 2022 and December 31, 2021 was $708.8 million and $682.2 million, respectively. For further information on the notes refer to Note 7, “Convertible Senior Notes.”

~~The carrying amounts and estimated fair values of the notes as of June 30, 2021 and December 31, 2020 are as follows (in thousands):~~

June 30, 2021
December 31, 2020 (1)
Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value
2026 notes $ 986,363 $ 1,050,380 $ 761,930 $ 1,129,370
2025 notes 688,977 1,182,986 640,614 1,456,800
2023 notes 0 0 104,378 376,949
Convertible senior notes, net $ 1,675,340 $ 2,233,366 $ 1,506,922 $ 2,963,119

~~(1)~~ ~~Prior period amounts have not been adjusted due to the adoption of ASU 2020-06 under the modified retrospective method. Refer to Note 7, “Convertible Senior Notes” for more information.~~

The carrying amount of the 2026 notes and 2025 notes as of June 30, 2021 was net of unamortized issuance costs of $13.6 million and $11.0 million, respectively, and there is no carrying amount of the 2023 notes as we settled the principal amount of 2023 notes. The carrying amount of the 2026 notes, 2025 notes, and 2023 notes as of December 31, 2020 was net of unamortized debt discount of $226.7 million, $149.1 million and $10.0 million, respectively, and unamortized issuance costs of $11.3 million, $10.2 million and $1.2 million, respectively.

Note 6.5. Acquisition

On ~~February 22, 2021,~~January 13, 2022, we completed anour acquisition ~~accounted for as a business combination,~~ of 100% of the outstanding shares of Busuu Online S.L (Busuu) in cash, an online language learning company that offers a ~~company for~~comprehensive solution through a ~~technology that will strengthen~~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 ~~content creation abilities for a purchase consideration of $8.0 million in cash. Our~~existing offerings and global reach through language learning, allowing us to drive further into international markets.

The following table presents the preliminary ~~total~~ allocation of purchase consideration included acquired assets of $0.4 million, acquired developed technology intangible asset of $3.3 million and goodwill of $5.8 million less assumed liabilities of $1.5 million. This acquisition did not have a material impactrecorded on our condensed consolidated ~~financial statements~~balance sheet as of the acquisition date (in thousands):


	Busuu
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	(22,749)
Deferred revenue	(16,761)
Long term operating lease liabilities	(2,038)
Net identifiable assets acquired	54,274
Goodwill	367,376
Total fair value of purchase consideration	$	421,650

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.

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


	Busuu
	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 three months ended March 31, 2022 and year ended December 31, 2021, we incurred acquisition-related expenses of $0.5 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 ~~expected to~~included in the fair value of the purchase consideration but rather are expensed ratably as acquisition-related compensation costs and classified based on the seller's job function, on our condensed consolidated statement of operations. As of March 31, 2022, we have recorded approximately $1.8 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 $9.6 million and $8.0 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 months ended March 31, 2022 and 2021, our unaudited supplemental pro forma revenues from Busuu would have been $202.9 million and $208.6 million, respectively. During the three months ended March 31, 2022 and 2021, our unaudited supplemental pro forma earnings would have been a ~~material impact in~~net income of $5.4 million and net loss of $74.1 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 ~~periods.~~consolidated results.

Note 6. Goodwill and Intangible Assets

Goodwill consists of the following (in thousands):


	Three Months Ended March 31, 2022
Beginning balance	$	289,763
Additions due to acquisitions	367,376
Foreign currency translation adjustment	(15,855)

Ending balance	$	641,284

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


	March 31, 2022
	Weighted-Average Amortization Period (in months)	Gross Carrying Amount		Accumulated Amortization		Foreign Currency Translation Adjustment		Net Carrying Amount
Developed technologies	80	$	106,703	$	(34,921)	$	(2,165)	$	69,617
Content libraries	60	12,230		(7,447)		—		4,783
Customer lists	35	34,190		(14,756)		(772)		18,662
Trade and domain names	52	16,213		(9,993)		(197)		6,023
Indefinite-lived trade name	—	3,600		—		—		3,600
Total intangible assets, net	67	$	172,936	$	(67,117)	$	(3,134)	$	102,685


	December 31, 2021
	Weighted-Average Amortization Period (in months)	Gross Carrying Amount		Accumulated Amortization		Foreign Currency Translation Adjustment		Net Carrying Amount
Developed technologies	76	$	57,521	$	(31,790)	$	—	$	25,731
Content library	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 months ended March 31, 2022 and 2021, amortization expense related to our finite-lived intangible assets totaled approximately $6.4 million and $4.4 million, respectively.

As of March 31, 2022, the estimated future amortization expense related to our finite-lived intangible assets is as follows (in thousands):


Remaining nine months of 2022	$	20,402
2023	25,203
2024	13,858
2025	11,744
2026	11,396
Thereafter	16,482
Total	$	99,085

Note 7. Convertible Senior Notes

~~Adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity~~

We adopted ASU 2020-06 on January 1, 2021 under the modified retrospective method applied to convertible senior notes outstanding as of January 1, 2021 and have not changed previously disclosed amounts or provided additional disclosures for comparative periods. Under ASU 2020-06, convertible instruments with embedded conversion features, that are not required to be accounted for as a derivative or that do not result in a substantial premium, are no longer required to be separated from the host contract thereby eliminating the cash conversion feature model. Instead, these convertible debt instruments will be accounted for as a single liability measured at amortized cost under the traditional convertible debt accounting model.

In August 2020, we issued $1.0 billion in aggregate principal amount of 0% convertible senior notes due in 2026 (2026 notes). 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. In April 2018, we issued $345 million in aggregate principal amount of 0.25% convertible senior notes due in 2023 (2023 notes and together with the 2026 notes and the 2025 notes, the notes). The aggregate principal amount of the 2023 notes included $45 million from the initial purchasers fully exercising their option to purchase additional notes. The notes were issued in private placements to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended.

1816

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The total net proceeds from the notes are as follows (in thousands):

2026 Notes 2025 Notes 2023 Notes
Principal amount $ 1,000,000 $ 800,000 $ 345,000
Less initial purchasers’ discount (15,000) (18,998) (8,625)
Less other issuance costs (904) (822) (757)
Net proceeds $ 984,096 $ 780,180 $ 335,618

During the six months ended June 30, 2021, we settled $115.6 million of aggregate principal amount of the 2023 notes, consisting of $24.7 million related to requests for conversions and $90.9 million pursuant to our election of our option to redeem the remaining outstanding 2023 notes.

During the three months ended June 30, 2021, we settled $110.9 million of aggregate principal amount of the 2023 notes for a total aggregate consideration of $335.2 million, consisting of $110.9 million in cash and 2,857,008 shares of our common stock with a value of $224.3 million. The carrying amount of the 2023 notes was $109.6 million, resulting in a $225.6 million difference that was recorded in additional paid-in capital on our condensed consolidated balance sheet. Additionally, we entered into 2023 notes capped call privately-negotiated transactions which terminated capped call transactions underlying 4,201,633 shares of our common stock and received aggregate cash proceeds of $44.2 million. During the six months ended June 30, 2021, we settled $115.6 million of aggregate principal amount of the 2023 notes for a total aggregate consideration of $351.1 million, consisting of $115.6 million in cash and 2,983,011 shares of our common stock with a value of $235.5 million. The carrying amount of the 2023 notes was $114.2 million, resulting in a $236.9 million difference that was recorded in additional paid-in capital on our condensed consolidated balance sheet. Additionally, we entered into 2023 notes capped call privately-negotiated transactions which terminated capped call transactions underlying 4,288,459 shares of our common stock and received aggregate cash proceeds of $45.2 million. As of June 30, 2021, no amounts of our 2023 notes remain outstanding and no shares remain underlying the 2023 notes capped call transactions.

In March 2021, in connection with our securities repurchase program, we extinguished $100.0 million aggregate principal amount of the 2025 notes in privately-negotiated transactions for aggregate consideration of $184.9 million, which was paid in cash. Upon execution, we concluded that the 2025 notes embedded conversion features no longer met the derivative scope exception and, as a result, initially recorded a derivative liability of $176.5 million, related to the fair value of extinguished 2025 notes. We settled the derivative liability for aggregate consideration of $184.9 million resulting in a $8.4 million loss on change in fair value. The carrying amount of the 2025 notes subject to the extinguishment was $98.3 million resulting in a $78.2 million loss on early extinguishment of debt. Additionally, we entered into 2025 notes capped call privately-negotiated transactions which terminated capped call transactions underlying 1,939,560 shares of our common stock and received aggregate cash proceeds of $23.9 million. Upon execution, we concluded that the capped call transactions no longer met the derivative scope exception and, as a result recorded a derivative liability of $22.6 million related to the fair value of terminated 2025 notes capped call transactions. We settled the capped call transactions for aggregate consideration of $23.9 million resulting in a $1.3 million gain on change in fair value.


	2026 Notes		2025 Notes
Principal amount	$	1,000,000	$	800,000
Less initial purchasers’ discount	(15,000)		(18,998)
Less other issuance costs	(904)		(822)
Net proceeds	$	984,096	$	780,180

The notes are our senior, unsecured obligations and are governed by indenture agreements by and between us and Wells Fargo Bank, National Association, as Trustee (the indentures). The 2026 notes bear 0no interest and will mature on September 1, 2026, unless repurchased, redeemed or converted in accordance with their terms prior to such date. The 2025 notes bear interest of 0.125% per year which is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2019. The 2025 notes will mature on March 15, 2025, unless repurchased, redeemed or converted in accordance with their terms prior to such date. ~~The 2023 notes bore interest of 0.25% per year which was payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2018.~~

Each $1,000 principal amount of the 2026 notes will initially be convertible into 9.2978 shares of our common stock. This is equivalent to an initial conversion price of approximately $107.55 per share, which is subject to adjustment in certain circumstances. Each $1,000 principal amount of the 2025 notes will initially be convertible into 19.3956 shares of our common stock. This is equivalent to an initial conversion price of approximately $51.56 per share, which is subject to adjustment in certain circumstances. Each $1,000 principal amount of the 2023 notes was initially convertible into 37.1051 shares of our common stock. This was equivalent to an initial conversion price of approximately $26.95 per share, which was subject to adjustment in certain circumstances.

Prior to the close of business on the business day immediately preceding June 1, 2026 for the 2026 notes and December 15, 2024 for the 2025 notes, the notes are convertible at the option of holders only upon satisfaction of the following circumstances:

~~Table of Contents~~

•during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 for the 2026 notes and June 30, 2019 for the 2025 notes, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the respective conversion price for the notes on each applicable trading day;

•during the 5-business day period after any 10 consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;

•if we call any or all of the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or

•upon the occurrence of certain specified corporate events described in the indentures.

On or after June 1, 2026 for the 2026 notes and December 15, 2024 for the 2025 notes until the close of business on the second scheduled trading day immediately preceding the respective maturity dates, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, the notes may be settled in shares of our common stock, cash or a combination of cash and shares of our common stock, at our election.

If we undergo a fundamental change, as defined in the indentures, prior to the respective maturity dates, subject to certain conditions, holders of the notes may require us to repurchase for cash all or any portion of their notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. 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.

~~The~~During the three months ended March 31, 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 first circumstance noted above allowing holders of~~convertible the 2025 notes to convert was met during the three months ended June 30, 2021, March 31, 2021, December 31, 2020 and September 30, 2020 and therefore, the 2025 notes were and are convertible starting October 1, 2020 through September 30, 2021. Aside from the extinguishment of $100.0 million aggregate principal amount of the 2025 notes discussed above, during the three and six months ended June 30, 2021, we received immaterial requests for conversion of the 2025 notes which we settled or intend to settle in cash.following quarter. During the year ended December 31, ~~2020, in connection with our issuance of the 2026 notes,~~2021, we exchanged $172.0 million aggregate principal amount of the 2023 notes in privately-negotiated transactions for an aggregate consideration of $501.7 million, consisting of $174.6 million in cash and 4,182,320issued 2,983,011 shares of our common stock ~~with a value~~related to the redemption of ~~$327.1 million.~~our 2023 notes.

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

June 30, 2021
December 31, 2020 (1)
2026 Notes 2025 Notes 2026 Notes 2025 Notes 2023 Notes
Principal $ 1,000,000 $ 699,992 $ 1,000,000 $ 800,000 $ 115,576
Unamortized debt discount 0 0 (226,732) (149,138) (9,953)
Unamortized issuance costs (13,637) (11,015) (11,338) (10,248) (1,245)
Net carrying amount $ 986,363 $ 688,977 $ 761,930 $ 640,614 $ 104,378

~~(1)~~ ~~As noted above, prior period amounts have not been adjusted due to the adoption of ASU 2020-06 under the modified retrospective method.~~


	March 31, 2022				December 31, 2021
	2026 Notes		2025 Notes		2026 Notes		2025 Notes
Principal	$	1,000,000	$	699,979	$	1,000,000	$	699,982

Unamortized issuance costs	(11,659)		(8,786)		(12,309)		(9,518)
Net carrying amount	$	988,341	$	691,193	$	987,691	$	690,464

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

Three Months Ended June 30,
2021
2020 (1)
2026 Notes 2025 Notes 2023 Notes 2025 Notes 2023 Notes
Contractual interest expense $ 0 $ 218 $ 12 $ 249 $ 215
Amortization of debt discount 0 0 0 8,842 3,126
Amortization of issuance costs 657 740 74 607 371
Total interest expense $ 657 $ 958 $ 86 $ 9,698 $ 3,712

~~(1)As noted above, prior period amounts have not been adjusted due to the adoption of ASU 2020-06 under the modified retrospective method~~.

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Six Months Ended June 30,
2021
2020 (1)
2026 Notes 2025 Notes 2023 Notes 2025 Notes 2023 Notes
Contractual interest expense $ 0 $ 455 $ 78 $ 498 $ 430
Amortization of debt discount 0 0 0 17,683 6,251
Amortization of issuance costs 1,307 1,548 242 1,215 743
Total interest expense $ 1,307 $ 2,003 $ 320 $ 19,396 $ 7,424

~~(1)As noted above, prior period amounts have not been adjusted due to the adoption of ASU 2020-06 under the modified retrospective method~~.


	Three Months Ended March 31,
	2022		2021
2026 notes:
Contractual interest expense	$	—	$	—
Amortization of issuance costs	650		650
Total 2026 notes interest expense	$	650	$	650
2025 notes:
Contractual interest expense	$	215	$	237
Amortization of issuance costs	732		808
Total 2025 notes interest expense	$	947	$	1,045
2023 notes:
Contractual interest expense	$	—	$	66
Amortization of issuance costs	—		168
Total 2023 notes interest expense	$	—	$	234

Capped Call Transactions

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 ~~June 30, 2021,~~March 31, 2022, cover 9,297,800 and ~~13,576,764~~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. The effective increase in conversion price as a result of the capped call transactions serves to reduce potential dilution to holders of our common stock and/or offset the cash payments we are required to make in excess of the principal amount of any converted notes. As these transactions meet certain accounting criteria, they are recorded in stockholders’ equity as a reduction of additional paid-in capital on our condensed consolidated balance sheets and are not accounted for as derivatives. The fair value of the capped call instrument is not remeasured each reporting period. The cost of the capped call is not expected to be deductible for tax purposes.

Note 8. Commitments and Contingencies

~~From time to time, third parties may assert patent infringement claims against us in the form of letters, litigation, or other forms of communication. In addition, we~~We may from time to time be subject to ~~other~~certain legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks, patents, copyrights, and other intellectual property rights; employment claims; and general contract or other claims. We may also, from time to time, be subject to various legal or government claims, demands, disputes, investigations, or ~~investigations.~~requests for information. 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 ~~December 1, 2020, we received notice that~~March 30, 2022, Joseph Robinson, derivatively on behalf of Chegg, filed a ~~class action lawsuit was filed~~shareholder derivative complaint against Chegg and certain of its current and former directors and officers in ~~New York~~the United States District Court for the Northern District of California, alleging ~~violations~~breaches of fiduciary duties, among others (the “Robinson Matter”). The Robinson Matter has been consolidated with the ~~American with Disabilities Act.~~Choi Matter (described below) and has been stayed on the same terms. The ~~claim asserted that one~~Company disputes these claims and intends to vigorously defend itself in this matter.

Table of ~~Chegg’s websites is not compatible with software used by vision-impaired individuals. During the six months ended June 30, 2021, we settled this matter for an immaterial amount.~~Contents

On ~~August 18, 2020, we received notice that~~January 12, 2022, Rak Joon Choi, derivatively on behalf of Chegg, filed a ~~class action lawsuit was filed~~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~~breaches of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, among others (the “Choi Matter”). 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 plaintiff and defendants in the Choi matter entered into a stipulation and order staying action stipulating that the Choi Matter shall be stayed during the pendency of the Unruh Civil Rights Act. The claim asserted that one of Chegg’s websites is not compatible with software used by vision-impaired individuals. During the six months ended June 30, 2021, we settled this matter for an immaterial amount.Leventhal Matter.

On ~~July 21,~~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 ~~VitalSource Technologies LLC (VST)~~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), ~~which is wholly owned by Ingram Industries~~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”). The plaintiff in this matter 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., (Pearson) filed a complaint captioned Pearson Education, Inc. v. Chegg, Inc. (Pearson Complaint) in the United States District Court for the District of New Jersey against ~~Chegg~~the Company (Case 2:21-cv-16866), alleging ~~that Chegg breached~~infringement of Pearson’s registered copyrights and exclusive rights under copyright in violation of the United States Copyright Act. Pearson is seeking injunctive relief, monetary damages, costs, and attorneys’ fees. The Company filed its ~~contract with VST involving~~answer to the ~~development of an eTextbook reader~~Pearson Complaint on November 19, 2021. The Company disputes these claims and ~~eTextbook reader platform. The suit sought uncertain damages, but the complaint alleged that they exceeded $75 thousand. During the six months ended June 30, 2021, we settled~~intends to vigorously defend itself in this ~~matter for an immaterial amount.~~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 ~~the production of~~follow-up questions and have produced documents pertaining to data breach incidents and our data security and privacy practices generally.

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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 alleging~~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 (the 2018 Data Incident).~~2018. On July 1, 2020, an additional 1,007 arbitration demands were filed by the same ~~counsel.~~counsel, making identical allegations. On August 12, 2020, an additional 577 arbitration demands were filed by the same ~~counsel;~~counsel, making identical allegations. Related cases ~~have been~~were filed by the same counsel in Maryland and California.We ~~dispute~~disputed that these claimants ~~have~~had a valid basis for seeking arbitration, ~~assert~~asserted that they have acted in bad faith and ~~are~~have been working with the Maryland and California courts and plaintiffs’ counsel on resolution of these claims. ~~In March~~The Maryland case is now closed. On August 22, 2021, ~~we recorded~~Chegg and the claimants' legal counsel, on behalf of its clients, entered into a ~~loss contingency accrual and~~settlement agreement, pursuant to which each eligible claimant that signs a ~~corresponding insurance loss recovery,~~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 ~~net impact~~settlement amount. Claimants had until January 26, 2022 to sign their release agreements. As a result of ~~which did not materially impact our condensed consolidated statements of operations.~~the settlement, all but 4 petitions to compel arbitration in the California action were dismissed with prejudice.

On November 5, 2018, NetSoc, LLC (NetSoc) filed a complaint against us in the U.S. District Court for the Southern District of New York (SDNY) for patent infringement alleging that the Chegg Tutors service infringes U.S. Patent No. 9,978,107 (the NetSoc Patent) and seeking unspecified compensatory damages. A responsive pleading was filed on February 19, 2019. On January 13, 2020, the SDNY issued an order dismissing the case as to Chegg. On January 30, 2020, NetSoc appealed the dismissal. On April 21, 2020, the SDNY granted Chegg's motion to hold NetSoc's appeal in abeyance pending the outcome of an appeal in a separate litigation regarding the NetSoc Patent. On December 2, 2020, the U.S. Patent and Trademark Office determined that the NetSoc Patent is invalid based on two Inter Partes Review (IPR) proceedings and on January 4, 2021, NetSoc filed a notice of appeal appealing the IPR decision. The appeal of the IPR decision is currently stayed.

~~Aside from the loss contingency accrual for the 2018 Data Incident matter, we~~We have not recorded any ~~additional amounts~~loss contingency accruals related to the above matters as we do not believe that a loss is probable in these ~~remaining~~ matters. We are not aware of any other pending legal matters or claims, individually or in the aggregate, that are expected to have a material adverse impact on our ~~condensed~~ consolidated financial position, results of operations, or cash flows. 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. 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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Note 9. Guarantees and Indemnifications

We have agreed to indemnify our directors and officers for certain events or occurrences, subject to certain limits, while such persons are or were serving at our request in such capacity. We may terminate the indemnification agreements with these persons upon termination of employment, but termination will not affect claims for indemnification related to events occurring prior to the effective date of termination. We have a directors’ and officers’ insurance policy that limits our potential exposure up to the limits of our insurance coverage. In addition, we also have other indemnification agreements with various vendors against certain claims, liabilities, losses, and damages. The maximum amount of potential future indemnification is unlimited.

We believe the fair value of these indemnification agreements is immaterial. We have not recorded any liabilities for these agreements as of ~~June 30, 2021.~~March 31, 2022.

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Note 10. Stockholders' Equity

~~Equity Offering~~Accelerated Share Repurchases

InOn February ~~2021,~~22, 2022, we entered into an ~~underwriting~~accelerated share repurchase (ASR) agreement ~~pursuant~~with a financial institution (2022 ASR). We accounted for the 2022 ASR as 2 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 3 business days, which were retired immediately. The initial delivery of shares of our common stock represented approximately 80 percent of the fixed amount paid of $300.0 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 second quarter of 2022 and we ~~agreed to issue and sell 10,974,600~~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 ~~public offering~~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 ~~$102.00 per share generating aggregate net proceeds of $1,091.5 million, after deducting underwriting discounts and commissions of $26.9 million and offering expenses of $1.1 million.~~common stock to the financial institutions upon settlement.

~~Securities Repurchase Program~~

~~In June 2020, our board of directors approved~~On December 3, 2021, we entered into an ASR agreement with a ~~securities~~financial institution (2021 ASR) to repurchase ~~program authorizing our repurchase of up to $500.0~~$300.0 million of our outstanding 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.stock. The ~~timing, volume, and nature of~~2021 ASR settled during the ~~repurchases will be determined by management based on the capital needs of the business, market conditions, applicable legal requirements, and other factors. During the six~~three months ended ~~June 30, 2021,~~March 31, 2022 and we ~~repurchased $100.0 million~~received an additional delivery of ~~aggregate principal amount~~2,163,219 shares of ~~the 2025 notes in privately-negotiated transactions for an aggregate consideration of $184.9 million. $165.5 million remains under the repurchase program, which will end on December 31, 2021.~~our common stock.

Share-based Compensation Expense

Total share-based compensation expense recorded for employees and non-employees is as follows (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Cost of revenues	Cost of revenues	$	419	$	213	$	781	$	382	Cost of revenues	$	623	$	362
Research and development	Research and development	9,100		7,620		17,059		14,611		Research and development	11,776		7,959
Sales and marketing	Sales and marketing	3,655		2,436		6,574		4,622		Sales and marketing	4,386		2,919
General and administrative	General and administrative	15,371		9,277		27,231		18,265		General and administrative	16,299		11,860
Total share-based compensation expense	Total share-based compensation expense	$	28,545	$	19,546	$	51,645	$	37,880	Total share-based compensation expense	$	33,084	$	23,100

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, we capitalized share-based compensation expense of ~~$0.7~~$1.8 million and ~~$1.2~~$0.5 million, respectively.

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~~2021 PSU Grants with Market-Based Conditions~~

In March 2021, we granted PSUs under the 2013 Equity Incentive Plan (the 2013 Plan) with market-based conditions to certain of our key employees. The number of shares of our common stock that may be issued to settle these PSUs range from 50% at the threshold level to 150% at the maximum level of the 100% target level of the award depending on achieving a maximum average market value of the per share price of our common stock, for a period of 60 consecutive trading days, over a three-year performance period ending on the third anniversary of the date of grant. No payout will be made for performance below the 50% threshold level. The market value of the per share price of our common stock must reach $123.81, $148.58, or $173.34 at the threshold, target, or maximum levels, respectively, for achievement of the award, which could result in issuance of 244,086, 488,173, or 732,260 shares of our common stock at each respective payout level. These PSUs will vest over a four-year period, with the initial vesting of 50% of the award occurring in March 2024. The number of PSUs granted totaled 732,260 shares, which represents the maximum number of shares, and had a grant date fair value of $68.55 per share, determined under the Monte Carlo simulation approach described further below. As of June 30, 2021, the market-based conditions have not been met.

~~Fair Value of PSUs with Market-Based Conditions~~

PSUs with market-based conditions are converted into shares of our common stock upon vesting on a 1-for-one basis. Vesting is subject to the achievement of certain per share price of our common stock targets and the employee's continuing service to us. If the targets are achieved, the awards vest over a four-year period. We estimate the fair value of the PSUs using a Monte Carlo simulation approach, which utilizes the fair value of our common stock based on an active market and requires input on the following subjective assumptions:

~~Expected Term~~.~~The expected term for the awards is the performance period of three years.~~

~~Expected Volatility~~.~~The expected volatility is based on the historical average volatility of our stock price over the expected term.~~

~~Expected Dividends~~. ~~The dividend assumption is based on our historical experience. To date we have not paid any dividends on our common stock.~~

~~Risk-Free Interest Rate~~. ~~The risk-free interest rate used in the valuation method is the implied yield currently available on the U.S. treasury zero-coupon issues, with a remaining term equal to the expected term.~~

~~The following table summarizes the key assumptions used to determine the fair value of the awards:~~


~~Expected term (years)~~	~~3.00~~
~~Expected volatility~~	~~49.04~~	%
~~Expected dividends~~	0	%
~~Risk-free interest rate~~	~~0.27~~	%

~~2021 PSU Grants with Financial and Strategic Performance Targets~~

In March 2021, we granted PSUs under the 2013 Plan to certain of our key executives. These PSUs entitle the executives to receive a certain number of shares of our common stock based on our satisfaction of certain financial and strategic performance targets during 2021. These PSUs will vest over a three-year period, with the initial vesting occurring in March 2022. The number of shares underlying these March 2021 PSUs granted totaled 278,644 shares and had a grant date fair value of $99.05 per share. As of June 30, 2021, the performance-based milestones are expected to be met at the maximum threshold, resulting in full achievement of these PSUs.

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~~PSUs with Financial and Strategic Performance Targets and RSUs~~

PSUs with financial and strategic performance targets and RSUs are converted into shares of our common stock upon vesting on a 1-for-one basis. Vesting of PSUs is subject to our achievement of specified financial and strategic performance targets in addition to the employee's continuing service to us while vesting of RSUs is subject to the employee’s continuing service to us. PSUs vest subject to the achievement of performance objectives and if achieved, typically vest over three years while RSUs are typically fully vested at the end of ~~three~~ ~~or four years. We assess the achievement of financial and strategic performance targets on a quarterly basis and adjust our share-based compensation expense as appropriate.~~

RSU and PSU Activity

Activity for RSUs and PSUs is as follows:

RSUs and PSUs Outstanding
Shares Outstanding Weighted Average Grant Date Fair Value
Balance at December 31, 2020 4,816,000 $ 37.82
Granted 2,106,680 86.84
Released (1,949,524) 32.28
Canceled (295,779) 42.34
Balance at June 30, 2021 4,677,377 $ 61.92


	RSUs and PSUs Outstanding
	Shares Outstanding	Weighted Average Grant Date Fair Value
Balance at December 31, 2021	8,171,462	$	46.36
Granted	2,472,933	33.21
Released	(642,952)	68.70
Forfeited	(598,243)	44.26
Balance at March 31, 2022	9,403,200	$	41.51

As of ~~June 30, 2021,~~March 31, 2022, our total unrecognized share-based compensation expense related to RSUs and PSUs was approximately ~~$195.9~~$296.1 million, which will be recognized over the remaining weighted-average vesting period of approximately ~~2.2~~2.5 years.

Note 11. ~~Related-Party Transactions~~Subsequent Event

~~Our Chief Executive Officer is a member~~In April 2022, we entered into definitive agreements regarding the sale of our print textbook library and partnership with GT Marketplace, LLC (doing business as “BBA”) for our Required Materials offering. We will continue to offer our Required Materials offering on our website and maintain relationships with the ~~Board~~students, however, BBA 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 Directors of Adobe Systems Incorporated (Adobe). During the three and six months ended June 30, 2021, we purchased $0.4 million and $1.0 million, respectively, of services from Adobe and during the three and six months ended June 30, 2020, we purchased $0.4 million and $0.8 million, respectively, of services from Adobe. We had 0 revenues during the three and six months ended June 30, 2021 from Adobe. We had 0 revenues during the three months ended June 30, 2020 and $0.1 million of revenues during the six months ended June 30, 2020 from Adobe. We had 0 payables as of June 30, 2021 and $0.1 million of payables as of December 31, 2020 to Adobe. We had 0 outstanding receivables as of June 30, 2021 and December 31, 2020 from Adobe.2022, at which point BBA will fulfill eTextbook transactions.

~~The immediate family of 1 of our board members is~~As a ~~member~~result of the ~~Board~~partnership with BBA, revenues from print textbook transactions will consist of ~~Directors~~a revenue share of ~~PayPal Holdings, Inc. (PayPal). During~~ the ~~three~~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 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. We will no longer incur significant costs of revenue such as order fulfillment fees primarily related to shipping and ~~six months ended June 30, 2021, we incurred~~fulfillment, publisher content fees for eTextbooks after transition to BBA, 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. Upon board of ~~$0.7 million~~directors approval in April 2022, our net textbook library and ~~$1.4 million, respectively, and during~~unrecognized deferred revenue related to print textbook transactions became a held for sale asset group which was subsequently sold to BBA at a gain as the ~~three and six months ended June 30, 2020, we incurred payment processing fees~~consideration exceeds the carrying amount of ~~$0.5 million and $1.0 million, respectively, to PayPal.~~

~~NaN~~the held for sale asset group. The initial accounting for the sale of our ~~board members~~print textbook library is ~~also a member~~in process as of the ~~Board~~issuance date of ~~Directors of Zuora, Inc. (Zuora). During the three~~our financial statements and ~~six months ended June 30, 2021,~~therefore we purchased an immaterial amount and $0.4 million, respectively, of services from Zuora and during the three and six months ended June 30, 2020, we purchased $0.2 million and $0.4 million, respectively, of services from Zuora.

are unable to make any additional disclosures.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes included in Part I, Item 1, “Financial Statements (unaudited)” of this Quarterly Report on Form 10-Q. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. See the section titled “Note about Forward-Looking Statements” for additional information. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q.

Overview

Millions of people all around the world Learn with Chegg. ~~We strive~~Our mission is to improve ~~educational~~learning and learning outcomes by putting ~~the student~~students first. We support ~~students on~~life-long learners starting with their academic journey ~~from high school to college~~ and extending into their ~~career with tools designed~~careers. The Chegg platform provides products and services to support learners to help them ~~learn~~better understand their academic course materials, ~~succeed in~~and also provides personal and professional development skills training, to help them achieve their ~~classes, save money on required materials, and learn the most in-demand skills. Our services are available online, anytime and anywhere.~~learning goals.

Students subscribe to our subscription services, ~~which we~~ collectively ~~refer~~referred to as our Chegg ~~Services.~~Services, which can be accessed internationally through our websites and on mobile devices. Our primary Chegg Services include Chegg Study, Chegg Writing, Chegg Math Solver, Chegg Study Pack, Busuu, Mathway and Thinkful. Our Chegg Study subscription service provides “Expert Questions and Answers” and step-by-step “Textbook Solutions,” helping students with their course work. When students need writing help, including plagiarism detection scans and creating citations for their papers, they can use our Chegg Writing subscription service. Our Chegg Math Solver and Mathway subscription ~~service helps~~services help students understand math by providing a step-by-step math solver and ~~calculator, and we expect to incorporate Mathway into Chegg Math Solver.~~calculator. We also offer our Chegg Study Pack as a premium subscription bundle of our Chegg Study, Chegg Writing, and Chegg Math Solver ~~services.~~services, which also includes additional features such as flashcards, concept videos, and practice questions and quizzes. Our Thinkful skills-based learning platform offers professional courses focused on the most in-demand technology skills.

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 both on our own and through our print textbook partners. We partner with a variety of third parties to source print textbooks and eTextbooks directly or indirectly from ~~publishers in~~publishers.

In April 2022, we entered into definitive agreements with BBA such that we will continue to offer our Required Materials offering on our website and maintain relationships with the ~~United States, including Cengage Learning, Pearson, McGraw Hill, Sage Publications,~~students, however, BBA has purchased our existing print textbook library and ~~John Wiley & Sons, Inc.~~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 BBA will fulfill eTextbook transactions. We expect that our partnership with BBA provides an opportunity to grow faster with higher margins.

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.

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, we generated net revenues of ~~$198.5~~$202.2 million and ~~$396.9~~$198.4 million, ~~respectively, and~~respectively.

We continue to experience a slowdown in the ~~same periods had net income~~education industry as a result of ~~$32.8 million~~the COVID-19 pandemic and ~~net loss~~macroeconomic conditions, such as inflation, which resulted in a decline in traffic to education technology services, such as the ones we provide. A combination of ~~$32.4 million, respectively. During the three~~increased employment opportunities and ~~six months ended June 30, 2020,~~compensation, along with students taking less classes, all led to significantly fewer enrollments than expected. Those students who have enrolled are taking fewer and less rigorous classes and are receiving less graded assignments. As a result, we ~~generated net revenues of $153.0 million and $284.6 million, respectively, and~~are experiencing a deceleration in the ~~same periods had net income~~growth rates of ~~$10.6 million~~our services and ~~$4.9 million, respectively.~~revenues that may continue.

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

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contributions of Chegg 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, intense competition in our markets, the ability to achieve sufficient contributions to revenue from Chegg Services, and other factors, such as the COVID-19 pandemic, which continues to evolve and affect our business and results of operations. The COVID-19 pandemic subjects our business to numerous risks and uncertainties, most of which are beyond our control and cannot be predicted, including ~~when colleges will resume in-person classes or how well they will overcome~~post-pandemic enrollment trends and student behaviors, such as the ~~impacts~~number and intensity of the ~~COVID-19 pandemic.~~courses selected. 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, ~~2020.~~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.”

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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 ~~87%~~91% and ~~85%~~82% of net revenues during the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~respectively and 82% and 80% of net revenues during the three and six months ended June 30, 2020,~~ respectively.

Required Materials

Our Required Materials product line includes revenues from print textbooks and eTextbooks. Revenues from print textbooks that we own are primarily recognized as the total transaction amount ratably over the rental term, generally a two- to five-month period. Revenues from print textbooks owned by a partner are recognized as a revenue share on the total transactional amount immediately when a print textbook ships to a student. Additionally, Required Materials includes revenues from eTextbooks, which are primarily recognized ratably over the contractual period, generally a two- to five-month period.

As a result of the partnership with BBA, 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 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.

In the aggregate, Required Materials revenues were ~~13%~~9% and ~~15%~~18% of net revenues during the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~respectively, and 18% and 20% of net revenues during the three and six months ended June 30, 2020.~~respectively.

Seasonality of Our Business

Revenues from Chegg Services, print textbooks that we own, and eTextbooks are primarily recognized ratably over the term a student subscribes to our Chegg Services, rents a print textbook 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. Our variable expenses related to cost of revenues and marketing activities remain highest in the first and third quarters such that our profitability may not provide meaningful insight on a sequential basis.

As a result of these factors, the most concentrated periods for our revenues and expenses do not necessarily coincide, and comparisons of our historical quarterly results of operations on a sequential basis may not provide meaningful insight into our overall financial performance.

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Results of Operations

The following table summarizes our historical condensed consolidated statements of operations (in thousands, except percentage of total net revenues):


		Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended March 31,
		2021				2020				2021				2020					2022				2021
Net revenues	Net revenues	$	198,478	100	%	$	153,009	100	%	$	396,856	100	%	$	284,599	100	%	Net revenues	$	202,244	100	%	$	198,378	100	%
Cost of revenues(1)	Cost of revenues(1)	60,708		31		43,524		28		132,092		33		85,914		30		Cost of revenues(1)	55,085		27		71,384		36
Gross profit	Gross profit	137,770		69		109,485		72		264,764		67		198,685		70		Gross profit	147,159		73		126,994		64
Operating expenses:	Operating expenses:																	Operating expenses:
Research and development(1)	Research and development(1)	41,595		20		40,374		26		87,726		22		79,915		28		Research and development(1)	52,415		26		46,131		23
Sales and marketing(1)	Sales and marketing(1)	21,686		11		15,758		10		47,900		12		35,996		13		Sales and marketing(1)	42,498		21		26,214		13
General and administrative(1)	General and administrative(1)	39,719		20		31,292		21		77,589		20		57,437		20		General and administrative(1)	46,870		23		37,870		19

Total operating expenses	Total operating expenses	103,000		51		87,424		57		213,215		54		173,348		61		Total operating expenses	141,783		70		110,215		55
Income from operations	Income from operations	34,770		18		22,061		15		51,549		13		25,337		9		Income from operations	5,376		3		16,779		9
Total interest expense, net and other income (expense), net	Total interest expense, net and other income (expense), net	219		—		(10,185)		(7)		(78,918)		(20)		(18,652)		(7)		Total interest expense, net and other income (expense), net	4,583		2		(79,137)		(40)
Income (loss) before provision for income taxes	Income (loss) before provision for income taxes	34,989		18		11,876		8		(27,369)		(7)		6,685		2		Income (loss) before provision for income taxes	9,959		5		(62,358)		(31)
Provision for income taxes	Provision for income taxes	2,225		(1)		1,287		(1)		5,046		(1)		1,809		(1)		Provision for income taxes	(4,217)		(2)		(2,821)		(2)
Net income (loss)	Net income (loss)	$	32,764	17	%	$	10,589	7	%	$	(32,415)	(8)	%	$	4,876	1	%	Net income (loss)	$	5,742	3	%	$	(65,179)	(33)	%

(1) Includes share-based compensation expense as follows:	(1) Includes share-based compensation expense as follows:																	(1) Includes share-based compensation expense as follows:
Cost of revenues	Cost of revenues	$	419			$	213			$	781			$	382			Cost of revenues	$	623			$	362
Research and development	Research and development	9,100				7,620				17,059				14,611				Research and development	11,776				7,959
Sales and marketing	Sales and marketing	3,655				2,436				6,574				4,622				Sales and marketing	4,386				2,919
General and administrative	General and administrative	15,371				9,277				27,231				18,265				General and administrative	16,299				11,860
Total share-based compensation expense	Total share-based compensation expense	$	28,545			$	19,546			$	51,645			$	37,880			Total share-based compensation expense	$	33,084			$	23,100

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Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~

Net Revenues

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

Three Months Ended June 30, Change
2021 2020 $ %
Chegg Services $ 173,513 $ 126,004 $ 47,509 38 %
Required Materials 24,965 27,005 (2,040) (8)
Total net revenues $ 198,478 $ 153,009 $ 45,469 30


		Six Months Ended June 30,				Change				Three Months Ended March 31,						Change
		2021		2020		$		%				2022		2021			$		%
Chegg Services	Chegg Services	$	335,864	$	226,363	$	109,501	48	%		Chegg Services	$	184,812	$	162,351		$	22,461	14	%
Required Materials	Required Materials	60,992		58,236		2,756		5			Required Materials	17,432		36,027			(18,595)		(52)
Total net revenues	Total net revenues	$	396,856	$	284,599	$	112,257	39			Total net revenues	$	202,244	$	198,378		$	3,866	2

Chegg Services revenues increased ~~$47.5~~$22.5 million, or ~~38%, and $109.5 million or 48%~~14%, during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, compared to the same ~~periods~~period in ~~2020,~~2021. The increase was primarily due to ~~our efforts to reduce account sharing, increased global awareness and penetration and~~ the introduction of enhanced and new offerings, including our acquisition of ~~Mathway,~~Busuu, which closed in ~~June 2020.~~January 2022, and increased global brand awareness and penetration. Chegg Services revenues were ~~87%~~91% and ~~85%~~82% of net revenues during the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~respectively, and 82% and 80% of net revenues during three and six months ended June 30, 2020,~~ respectively. Required Materials revenues decreased ~~$2.0~~$18.6 million, or 8%52%, ~~and increased $2.8 million, or 5%~~ during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 compared to the same ~~periods~~period in ~~2020.~~2021. The decrease was primarily due to various print textbook logistics challenges and lower unit volumes driven by decreased college enrollments. Required Materials revenues were ~~13%~~9% and ~~15%~~18% of net revenues during the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~respectively, and 18% and 20% during~~respectively.

As a result of our partnership with BBA, we expect Required Material revenues to decrease due to recognizing a revenue share of the ~~three and six months ended June 30, 2020, respectively.~~total transaction amount rather than the total transaction amount.

Cost of Revenues

The following table sets forth our cost of revenues for the periods shown (in thousands, except percentages):

Three Months Ended June 30, Change
2021 2020 $ %
Cost of revenues(1)
$ 60,708 $ 43,524 $ 17,184 39 %
(1) Includes share-based compensation expense of:
$ 419 $ 213 $ 206 97 %


		Six Months Ended June 30,				Change				Three Months Ended March 31,						Change
		2021		2020		$		%				2022		2021			$		%
Cost of revenues(1)	Cost of revenues(1)	$	132,092	$	85,914	$	46,178	54	%		Cost of revenues(1)	$	55,085	$	71,384		$	(16,299)	(23)	%

(1) Includes share-based compensation expense of:	(1) Includes share-based compensation expense of:	$	781	$	382	$	399	104	%		(1) Includes share-based compensation expense of:	$	623	$	362		$	261	72	%

Cost of revenues ~~increased $17.2~~decreased $16.3 million, or ~~39%~~23%, during the three months ended ~~June 30, 2021,~~March 31, 2022, compared to the same period in ~~2020.~~2021. The ~~increase~~decrease was primarily attributable to lower order fulfillment fees of $12.3 million driven by lower unit volumes, lower net loss on textbook library of $4.6 million, primarily due to a reduction in write-downs, lower cost of textbooks purchased by students of $3.3 million, lower print textbook depreciation expense of $2.2 million, and lower customer support fees of $1.9 million, partially offset by higher other depreciation and amortization expense of ~~$5.9~~$4.1 million, ~~transitional logistics charges of $4.2 million incurred in conjunction with the transition of our print textbooks to a new third party logistics provider,~~ higher web hosting fees of ~~$2.5 million, higher order fulfillment fees of $1.8 million, higher payment processing fees of $1.6~~$2.4 million, and ~~higher employee-related expenses, including share-based compensation expense,~~incremental cost of ~~$1.4~~tutors, as a result of our acquisition of Busuu, of $2.2 million. Gross margins ~~decreased~~increased to ~~69%~~73% during the three months ended ~~June 30, 2021,~~March 31, 2022, from ~~72%~~64% during the same period in ~~2020.~~2021.

As a result of our partnership with BBA, we expect cost of revenues to decrease and margins to improve over time.

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Cost of revenues increased $46.2 million, or 54%, during the six months ended June 30, 2021, compared to the same period in 2020. The increase was primarily attributable to higher other depreciation and amortization expense of $11.0 million, higher order fulfillment fees of $7.1 million, higher cost of textbooks purchased by students of $5.8 million, higher net loss on textbook library of $5.6 million primarily due to increased write-downs, transitional logistics charges of $4.2 million incurred in conjunction with the transition of our print textbooks to a new third party logistics provider, higher payment processing fees of $3.4 million, higher employee-related expenses, including share-based compensation expense, of $3.1 million, higher web hosting fees of $2.7 million, and higher customer support fees of $2.6 million. Gross margins decreased to 67%~~during the six months ended June 30, 2021, from 70% during the same period in 2020.~~

Operating Expenses

The following table sets forth our total operating expenses for the periods shown (in thousands, except percentages):

Three Months Ended June 30, Change
2021 2020 $ %
Research and development(1)
$ 41,595 $ 40,374 $ 1,221 3 %
Sales and marketing(1)
21,686 15,758 5,928 38
General and administrative(1)
39,719 31,292 8,427 27
Total operating expenses $ 103,000 $ 87,424 $ 15,576 18 %
(1) Includes share-based compensation expense of:

Research and development $ 9,100 $ 7,620 $ 1,480 19 %
Sales and marketing 3,655 2,436 1,219 50
General and administrative 15,371 9,277 6,094 66
Share-based compensation expense $ 28,126 $ 19,333 $ 8,793 45 %


		Six Months Ended June 30,				Change				Three Months Ended March 31,						Change
		2021		2020		$		%				2022		2021			$		%
Research and development(1)	Research and development(1)	$	87,726	$	79,915	$	7,811	10	%		Research and development(1)	$	52,415	$	46,131		$	6,284	14	%
Sales and marketing(1)	Sales and marketing(1)	47,900		35,996		11,904		33			Sales and marketing(1)	42,498		26,214			16,284		62
General and administrative(1)	General and administrative(1)	77,589		57,437		20,152		35			General and administrative(1)	46,870		37,870			9,000		24

Total operating expenses	Total operating expenses	$	213,215	$	173,348	$	39,867	23	%		Total operating expenses	$	141,783	$	110,215		$	31,568	29	%

(1) Includes share-based compensation expense of:	(1) Includes share-based compensation expense of:										(1) Includes share-based compensation expense of:
Research and development	Research and development	$	17,059	$	14,611	$	2,448	17	%		Research and development	$	11,776	$	7,959		$	3,817	48	%
Sales and marketing	Sales and marketing	6,574		4,622		1,952		42			Sales and marketing	4,386		2,919			1,467		50
General and administrative	General and administrative	27,231		18,265		8,966		49			General and administrative	16,299		11,860			4,439		37
Share-based compensation expense	Share-based compensation expense	$	50,864	$	37,498	$	13,366	36	%		Share-based compensation expense	$	32,461	$	22,738		$	9,723	43	%

Research and Development

Research and development expenses increased ~~$1.2~~$6.3 million, or 3%14%, during the three months ended ~~June 30, 2021~~March 31, 2022 compared to the same period in ~~2020, remaining relatively flat. Research and development expenses as a percentage of net revenues were 20% during the three months ended June 30, 2021 compared to 26% during the same period in 2020.~~

~~Research and development expenses increased $7.8 million, or 10%, during the six months ended June 30, 2021 compared to the same period in 2020, which~~2021. The increase was primarily attributable to higher employee-related expenses, including share-based compensation expense, of ~~$7.8~~$5.5 million and higher technology expenses to support our research and development of $1.5 million. Research and development expenses as a percentage of net revenues were ~~22%~~26% during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~28%~~23% during the same period in ~~2020.~~2021.

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Sales and Marketing

Sales and marketing expenses increased by ~~$5.9~~$16.3 million, or ~~38%~~62%, during the three months ended ~~June 30, 2021,~~March 31, 2022, compared to the same period in ~~2020.~~2021. The increase was primarily attributable to increased ~~global~~international marketing spend, including incremental marketing spend from Busuu, of ~~$3.5~~$10.0 million, ~~and~~ higher employee-related expenses, including share-based compensation expense, of ~~$2.2~~$3.0 million, and higher other depreciation and amortization expense of $2.1 million. Sales and marketing expenses as a percentage of net revenues were ~~11%~~21% during the three months ended ~~June 30, 2021 compared to 10% during the same period in 2020.~~

Sales and marketing expenses increased by $11.9 million, or 33%, during the six months ended June 30, 2021, compared to the same period in 2020. The increase was primarily attributable to increased global marketing spend of $5.9 million and higher employee-related expenses, including share-based compensation expense, of $4.1 million. Sales and marketing expenses as a percentage of net revenues were 12% during the six months ended June 30, 2021March 31, 2022 compared to 13% during the same period in ~~2020.~~2021.

General and Administrative

General and administrative expenses increased ~~$8.4~~$9.0 million, or ~~27%~~24%, during the three months ended ~~June 30, 2021~~March 31, 2022 compared to the same period in ~~2020.~~2021. The increase was primarily due to higher employee-related expenses, including share-based compensation expense, of ~~$6.5~~$8.6 million. General and administrative expenses as a percentage of net revenues were ~~20%~~23% during the three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~21%~~19% during the same period in ~~2020.~~2021.

~~General and administrative~~The increases in employee-related operating expenses ~~increased $20.2 million, or 35%,~~ during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022, compared to the same period in ~~2020. The increase was primarily due to higher employee-related expenses, including share-based compensation expense,~~2021, are largely driven by incremental employees from our acquisition of ~~$11.9 million and higher professional fees of $3.2 million. General and administrative expenses as a percentage of net revenues were flat at 20% during the six months ended June 30, 2021 and 2020.~~Busuu.

Interest Expense and Other Income (Expense), Net

The following table sets forth our interest expense and other income (expense), net, for the periods shown (in thousands, except percentages):


		Three Months Ended June 30,				Change				Three Months Ended March 31,						Change
		2021		2020		$		%				2022		2021			$		%
Interest expense, net	Interest expense, net	$	(1,701)	$	(13,425)	$	11,724	n/m			Interest expense, net	$	(1,597)	$	(1,929)		$	332	(17)	%
Other income (expense), net	Other income (expense), net	1,920		3,240		(1,320)		(41)	%		Other income (expense), net	6,180		(77,208)			83,388		n/m
Total interest expense, net and other income (expense), net	Total interest expense, net and other income (expense), net	$	219	$	(10,185)	$	10,404	n/m			Total interest expense, net and other income (expense), net	$	4,583	$	(79,137)		$	83,720	n/m

Six Months Ended June 30, Change
2021 2020 $ %
Interest expense, net $ (3,630) $ (26,852) $ 23,222 n/m
Other income (expense), net (75,288) 8,200 (83,488) n/m
Total interest expense, net and other income (expense), net $ (78,918) $ (18,652) $ (60,266) n/m
~~_______________________________________~~

*n/m - not meaningful

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Interest expense, net decreased ~~$11.7~~$0.3 million, ~~and $23.2 million~~or 17%, during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, compared to the same ~~periods~~period in ~~2020,~~2021, primary due to the ~~reduction in non-cash interest expense related to the debt discount as a result~~full redemption of the ~~adoption of ASU 2020-06 on January 1,~~2023 notes in 2021.

Other income (expense), net ~~decreased $1.3~~increased $83.4 million ~~or 41%,~~ during the three months ended ~~June 30, 2021,~~March 31, 2022, compared to the same period in ~~2020,~~2021, primarily due to ~~lower interest income earned on our investments. Other income (expense), net, decreased $83.5 million during~~ the ~~six months ended June 30, 2021, compared to the same period in 2020, primarily as a result~~absence of the $78.2 million loss on early extinguishment of debt of a portion of the 2025 notes and the $7.1 million net loss on the change in fair value of derivative instruments, and $1.3 million of lower interest income earned on our investments partially offset by the $5.3 million gain on the sale of the strategic equity investment.

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See Note 7, “Convertible Senior Notes,” 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 on changes to interest expense, net and other income (expense), net related to the losses on early extinguishment of debt and the change in fair value of derivative instruments.

Provision for Income Taxes

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

Three Months Ended June 30, Change
2021 2020 $ %
Provision for income taxes $ 2,225 $ 1,287 $ 938 73 %

Six Months Ended June 30, Change
2021 2020 $ %
Provision for income taxes $ 5,046 $ 1,809 $ 3,237 179 %


	Three Months Ended March 31,				Change
	2022		2021		$		%
Provision for income taxes	$	(4,217)	$	(2,821)	$	(1,396)	49	%

Provision for income taxes increased ~~$0.9~~$1.4 million, or ~~73%~~49%, during the three months ended ~~June 30, 2021~~March 31, 2022 compared to the same period in ~~2020~~2021 primarily due to ~~an increase~~base erosion and anti-abuse taxes partially offset by a decrease in foreign profits. Provision for income taxes increased $3.2 million, or 179%, during the six months ended June 30, 2021, compared to the same period in 2020 primarily due to an increase in foreign profits and the withholding ~~taxes related to the March 2021 sale of our strategic equity investment.~~taxes.

Liquidity and Capital Resources

As of ~~June 30, 2021,~~March 31, 2022, our principal sources of liquidity were cash, cash equivalents, and investments totaling ~~$2.5~~$1.6 billion, which were held for working capital purposes. The substantial majority of our net revenues are from e-commerce transactions with students, which are settled immediately through payment processors, as opposed to our accounts payable, which are settled based on contractual payment terms with our suppliers.

In ~~June 2020,~~November 2021, our board of directors approved a $500.0 million increase to our existing securities repurchase program authorizing ~~our~~the repurchase of up to ~~$500.0 million~~$1.0 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. ~~Through June 30,~~During the three months ended March 31, 2022 and year ended December 31, 2021, we entered into accelerated share repurchase programs to repurchase a total of $600.0 million of our outstanding common stock. Additionally, in 2021 we have repurchased $57.4 million and $100.0 million of aggregate principal amount of the 2023 notes and 2025 notes, respectively, in privately negotiated transactions for an aggregate consideration of $149.6 million and $184.9 million, ~~respectively, and $165.5~~respectively. $65.5 million remains under the repurchase program, which has no expiration date and will ~~end on December 31, 2021.~~continue until otherwise suspended, terminated or modified at any time for any reason by our board of directors.

In February 2021, we completed an equity offering in which we raised net proceeds of $1,091.5 million, after deducting underwriting discounts and commissions and offering expenses (2021 equity offering). In August 2020 and March/April 2019, we closed offerings of our 2026 notes and 2025 notes, generating net proceeds of approximately $984.1 million and $780.2 million, respectively, in each case after deducting the initial purchasers’ discount and estimated offering expenses payable by us. The 2026 notes and 2025 notes mature on September 1, 2026 and March 15, 2025, respectively, unless converted, redeemed or repurchased in accordance with their terms prior to such dates.

As of ~~June 30, 2021,~~March 31, 2022, we have incurred cumulative losses of ~~$368.1~~$331.4 million from our operations and we may incur additional losses in the future. Our operations have been financed primarily by our initial public offering of our common stock (IPO), our 2017 follow-on public offering, our convertible senior notes offerings, our 2021 equity offering, and cash generated from operations.

There were no material changes in our commitments under contractual obligations, as disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2021.

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We believe that our existing sources of liquidity will be sufficient to fund our operations and debt service obligations for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, our investments in research and development activities, our acquisition of new products and services, and our sales and marketing activities. To the extent that existing cash and cash from operations are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Additional funds may not be available on terms favorable to us or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, operating cash flows and financial condition.

Most of our cash, cash equivalents, and investments are held in the United States. As of ~~June 30, 2021,~~March 31, 2022, our foreign subsidiaries held an insignificant amount of cash in foreign jurisdictions. We currently do not intend or foresee a need to repatriate ~~some of~~ these foreign funds; however, as a result of the Tax Cuts and Jobs Act, we anticipate the U.S. federal impact to be minimal if these foreign funds are repatriated. In addition, based on our current and future needs, we believe our current funding and capital resources for our international operations are adequate.

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


		Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Condensed Consolidated Statements of Cash Flows Data:	Condensed Consolidated Statements of Cash Flows Data:					Condensed Consolidated Statements of Cash Flows Data:
Net cash provided by operating activities	Net cash provided by operating activities	$	144,501	$	122,205	Net cash provided by operating activities	$	80,035	$	73,573
Net cash used in investing activities	Net cash used in investing activities	(574,784)		(178,482)		Net cash used in investing activities	(363,072)		(764,952)
Net cash provided by (used in) financing activities		790,344		(46,065)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(307,461)		867,600

Cash Flows from Operating Activities

Net cash provided by operating activities during the ~~six~~three months ended ~~June 30,~~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.

Net cash provided by operating activities during the three months ended March 31, 2021 was ~~$144.5~~$73.6 million. Our net loss of ~~$32.4~~$65.2 million was offset by significant non-cash operating expenses including print textbook depreciation expense of $3.8 million, other depreciation and amortization expense of $14.8 million, share-based compensation expense of $23.1 million, the loss on early extinguishment of debt of $78.2 ~~million, share-based compensation expense of $51.6 million, other depreciation and amortization expense of $30.2~~ million, the net loss on the change in fair value of derivative instruments of $7.1 million, ~~print textbook depreciation expense of $6.6 million,~~ and the net loss on textbook library of ~~$4.2~~$4.0 million, which was primarily due to increased write-downs, partially offset by the gain on sale of strategic equity investment of $5.3 million.

Net cash provided by operating activities during the six months ended June 30, 2020 was $122.2 million. Our net income of $4.9 million was increased by the change in our accrued liabilities of $17.4 million and deferred revenue of $8.1 million. Additionally, we had significant non-cash operating expenses including share-based compensation expense of $37.9 million, the amortization of debt discount and issuance costs related to the notes of $25.9 million, other depreciation and amortization expense of $19.8 million and print textbook depreciation expense of $7.1 million.

Cash Flows from Investing Activities

Net cash used in investing activities during the ~~six~~three months ended ~~June 30,~~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.

Net cash used in investing activities during the three months ended March 31, 2021 was ~~$574.8~~$765.0 million and was related to the purchases of investments of ~~$984.6~~$925.7 million, the purchases of property and equipment of ~~$46.6~~$19.0 million, the acquisition of business of $7.9 million and the purchases of textbooks of ~~$5.0~~$4.5 million, partially offset by the maturity of investments of ~~$455.5~~$181.3 million, proceeds from the sale of strategic equity investment of ~~$7.1~~$6.8 million, and proceeds from the disposition of textbooks of ~~$6.7~~$4.0 million.

Net cash used in investing activities during the six months ended June 30, 2020 was $178.5 million and was related to the purchases of investments of $277.0 million, the acquisition of business of $92.8 million, the purchases of property and equipment of $43.1 million, the purchases of textbooks of $38.7 million,and the purchase of strategic equity investment of $2.0 million, partially offset by the maturity of investments of $271.7 million and proceeds from the disposition of textbooks of $3.4 million.

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Cash Flows from Financing Activities

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.

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Net cash provided by financing activities during the ~~six~~three months ended ~~June 30,~~March 31, 2021 was ~~$790.3~~$867.6 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~~$24.8 million, and proceeds from the issuance of common stock under stock plans of ~~$5.3~~$0.3 million, partially offset by the repayment of a portion of our 2023 notes and 2025 notes of ~~$300.8~~$189.8 million and payment of ~~$74.6~~$59.2 million in taxes related to the net share settlement of equity awards.

Net cash used in financing activities during the six months ended June 30, 2020 was $46.1 million and was related to the payment of $54.1 million in taxes related to the net share settlement of equity awards, partially offset by proceeds from the issuance of common stock under stock plans of $8.0 million.

~~Contractual Obligations and Other Commitments~~

During the six months ended June 30, 2021, we extinguished $100.0 million aggregate principal amount of the 2025 notes and settled $115.6 million of aggregate principal amount of the 2023 notes. See Note 7, “Convertible Senior Notes,” 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 the section titled “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, 2020.

~~Off-Balance Sheet Arrangements~~

Through June 30, 2021, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies, Significant Judgments and Estimates

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing basis, we evaluate our estimates and assumptions. The current COVID-19 pandemic has caused uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained. Our actual results may differ from these estimates under different assumptions or conditions.

~~Except for our critical accounting policy on share-based compensation expense, there~~There have been no material changes in our critical accounting policies and estimates during the ~~six~~three months ended ~~June 30, 2021~~March 31, 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, ~~2020.~~

~~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 management’s expectation of exercise behaviors. 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

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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 revenue forecasts and general business trends in the assessment of whether or not a PSU award will be obtained. Subsequent changes to these considerations may have a material impact on the amount of share-based compensation expense recognized in the period related to PSU awards, 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.2021.

Recent Accounting Pronouncements

For relevant recent accounting pronouncements, see Note 1, “Background and Basis of Presentation,” of our accompanying Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements (unaudited)” of this Quarterly Report on Form 10-Q.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no other material changes in our market risk during the ~~six~~three months ended ~~June 30, 2021,~~March 31, 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, ~~2020.~~2021.

ITEM 4. CONTROLS AND PROCEDURES

(a)Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report.

In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on management’s evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

(b)Changes in Internal Control over Financial Reporting

During the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We continue to monitor the impact of the COVID-19 pandemic and, despite many of our employees working remotely, have not experienced any changes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. There have been no material changes in our risk factors from our Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~(a)~~ Unregistered Sales of ~~Equity~~ Securities

~~None.~~We had no unregistered sales of our securities during the three months ended March 31, 2022.

Purchases of Securities by the Registrant and Affiliated Purchasers

The following table summarizes the securities repurchase activity during the three months ended March 31, 2022 (in thousands, except average price paid per security and total number of securities repurchased):


Period	Total Number of Securities Repurchased	Average Price Paid Per Security		Total Number of Securities Purchased Pursuant to Publicly-Announced Plan	Total Dollar Amount Purchased Pursuant to Publicly-Announced Plan		Maximum Dollar Amount Remaining Available for Repurchase Pursuant to Publicly-Announced Plan
As of December 31, 2021	—	$	—	—	$	—	$	365,491
January 1 - January 31(1)	2,163,219	28.3914		2,163,219	—		365,491
February 1 - February 28(2)	8,562,255	—		8,562,255	300,000		65,491
March 1 - March 31	—	$	—	—	$	—	$	65,491

(1) 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 total dollar amount purchased pursuant to a publicly-announced plan is zero as we made the upfront payment of $300.0 million during the three months ended December 31, 2021.

(2) On February 22, 2022, we entered into an accelerated share repurchase (ASR) agreement with a financial institution (2022 ASR) to repurchase $300.0 million of our outstanding common stock. In exchange for an upfront payment of $300.0 million, we received an initial delivery of 8,562,255 shares of our common stock. The average price paid per security is not applicable as final settlement did not occur during the three months ended March 31, 2022. The 2022 ASR settled during the second quarter of 2022 and we received an additional delivery of 837,001 shares of our common stock at a volume-weighted-average price, less an agreed upon discount, $31.9174 per share.

See Note 10, “Stockholders' Equity,” 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 on the 2021 and 2022 ASR.

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Aside from the 2021 and 2022 ASR, we did not repurchase any of our securities during the three months ended March 31, 2022, other than in connection with the forfeiture of common stock by holders of restricted stock units in exchange for payments of statutory tax withholding amounts on behalf of the holders arising as a result of the vesting of restricted stock units.

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ITEM 6. EXHIBITS

Incorporated by Reference

Exhibit
No.

Exhibit

Form

File No

Filing Date

Exhibit No.

Filed
Herewith

31.01

Certification of Dan Rosensweig, Chief Executive Officer and Co-Chairperson, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.02

Certification of Andrew Brown, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.01**

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema

101.CAL

Inline XBRL Taxonomy Extension Calculation

101.LAB

Inline XBRL Taxonomy Extension Labels

101.PRE

Inline XBRL Taxonomy Extension Presentation

101.DEF

Inline XBRL Taxonomy Extension Definition

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).




**			This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	CHEGG, INC.
~~August 9, 2021~~May 2, 2022	By:	/S/ ANDREW BROWN
		Andrew Brown
		Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

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	Three Months Ended June 30, 2021
	Common Stock
	Shares	Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Stockholders’ Equity
Balances at March 31, 2021	141,317	$	141	$	1,645,352	$	(1,238)	$	(400,912)	$	1,243,343



Equity component on conversions of 2023 notes and 2025 notes	—	—		(225,615)		—		—		(225,615)
Issuance of common stock upon conversions of 2023 notes	2,857	3		224,281		—		—		224,284
Net proceeds from capped call related to conversions of 2023 notes and 2025 notes	—	—		44,192		—		—		44,192

Issuance of common stock upon exercise of stock options and ESPP	120	—		4,919		—		—		4,919
Net share settlement of equity awards	327	1		(15,466)		—		—		(15,465)
Share-based compensation expense	—	—		29,192		—		—		29,192
Other comprehensive income	—	—		—		268		—		268
Net income	—	—		—		—		32,764		32,764
Balances at June 30, 2021	144,621	$	145	$	1,706,855	$	(970)	$	(368,148)	$	1,337,882


	Three Months Ended June 30, 2020
	Common Stock
	Shares	Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Stockholders’ Equity
Balances at March 31, 2020	123,543	$	124	$	890,258	$	(5,362)	$	(422,093)	$	462,927




Issuance of common stock upon exercise of stock options and ESPP	312	—		5,372		—		—		5,372
Net share settlement of equity awards	268	—		(7,268)		—		—		(7,268)

Share-based compensation expense	—	—		19,546		—		—		19,546
Other comprehensive income	—	—		—		7,212		—		7,212
Net income	—	—		—		—		10,589		10,589
Balances at June 30, 2020	124,123	$	124	$	907,908	$	1,850	$	(411,504)	$	498,378


	Six Months Ended June 30, 2021
	Common Stock
	Shares	Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income		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 conversion of 2023 notes	2,983	3		235,518		—		—		235,521
Net proceeds from capped call related to conversions and extinguishments of 2023 notes and 2025 notes	—	—		67,769		—		—		67,769
Issuance of common stock upon exercise of stock options and ESPP	164	—		5,265		—		—		5,265
Net share settlement of equity awards	1,155	2		(74,642)		—		—		(74,640)
Share-based compensation expense	—	—		52,839		—		—		52,839
Other comprehensive loss	—	—		—		(2,500)		—		(2,500)
Net loss	—	—		—		—		(32,415)		(32,415)
Balances at June 30, 2021	144,621	$	145	$	1,706,855	$	(970)	$	(368,148)	$	1,337,882


	Six Months Ended June 30, 2020
	Common Stock
	Shares	Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Stockholders’ Equity
Balances at December 31, 2019	121,584	$	122	$	916,095	$	(1,096)	$	(416,292)	$	498,829
Cumulative-effect adjustment related to adoption of ASU 2016-13	—	—		—		—		(88)		(88)



Issuance of common stock upon exercise of stock options and ESPP	672	—		8,037		—		—		8,037
Net share settlement of equity awards	1,867	2		(54,104)		—		—		(54,102)
Share-based compensation expense	—	—		37,880		—		—		37,880
Other comprehensive income	—	—		—		2,946		—		2,946
Net income	—	—		—		—		4,876		4,876
Balances at June 30, 2020	124,123	$	124	$	907,908	$	1,850	$	(411,504)	$	498,378


	June 30, 2021				December 31, 2020 (1)
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
2026 notes	$	986,363	$	1,050,380	$	761,930	$	1,129,370
2025 notes	688,977		1,182,986		640,614		1,456,800
2023 notes	0		0		104,378		376,949
Convertible senior notes, net	$	1,675,340	$	2,233,366	$	1,506,922	$	2,963,119


	Three Months Ended June 30,
	2021						2020 (1)
	2026 Notes		2025 Notes		2023 Notes		2025 Notes		2023 Notes
Contractual interest expense	$	0	$	218	$	12	$	249	$	215
Amortization of debt discount	0		0		0		8,842		3,126
Amortization of issuance costs	657		740		74		607		371
Total interest expense	$	657	$	958	$	86	$	9,698	$	3,712