Greetings and welcome to the Chegg, Inc. fourth quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone has, if anyone should require operator assistance, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Tracy Ford, Vice President of Invest Relations. You may begin.

Good afternoon. Thank you for joining Chegg's fourth quarter 2025 conference call. On today's call are Dan Rosenzweig, President and CEO, and David Longo, Chief Financial Officer. A copy of our earnings press release, along with our investor presentation, is available on our Investor Relations website, investor.chegg.com. A replay of this call will also be available on our website. We routinely post information on our website and intend to make important announcements on our Media Center website at chegg.com.mediacenter. We encourage you to make use of these resources. Before we begin, I would like to point out that during the course of this call, we will make forward-looking statements regarding future events, including the future financial and operating performance of the company. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important factors that could cause actual results to differ materially from those in the forward-looking statements. In particular, we refer you to the cautionary language included in today's earnings release and the risk factors described in Chegg's annual report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission, as well as our other filings with the SEC. Any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. Our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release on the investor slide deck found on our IR website, investor.chegg.com. We also recommend you review the investor data sheet, which is also posted on our IR website. Now, I will turn the call over to Dan.

Thank you, Tracy, and thank you, everyone, for joining Chegg's fourth quarter 2025 earnings call. This is a period of reinvention at Chegg. We are rebuilding the company focused on the $40 billion skilling market, which we believe will be a double-digit revenue growth business for Chegg, with strong margins and cash flow in the years ahead. To achieve this, we have reorganized Chegg around two focused business units, Chegg Skilling, which is now our growth engine, and our legacy academic learning services, which we are managing to generate free cash flow. Together, this structure gives us the financial flexibility to invest and grow opportunities within Skilling while creating long-term shareholder value. We are excited about our future and feel confident that this new structure sets us up for success. We are already seeing positive early signs. In Q4, Chegg Skilling delivered $18 million in revenue, positioning us for double-digit growth for 2026. Our legacy business, Chegg Study, continues to serve more than a million students, and with our new streamlined OREC structure, is providing meaningful cash flow to fund value creation. As we have expressed, changes in search interfaces continue to impact our traffic. Yet despite these changes, the quality and accuracy of our services continues to drive high retention rates. We are now focused on optimizing pricing and packaging and testing multiple strategies to extend our operational runway and drive more free cash flow. We have a clear objective to use that cash to fund new growth opportunities and increase the value for our shareholders. Given the global demand for workforce scaling has already reached $40 billion. We feel it's a huge opportunity for Chegg, and we are well-positioned to serve this market, particularly in AI, language, technical fluency, and durable skills. Our brand is trusted by learners worldwide, and our skills courses are grounded in learning science and data-driven instructional design. Our platform tracks learner progress in real time, delivering predictive nudges and timely interventions that improve engagement, retention, and completion rates. This combination of brand credibility, evidence-based course design, and intelligent learner support consistently leads our channel partners to report stronger outcomes versus our competitors. To capture the growth opportunity we see ahead, we are expanding our course catalog with high-demand technical AI language and professional skills, while simultaneously broadening our global footprint across B2B distribution channels. As part of this strategy, we're excited to announce new partnerships with DHL, GI Group, and Wolf University. Wolf specifically expands how we can serve learners as they provide accredited degree pathways that allow us for acquired skills to count towards recognized credentials. We've also extended a few key contracts from companies like L'Oreal and PPG. Our goal is to further extend our reach into global enterprise, institutional, and academic markets. Looking ahead to 2026, we plan to onboard additional employer and institutional partners, both directly and through leading marketplaces. We continue to expand the depth and breadth of our curriculum. To support this opportunity, I'm thrilled to announce that Kareem Alouche is joining our team to run our European language, learning, and skills operation. Kareem brings deep experience in building and scaling enterprise businesses across Microsoft, NetApp, Global English, and most recently at Coursera, where she led the transformation of their enterprise business. We are thrilled to have her leadership and expertise as we scale our scaling business around the world. We have made significant progress in the reinvention of Che. Our goal is to continue to grow our skilling business by double digits annually, and over the next couple of years to achieve an adjusted EBITDA margin of at least 20%. To achieve that, our 26 priorities are straightforward. Accelerate the growth of our skilling business by expanding our offerings and network partners domestically and through Europe. Increase free cash flow to invest in the future growth of skilling. and strengthen our balance sheet by ending the year with zero debt and meaningful cash balance. We are encouraged by the results we are seeing in the skills business and are excited about the path ahead. We successfully transformed our business from a print textbook rental business to an online learning company, and now we are transitioning from a D2C business to a B2B skills learning platform. We are excited about the work we have done so far, and we look forward to updating you next quarter. And with that, I'll turn it over to David.

Thank you, Dan, and good afternoon. Today, I will be presenting our financial performance for the fourth quarter of 2025, along with the company's outlook for the first quarter of 2026. We are introducing our new revenue breakout to provide transparency into our Chegg Skilling business. The historical revenue breakout for the past few years can be found on our data sheet on our Investor Relations website. We delivered a good fourth quarter. We exceeded our revenue expectations and surpassed the high end of our adjusted EBITDA guidance by $2 million, reflecting the initial positive impact of our new focus and turnaround efforts. Our strategic shift into the large skilling market positions us for the next phase of long-term sustainable growth with strong margins. During the quarter, we also took steps to enhance our capital structure, repurchasing $9 million of our 2026 convertible notes at a discount. In the fourth quarter, we delivered $18 million in skilling revenue with double-digit growth, underscoring the significant market opportunity and the momentum we are seeing. Academic services revenue was $55 million as we continued to operate the business with a focus on cash generation. As Dan mentioned earlier, we are testing different pricing and packaging strategies to extend its operational runway. Moving on to expenses, non-GAAP operating expenses were $44.8 million in the quarter, a reduction of $39.8 million, or 47% year-over-year, as we maintain fiscal discipline and continue to benefit from the successful execution of our restructuring activities. Our fourth quarter adjusted EBITDA was $13 million, representing a margin of 18%. Our adoption of AI, along with our new business structure, has enabled us to significantly lower expenses while preserving our ability to grow. We overhauled our cost structure to improve efficiency and create capacity for reinvestment and change skilling. We are on track to reduce total non-gap expenses to less than $250 million in 2026, a 53% decline from 2024. Our strategic investment in AI have allowed us to significantly reduce CapEx without compromising quality. Q4 CapEx was $6 million, down 51% year-over-year. For 2026, we are targeting a further 60% reduction in CapEx, with approximately 90% dedicated to our growing skill in business. Free cash flow in the fourth quarter was negative $15 million, which was primarily impacted by $12 million in employee severance payments related to our restructuring activities. In 2026, we expect $18 million in severance-related cash expenditures related to our last two restructuring, with approximately 80% occurring in the first quarter. Despite these items, we expect to generate meaningful free cash flow in 2026. Looking at the balance sheet, we concluded the quarter with cash and investments of $85 million and a net cash balance of $31 million. Before I move to guidance, I'd like to quickly address the delisting notice we received from the NYSE. The notice has no immediate impact on our listing status, and we have ample time and multiple avenues available to regain compliance, including a potential reverse stock split. Our primary focus is on strengthening the fundamentals of the business. We believe that executing on our priorities will be the most effective path to restoring compliance and delivering long-term shareholder value. Looking ahead at Q1 guidance, we expect $17.5 to $18 million of revenue from our Chegg Skilling business. We expect double-digit growth for the year and anticipate stronger performance in the second half and then the first, given by continued investment in the business and the addition of new distribution partners. Total revenue between $60 and $62 million, gross margin to be in the range of 57 to 58%, and adjusted EBITDA between $11 million and $12 million. In 2026, our capital allocation strategy is focused on optimizing free cash flow, strengthening our cash positions, and eliminating our debt to create a more flexible and resilient balance sheet. We will also evaluate opportunities to deploy capital through a disciplined approach that supports sustainable growth and generates long-term shareholder value. In closing, we have taken deliberate actions to strengthen the company for long-term success. We are leaner, more efficient, and poised for double-digit revenue growth in our change-skilling business and meaningful free cash flow in 2026. We believe we are turning the corner and are on a clear path toward future growth, profitability, and increased shareholder value. With that, I will turn the call over to the operator for your questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

One moment, please, while we pull for questions.

Our first question comes from the line of Brian Similek with Draven Morgan. Please proceed with your question.

Great. Thanks for taking the questions and good to see the skilling progress. You know, Dan, can you just help us understand the key drivers of the skilling growth and focus between Busuu and other skilling credentialing areas? And then secondarily, more on the core business as well. Can you just elaborate on what you're seeing in the early price tests and plan mix across the legacy business?

Yeah, great questions. I just want to reverse the way we think about it, which is the core business now is skilling. So the historic business is the academic services business. So let me start with that one, and then I'll talk about the key KPIs that we look at with So we're probably about 40% through the border on the learning business, and it's pretty much where we thought it would be, with the exception of the retention continues to be a little bit stronger than we thought, and that's very good for free cash flow generation. So what we know is when Google doesn't block our traffic or when the traffic gets through, that we continue to convert well, and retention continues to actually achieve the highest levels that I've seen, not since I've been back, but even before that. So that gives us a runway to be able to reinvent that product, which we have several ideas, and we're sort of excited about them of where tech study can go in the future. but in the interim uh the price testings the key for us is how will they do a month in which is retention and so far they're performing actually quite well so you know it's too early to declare you know one way or the other but we're very pleased with the fact that retention continues to be so high um on the skilling business so we used to be a b2c business on whether it was busu or whether it was on Chegg Skills, both those businesses over the last 24 months have been converted into B2B businesses. Skills is exclusively B2B, and by the end of this year, Busuu will be more B2B than B2C. And so the key metrics that we're looking at are some of the things that we began to talk about, which is how do we expand the number of distribution partners that we have? And we announced one, and we expect to announce more over the course of the year, which we're excited about. And then second is how do we continue to expand the curriculum we have to sell more into the businesses or the channels that we already have. And so we'll just be focused on number of channels and expanding curriculum. And over time, we'll talk about sort of the average volume of a transaction. It's too early to do that. But at the moment, it's more channels of distribution, and more curriculum to be able to sell into the existing and to the new channels. And both of those things are up to a slightly faster start than I would have expected in only nine weeks back on the job. So I'm actually excited about it.

You bet.

Thank you. Our next question comes from the line of Ryan McDonald with Needham & Company. Please proceed with your question.

Thanks for taking my questions. Dan, maybe to ask you about the state of the skilling market. Obviously, a lot of change that's about to happen with this Coursera-Udemy merger, obviously two of the biggest players in the space. And so as I think about Chegg's skilling and sort of how you gain share within the marketplace in B2B, you know, you talk about expanding the number of distribution partners, expanding the curriculum you have. What opportunities do you think present themselves from this impending merger of areas where you can look to either take mindshare from a distribution partner or expand content by bringing in maybe new content creators, you know, as this transition occurs over the next year or so? Thanks.

Yeah, it's a very interesting question. And that merger is sort of fascinating in terms of how the two companies are performing. But the significant difference is they are marketplaces for other people's content mostly. And one has a B2B, they both have a version of B2B and B2C. And so rather than look at how do we take share, you can actually think the other way, which is, can we work with them? Because our content continues to outperform the places we put it. And the definition of outperform for us is not just conversion, but completion, renewal with those companies that are inside those channels. and we mentioned it in the prepared remarks that we continue to hear from the partners that we have that we continue to outperform the other partners in the channel and it's because we have a basis for actually teaching that we've been able to apply over into this world. So we don't see Coursera and Udemy as competitors. We actually see them as potential partners to work with going forward and our view is if we continue, You know, if you look at how value gets created, we think it's now the person that's creating the content and can actually serve the student, educate the student, and that those businesses are going to be more higher margin businesses than just the channels of distribution. So we see ourselves looking to expand. We don't have to take share from them. We can take share potentially by working with them by also providing our content through their channels and other channels. So it's different than what we would have looked at before.

Really helpful clarification there, Dan. I appreciate the color on that. Maybe as a follow-up, obviously we're starting to see a lot of the, let's call it, AI strategies at the board level start to be implemented within enterprise organizations broadly. Are you seeing that now translate into greater usage or consumption of AI learning content on your platform through your partnerships that you have?

Absolutely, yes. So when we first started this several years ago, I mean, we went from zero to the size that we plan to be this year in just three and a half years. So we're seeing actually real good growth. And this will be the first time that we've expanded beyond our partnership with Guild to add new partners. So we're, you know, we see double digit growth ahead for the next several years, because we're really just at the beginning of this thing. But when you ask what the demand is for, the original deals that we did were for frontline workers who needed just basic technology skills. Now the demand is shipping rapidly towards how do we make sure that every single employee, not just frontline workers, but workers across the board, actually begin to understand how to utilize AI. So, you know, a different way to think about it is rather than say, what should I build? Everybody needs to learn the tools that I can use to build. And that's the role that we're playing. And we think that's a very big growth market, which is why we're sort of accelerating the kinds of classes that we're teaching. And honestly, you know, the relationship that we now announce with Wolf is also a very big opportunity going forward. It's very early to be able to size it. But this is the first time Chegg is going to be offering courses to a partner where our courses can count towards a degree. And so you can imagine the demand from students about wanting to have courses they can take that also contribute to their college degree where they can put on their resumes that they actually understand how to use the tools around AI. And so these are all really fun and interesting and high growth areas for us. Awesome. Thanks for taking my questions. Thanks for asking them and thanks for covering us. We appreciate it. A lot of small companies don't get that kind of coverage, so we're grateful. Thank you. And we have reached

the end of the question and answer session, and this also concludes today's conference call. And we do thank you for your participation, and you may now disconnect your lines at this time. Thank you.