CHEGG, INC. 2026 Q2 Earnings Call

Good afternoon. Thank you for joining Chegg's second quarter 2026 conference call. On today's call are Dan Rosensweig, 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 the 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 31st, 2025, 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 and 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. I will turn the call over to Dan.

Thank you, Tracey. Thanks everyone for joining Chegg's second quarter 2026 earnings call. We outperformed our expectations on revenue, adjusted EBITDA, and cash, reflecting our ability to execute against our priorities while investing for future growth. The goals remain the same, return Chegg to growth with high margins and strong free cash flow. Starting last fall, we embarked on our next big chapter, re-architecting the company to be AI-first, building a sustainable cost structure, and strengthening our balance sheet so we could accelerate our bigger vision. Chegg's mission to put students first and help them move from learning to earning has never wavered.

For almost 20 years, we have evolved to meet students' most important needs, from inventing textbook rental model to make higher education more affordable, then providing 24/7 learning support through Chegg Study, then adding skills-based courses to help learners build the skills needed to advance their careers. Each transition has opened up a new chapter of growth for Chegg. The foundation we have built across our products, technology, and data now positions us to expand our focus on employability. We will help students build the skills, confidence, and connections needed to graduate, find internships, and transition into the workforce. Higher education continues to evolve, but one thing will never change. After completing whatever path they pursue, students need a job. For the nearly 20 million students entering today's job market over the next few years, that transition is filled with challenges and uncertainty.

Beginning in Q3, we are soft launching the next generation of Chegg. By combining our proprietary data, AI, and deep insight into how students learn and build careers, we will reduce the friction for students to get internships and then jobs. The new Chegg will help automate job search and matching while adding coaching that will help students pick the right major, the right courses, and evaluate the right skills. Our plan is to automate the search, the match, and coaching so students can build the right skills, take the right courses, and make the right connections. Chegg will handle the hard parts of applying, tailoring the resumes, drafting cover letters, auto-filling and submitting applications, and even initiating alumni outreach on behalf of the students.

We will then add the ability for students to get company-specific interview prep, personalized feedback, and targeting skill-building courses to close any gaps standing between them and the job. The result is the platform that takes students from, "I need a job," to, "I am prepared, applied, and connected," all in one place. It's this convergence of everything we have built, our academic platform, our skilling business, and our language learning capability into one service that addresses one of the most pressing needs students face today. We have already had more than 10,000 students use the beta and provide feedback, and we will begin rolling out the new service across both Chegg and our site, internships.com, starting in the third quarter and all throughout 2027. As we expand our focus on employability, our skilling business remains an important part of the opportunity ahead.

By helping organizations build workforce capabilities and helping learners develop and apply relevant skills, we are creating a platform that connects learning, skills development, and career outcomes. Chegg Skills has been built as a multi-channel platform spanning enterprise, institutional, employer, and marketplace channels to create a more diversified foundation for growth. We have already signed six new partners this year, including OpenSesame and Dale Carnegie, and those launches will take place over the second half of the year. We will continue to expand into enterprises and schools over the next few years using AI and data to dramatically expand and personalize our catalog while making our courses even more affordable. Our language skills are an important component of employability, helping people expand career opportunities and communicate more effectively in an increasingly global workforce.

As a result, we are transforming our language offerings from a language learning app into a performance platform, helping people communicate with confidence and impact in any language when it counts. Our new agentic coach, which understands each learner's goals and the context of each interaction, helps you prepare for the moments that matter, like a client call, a presentation, or an interview. Early next year, we plan to have a seamless integration of our agentic coach into the learner's actual workflow. Learning that shows up exactly when and where you need it. We are also expanding our skills offering into Europe, combining language learning with broader workforce capabilities. Underlying all of this has been the restructuring of our workforce to becoming AI first.

AI allows us to personalize learning, improve outcomes, and scale more efficiently and affordably, giving us a much leaner operating model, which allows us to return to being a growth business with high margins. When I look at the arc of what we have built and where we are headed, I feel genuinely confident. AI created real headwinds for this company, and we responded by strengthening our balance sheet, rebuilding an AI-first cost structure, and expanding our vision towards a much larger opportunity. We are becoming an employability business, one that helps students develop skills, find internships, lands jobs, and grows throughout their careers. That is a more durable market, and we are uniquely positioned to own it. The financial foundation David will walk you through is what makes that all possible, and we look forward to updating you on our progress next quarter.

With that, I'll turn it over to David.

Thank you, Dan, and good morning. Today, I will be reviewing our financial performance for the second quarter of 2026, along with the company's outlook for the third quarter. Our second quarter results exceeded our expectations, reflecting continued execution against our priorities. We are excited to take Chegg into its next chapter by expanding our focus on employability, addressing students' evolving needs while helping employers build a more skilled workforce, creating what we believe is a significant opportunity for long-term profitable growth. As we execute on our strategy, AI is improving operational efficiency across the company and driving meaningful gains in profitability and cash generation. We also repurchased shares during the quarter, reflecting our confidence in the company's long-term value while maintaining a disciplined approach to capital allocation. In the quarter, total revenue was $51.8 million, exceeding our expectations.

We expanded our distribution partnerships, which we expect to contribute more meaningfully later this year, while remaining focused on efficiently managing our academic services products to maximize cash generation. Chegg Study monthly retention continued to be very strong, reinforcing its long-term cash generation potential. Turning to expenses, Q2 non-GAAP operating expenses were $32.3 million, nearly cutting our expenses in half compared to the second quarter of last year. This significant reduction reflects our disciplined approach to expense management and enhanced use of AI to improve productivity and drive efficiencies across the company. We continue to identify opportunities to further optimize our cost structure. Adjusted EBITDA for the quarter was $9.1 million, representing a margin of 17%. Second quarter CapEx was $3.7 million, down by 49% year-over-year. For full year 2026, we are targeting a 60% reduction in CapEx.