CHEGG, INC Q1 FY26 Results

Q1 was a strong quarter. We exceeded expectations for revenue, adjusted EBITDA, free cash flow, and delivered positive net income for the first time in two years. The foundation for future growth is now in place, and we are focused on expanding our skilling business where we continue to expect double-digit revenue growth for full-year 2026 and the market opportunity has never been clearer. Thank you, Tracey, and thanks everyone for joining Chegg’s first quarter 2026 earnings call. Q1 was a strong quarter. We exceeded our expectations for revenue, profitability, and free cash flow, while significantly reducing our debt, and we continue to optimize our cost base and capital expenditure. These results reflect the deliberate work we have done to rearchitect Chegg - our financials, our corporate structure, our product experience - optimized around AI, and the results are showing. The business is leaner and better positioned for future growth with high margins. Leveraging artificial intelligence, we provide a differentiated experience as we personalize learning paths, identify where learners are struggling, and trigger targeted interventions from coaches or systems before a learner falls behind. AI also allows us to create and update curriculum fast enough to keep pace with how quickly skills, especially AI skills, are evolving. All of this allows us to deliver better outcomes without increasing costs. We continue to expect double-digit revenue growth in skilling for the full-year 2026, with acceleration as the year progresses. We are seeing positive traction broadly across skilling, including the addition of new enterprise partners and channel partners and momentum in global category leaders across manufacturing, consulting & professional services and technology. Notably, we recently signed a partnership with Cornerstone, a leading learning and talent management platform. This is expected to open a meaningful enterprise distribution channel for Chegg Skills and connect us with customers at scale. And, for the first time, we are expanding our skilling platform through accredited offerings. With Woolf, a partnership we announced last quarter, we are launching our first AI master’s program, combining applied learning with recognized credentials. We take the same AI-first approach in our language learning offering, as we are moving beyond structured lessons toward real-time, in-workflow coaching - helping learners apply skills in the moments that matter most. What differentiates our offering is that AI enables us to surface skills performance data that HR and L&D leaders can act on, shifting the conversation from reporting on learning activity to demonstrating measurable language capability in the workflow. Skilling is a large and growing market, and we believe we are building the most credible, outcomes-driven platform in our space. In our 2026 Chegg Skills for Business Impact Report, more than two-thirds of graduates surveyed report applying their new skills immediately. 43% say they are working more efficiently, and 41% report improved quality of work. On AI specifically, 75% of graduates report increased confidence, and 43% are actively applying those skills on the job. The impact extends to employers as well. 80% of the graduates we surveyed report a positive career impact, and 92% remain with their employer six to twelve months after completing their program, with 62% citing employer-sponsored education as a key reason for staying. Our investments in skilling are funded by the strong free cash flow being generated by Chegg Study, which outperformed our expectations in Q1. While search headwinds continue to impact traffic for Chegg Study, retention remains strong—an indicator that students continue to find real value in our product. The financial foundation we have built is what makes everything we are building possible, and it reflects the kind of focus and discipline this team has. Six months ago, I returned to Chegg because I saw a company with all of the ingredients to win - a trusted brand, a proven curriculum, outcomes data that demonstrated a real return on investment for our customers, and an expanding global network of enterprise and institutional partners. What we needed was focus and clarity to lean into the opportunities ahead of us. In the last six months, this team removed approximately 40% of our costs, put us on a path to zero debt, increased our free cash flow, and retooled the business to be AI-first, giving us a strong foundation to grow from. As a result, I am confident about the category we are in, the momentum in our skilling business, and the strength of our balance sheet. I feel confident about the opportunity in front of us and our ability to drive value for our shareholders and our customers and I look forward to updating you on the next call.

Today, I will review our financial performance for the first quarter of 2026, along with the company’s outlook for the second quarter. Building on the progress outlined on our last earnings call, we delivered a strong first quarter, which exceeded expectations. Our results reflect continued execution on our priorities and increasing momentum in our businesses. Our strategic focus on the large and growing skilling market positions us for long-term, sustainable growth with strong margins, while we leverage AI across the organization to improve efficiency and drive meaningful improvements in profitability and cash generation. In the quarter, Chegg Skilling generated $17.6 million in revenue, representing 9% growth, as we continued to invest in the business. We also signed exciting new distribution deals, which we expect to contribute in the second half and help drive double-digit Skilling revenue growth for the full year. Academic Services revenue was $45.7 million. We continue to manage this business with a focus on maximizing cash generation, which exceeded our expectations this quarter. While traffic remained under pressure, monthly retention rates were very strong in the quarter, further extending the operational runway of the business. Turning to expenses, non-GAAP operating expenses were $36.4 million, reflecting a reduction of $44.1 million, or 55% year-over-year. These results reflect our disciplined approach to expense management. We will continue to identify additional opportunities, including enhanced use of AI, to drive further efficiencies. Importantly, these actions are generating cash flow that we can invest in our future growth. Adjusted EBITDA for the quarter was $15.5 million, representing a margin of 24%. We also delivered positive net income in the first quarter, for the first time in two years. First quarter CapEx was $1 million, down 88% year-over-year. For 2026, we are targeting a 60% reduction in CapEx, with approximately 90% dedicated to our growing Skilling business. Free cash flow in the quarter was $3.1 million, which includes approximately $12.9 million of severance payments related to prior restructuring actions. We expect an additional $2.1 million of severance payments in the second quarter. Despite these items, we expect to generate meaningful free cash flow in 2026. Looking at the balance sheet, we ended the quarter with $67.9 million in cash and investments and a net cash position of $34.1 million, providing us flexibility as we execute on our priorities. Looking ahead to Q2 guidance, we expect: •Chegg Skilling revenue of $17.5 to $18 million; •Total revenue between $49 and $50 million; •Gross margin in the range of 51% to 52%; •And adjusted EBITDA between $5 and $6 million. In 2026, our capital allocation priorities remain focused on maximizing free cash flow, strengthening our balance sheet, and fully repaying our convertible debt by September. Additionally, we will continue to evaluate opportunities to deploy capital, including through our remaining securities repurchase authorization, with a disciplined approach aligned to long-term shareholder value. In closing, we have taken deliberate actions to position the company for long-term success. We are leaner, more efficient, and well-positioned for double-digit growth in our Skilling business and meaningful free cash flow in 2026, putting us on a clear path to sustained growth, profitability, and increased shareholder value.