Chegg (CHGG) Q4 2025 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Monday, February 9, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Daniel Rosensweig
• Chief Financial Officer — David Longo
• Vice President, Investor Relations — Tracey Ford

TAKEAWAYS

• Chegg Skilling Revenue -- $18 million in Q4, with management stating "double-digit growth" ahead and providing a foundation for 2026 projections.
• Legacy Academic Services Revenue -- $55 million in Q4, with the segment now managed specifically for free cash flow generation.
• Adjusted EBITDA -- $13 million for Q4, resulting in an 18% margin, with Q4 performance exceeding the high end of guidance by $2 million.
• Non-GAAP Operating Expenses -- $44.8 million for Q4, marking a 47% year-over-year reduction driven by restructuring and cost discipline.
• Non-GAAP Expense Trend -- Targeting below $250 million for 2026, though management indicates this will be a 53% decline from 2024 levels.
• CapEx -- $6 million in Q4, down 51% year over year, with a plan for a further 60% reduction in 2026, allocating approximately 90% to Chegg Skilling.
• Free Cash Flow -- Negative $15 million in Q4, primarily impacted by $12 million in employee severance tied to restructuring.
• Severance Charges -- $18 million in related cash expenditures expected in 2026, with about 80% to occur in the first quarter.
• Cash and Investments -- $85 million on hand at quarter-end, with a net cash balance of $31 million.
• Convertible Note Repurchases -- $9 million of 2026 convertible notes repurchased at a discount to enhance capital structure.
• Q1 2026 Guidance -- Chegg Skilling revenue expected at $17.5 million–$18 million; total revenue between $60–$62 million; gross margin between 57%–58%; adjusted EBITDA between $11 million–$12 million.
• Business Model Shift -- Company now oriented toward B2B skills learning, with Chegg Skilling as the "core business" and Busuu transitioning toward majority B2B by year-end.
• Distribution Partners Expansion -- New partnerships announced with DHL, GI Group, and Wolfe University; ongoing contracts extended with L'Oreal and PPG.
• Operational Structure -- Two focused business units: Chegg Skilling as growth engine, legacy academic learning managed for cash generation.
• Management Addition -- Karine Alouch appointed to lead European language learning and skills operations, bringing experience from Microsoft (NASDAQ:MSFT), NetApp (NASDAQ:NTAP), Global English, and Coursera (NYSE:COUR).

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• David Longo stated, "delisting notice we received from the NYSE," clarifying there is "no immediate impact on our listing status," but underscoring a potential compliance issue with possible future consequences.
• Free Cash Flow Negative -- Q4 free cash flow was negative $15 million, attributed primarily to severance payments, which may indicate ongoing operational cash flow pressures during restructuring.

SUMMARY

Chegg (NYSE:CHGG) completed a strategic shift centered on Chegg Skilling, reporting $18 million in skilling segment revenue and outlining plans for double-digit growth and an adjusted EBITDA margin target of at least 20% in coming years. Management emphasized a lean operating model with non-GAAP expense reductions, disciplined capital allocation—including a $9 million convertible note repurchase—and ongoing restructuring costs predominantly front-loaded in 2026. The academic services segment, now managed primarily for free cash flow, continues to serve over a million students but faces persistent traffic headwinds from changes in search interfaces. Newly announced partnerships and significant leadership additions are intended to expand curriculum and B2B reach, particularly in high-demand AI and technical skills content distribution channels.

• Chegg's evolution from a D2C textbook model to a B2B skilling focus underpins strategic expectations for enhanced margin and free cash flow.
• Management stated plans to end 2026 with zero debt and maintain a "meaningful cash balance," aiming for a more resilient balance sheet.
• Q1 2026 guidance sets Chegg Skilling revenue at $17.5 million–$18 million with projected sequential improvement in the second half from expanded distribution partnerships.
• Company views Coursera (NYSE:COUR) and Udemy (NASDAQ:UDMY) not as direct competitors but as potential channel partners to distribute Chegg's proprietary content.
• Wolfe University partnership introduces degree-credit earning opportunities for Chegg's skills courses, supporting both enrollment and value proposition expansion.

INDUSTRY GLOSSARY

• Chegg Skilling: Chegg’s business unit focused on workplace skills, language, and technical education for enterprise and institutional clients, primarily via B2B channels.
• Busuu: Chegg's online language learning division, transitioning from direct-to-consumer sales to a mainly B2B model.

Full Conference Call Transcript

Tracey Ford: Thank you for joining Chegg's Fourth Quarter 2025 Conference Call. On today's call are Daniel 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 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-Ks for the year ended 12/31/2024, 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 datasheet, which is also posted on our IR website. Now I will turn the call over to Daniel Rosensweig.

Daniel Rosensweig: Thank you, Tracey, 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 org 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 the 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 Wolfe University. Wolfe specifically expands how we can serve learners as they provide accredited degree pathways that allow 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 Karine Alouch is joining our team to run our European language learning and skills operation. Karim 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 skilling business around the world. We have made significant progress in the reinvention of Chegg. 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 2026 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 Longo.

David Longo: Thank you, Daniel, and good afternoon. Today, I will be presenting our financial performance for 2025 along with the company's outlook for 2026. We are introducing our new revenue breakout to provide transparency into our Chegg skilling business. Historical revenue breakout for the past few years can be found on our datasheet 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 Daniel 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 in Chegg Skilling. We are on track to reduce total non-GAAP expenses to less than $250 million in 2026 a 53% decline from 2024. Our strategic investment in AI has 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 skilling 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 million 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 than in the first driven 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 position, 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 Chegg's 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.

Operator: Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. You may press 2 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 poll for questions. Our first question comes from the line of Bryan Smilek with JPMorgan. Please proceed with your question.

Bryan Smilek: Great. Thanks for taking the questions, and good to see the skill in progress Daniel, can you just help us understand the key drivers of the skilling growth and focus between VUSU 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 test and plan mix across the legacy business? Thanks.

Daniel Rosensweig: 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. Let me start with that one, and then I'll talk about the key KPIs that we look at with skilling. So we're probably about 40% through the quarter on the learning business. And it's pretty much where we talk 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 Chegg Study can go in the future. But in the interim, the price testing the key for us is all 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. 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 twenty-four 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, you know, only nine weeks back on the job. So I'm actually excited about it.

Bryan Smilek: Great. Thanks, Daniel.

Operator: Thank you. Our next question comes from the line of Ryan MacDonald with Needham and Company. Please proceed with your question.

Ryan MacDonald: Hi. Thanks for taking my questions. Daniel, maybe to ask you about the state of the skilling market. Obviously, a lot of change that's about to happen with the Coursera Udemy merger, obviously, two of the biggest players in the space. And so as I think about Chegg 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 on maybe new content creators as this transition occurs over the next year or so?

Daniel Rosensweig: 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 looking at how do we how do we take share, 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. And renewal with those companies that are inside those channels.

And we are 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 gonna be more higher margin businesses. So than just the channels and distribution. So we see ourselves looking to we don't have to take share from them. We could 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've looked at before.

Ryan MacDonald: Really helpful clarification there, Daniel. 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?

Daniel Rosensweig: 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 Gil 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 shifting 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, the relationship that we now announced with Wolfe 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 gonna be offering courses through a partner where our courses can count towards a degree. And so you can imagine the demand from students about wanting to have courses that 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.

Ryan MacDonald: Awesome. Thanks for taking my questions.

Daniel Rosensweig: Thanks for asking them, and thanks for covering us. Appreciate it. A lot of small companies don't get that kind of coverage, so we're grateful.

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

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool recommends Chegg. The Motley Fool has a disclosure policy.