Chegg 2013 Annual Report Download

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Table of contents

  • Page 1

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  • Page 3
    ... school seniors intending to go to college. On our platform, students can research and get matched to the right colleges and scholarships, review courses and professors, order required materials more cheaply, get valuable help through our Chegg Study and Q&A network, and get matched with internships...

  • Page 4
    ... share in an increasingly competitive market. Though we saw the average rental price of textbooks decline-impacting gross margins in the fourth quarter-it helped drive stronger customer growth and the improved mix of our higher margin digital revenue. In 2014, we plan to expand the Chegg platform...

  • Page 5
    Chegg, Inc. 2014 Proxy Statement

  • Page 6
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 7
    ... notice of annual meeting and proxy statement. Please use this opportunity to take part in our company's affairs by voting on the business to come before the meeting. Whether or not you plan to attend the meeting, please vote by telephone or through the Internet or request, sign and return a proxy...

  • Page 8
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 9
    ... contact our transfer agent, American Stock Transfer & Trust Company, through their website at www.amstock.com or by phone at (800) 937-5449. By Order of the Board of Directors, Robert Chesnut Senior Vice President, General Counsel and Secretary Santa Clara, California April 11, 2014 Whether or not...

  • Page 10
    ... Services of Independent Registered Public Accounting Firm SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OUR MANAGEMENT EXECUTIVE COMPENSATION Executive Compensation Tables Employment, Severance and Change of Control Arrangements EQUITY COMPENSATION PLAN INFORMATION TRANSACTIONS...

  • Page 11
    .... 3990 Freedom Circle Santa Clara, CA 95054 PROXY STATEMENT FOR THE 2014 ANNUAL MEETING OF STOCKHOLDERS April 11, 2014 Information About Solicitation and Voting The accompanying proxy is solicited on behalf of Chegg, Inc.'s board of directors for use at Chegg's 2014 Annual Meeting of Stockholders...

  • Page 12
    ... the Meeting The board of directors recommends that you vote FOR each of the Class I directors named in this proxy statement (Proposal 1) and FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2014...

  • Page 13
    ... on the proxy card. If you sign a physical proxy card and return it without instructions as to how your shares should be voted on a particular proposal at the meeting, your shares will be voted in accordance with the recommendations of our board or directors stated above. If you received a Notice...

  • Page 14
    ... for the meeting. The preliminary voting results will be announced at the meeting and posted on our website at investor.chegg.com. The final results will be tallied by the inspector of elections and filed with the SEC in a current report on Form 8K within four business days of the meeting. 8

  • Page 15
    ... the Investor Relations section of our website, which is located at investor.chegg.com, by clicking on "View Our Governance Information," under "Corporate Governance." The Corporate Governance Guidelines are reviewed at least annually by our nominating and corporate governance committee, and changes...

  • Page 16
    ...without charge, on the investor relations section of our website, investor.chegg.com, by clicking on "View Our Governance Information" under "Corporate Governance." Members serve on these committees until their resignations or until otherwise determined by our board of directors. Audit Committee Our...

  • Page 17
    ... the audit with the independent registered public accounting firm, and reviews, with management and the independent accountants, our interim and year-end operating results; develops procedures for employees to submit concerns anonymously about questionable accounting or audit matters; considers the...

  • Page 18
    ... governance committee held no meetings as our board of directors oversaw the establishment of our company's corporate governance practices in 2012 and 2013 in connection with our initial public offering. Our nominating and corporate governance committee plans to meet on a quarterly basis in 2014...

  • Page 19
    ...Corporate Secretary Chegg, Inc. 3990 Freedom Circle Santa Clara, California 95054 Code of Business Conduct and Ethics We have adopted codes of business conduct and ethics that apply to all of our board members, officers and employees. Our Code of Business Conduct and Ethics is posted on the investor...

  • Page 20
    ... other things, a candidate's independence, integrity, skills, financial and other expertise, breadth of experience, and knowledge about our business or industry and ability to devote adequate time and effort to responsibilities of the board of directors in the context of its existing composition...

  • Page 21
    ... Wharton School of Business at the University of Pennsylvania. We believe that Mr. McCarthy should continue to serve on our board of directors due to his extensive background in consumer technology companies and his financial expertise through his service as a chief financial officer. Dan Rosensweig...

  • Page 22
    ...our board of directors at this time. Name of Director Age Principal Occupation Director Since Class II Directors - Terms Expiring 2015: Marne Levine(1)(2) Richard Sarnoff(3) Class III Directors - Terms Expiring 2016: Jeffrey Housenbold(2) John York(1)(3) 43 55 Vice President, Global Public Policy...

  • Page 23
    ... M.B.A. from Harvard Business School. We believe that Mr. Housenbold is qualified to serve on our board of directors due to his more than 20 years of experience in the consumer industry in senior roles at large, complex companies. John York has served on our board of directors since June 2013. Since...

  • Page 24
    ...of 2013. Mr. Rosensweig, our current Chief Executive Officer, did not receive any compensation for his service as a director during the fiscal year ended December 31, 2013. The table does not include information for Frederick Bolander, Deven Parekh and Aayush Phumbhra, who resigned from our board of...

  • Page 25
    ... our notes to consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. There can be no assurance that this grant date fair value will ever be realized by the non-employee director. Our non-employee directors held the following number...

  • Page 26
    ... audit of our annual financial statements, review of our quarterly financial statements. This category also includes fees for services that were incurred in connection with our initial public offering, and other statutory and regulatory filings or engagements. (2) "Audit related fees" include fees...

  • Page 27
    ... the address of each of the individuals and entities named below that owns 5% or more of our common stock is c/o Chegg, Inc., 3990 Freedom Circle, Santa Clara, California 95054. Name of Beneficial Owner Number of Shares Beneficially Owned Percentage Owned Named Executive Officers and Directors: Dan...

  • Page 28
    ... held by our directors and officers as a group. As reported in a Schedule 13G filed with the SEC on February 13, 2014, by virtue of Ace Limited's direct ownership of 10,499,998 shares and Ace Holdings Management Limited's ownership and control of Ace Limited, Ace Holdings Management Limited may be...

  • Page 29
    ... Raymond J. Lane and Ted Schlein, a member of our board of directors, are the managing directors of KPCB XIII Associates and exercise shared voting and investment power over the shares directly held by KPCB XIII. The principal business address for all entities and individuals affiliated with Kleiner...

  • Page 30
    ... and Safety at eBay, an online marketplace for the sale of goods and services. Mr. Chesnut earned a B.A. in the Government Honors Program at the University of Virginia and holds a J.D. from Harvard Law School. Anne Dwane has served as our Chief Business Officer since October 2011. From November 2008...

  • Page 31
    ... from April 2010 to May 2012 and our Director of Textbook Strategy from February 2008 to March 2010. Prior to joining us, Mr. Schultz served in various management positions at R.R. Bowker, Monument Information Services, Pearson Education and Jones & Bartlett Learning. Mr. Schultz holds a B.A. in...

  • Page 32
    ... to stock awards and option awards, refer to note 14 of our notes to consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. Note that the amounts reported in this column reflect the accounting cost for these equity awards and do not...

  • Page 33
    ... Incentive Program. Our board of directors adopted the Designated IPO Equity Incentive Program (the "Program") in 2012 as a means to incentivize, motivate and retain certain of our employees through an initial public offering by issuing them stock options and RSUs to acquire shares of our common...

  • Page 34
    ... our 2013 Equity Incentive Plan. (2) The market price for our common stock is based on the closing price per share of our common stock as listed on the NYSE on December 31, 2013 of $8.51. (3) These RSUs vest upon the satisfaction of both a time-based service component and a performance condition. As...

  • Page 35
    ... with us for "good reason," then we will pay Mr. Rosensweig a lump sum payment equal to 12 months of his then-current annual salary and his monthly insurance premiums, until the earlier of 12 months following his termination or resignation or the date upon which he commences full-time employment 29

  • Page 36
    ... from our board of directors and returning all of our property to us. Additionally, if Mr. Rosensweig is terminated without "cause" or he resigns from his employment with us for "good reason" within 12 months following a "change of control" of our company, we will pay Mr. Rosensweig a lump sum...

  • Page 37
    ... Technology Officer, on June 30, 2009. The offer letter provides for at-will employment and has no specific term. Pursuant to Mr. Geiger's offer letter, if Mr. Geiger is terminated without cause or he is "constructively terminated" within 12 months following a "change of control" of our company, Mr...

  • Page 38
    ... 31st or (ii) a number of shares determined by our board of directors. The number of shares reserved for issuance under our 2013 ESPP will increase automatically on January 1st of each of the first ten calendar years following the first offering date by the number of shares equal to the lesser of...

  • Page 39
    ... of our board of directors, effective May 15, 2013, and upon resignation, received all of his earned but unpaid base salary and bonus through the date of termination, a lump-sum payment equal to nine months of his then-current base salary, a lump-sum payment for all of his days of personal time off...

  • Page 40
    ...'s or officer's relationship or interest as to the agreement or transaction were disclosed to our board of directors. Our board of directors would take this information into account when evaluating the transaction and in determining whether such transaction was fair to our company and in the best...

  • Page 41
    ... financial statements of Chegg for the year ended December 31, 2013. The Audit Committee has also discussed with Ernst & Young LLP the matters required to be discussed by Auditing Standard No. 16, "Communications with Audit Committees" issued by the Public Company Accounting Oversight Board...

  • Page 42
    ... directors and executive officers, Chegg believes that all Section 16(a) filing requirements were timely met in 2013. Available Information Chegg will mail without charge, upon written request, a copy of Chegg's annual report on Form 10-K for the year ended December 31, 2013, including the financial...

  • Page 43
    ...and, if applicable, annual report and other proxy materials, you may write or call Chegg's Investor Relations department at 3990 Freedom Circle, Santa Clara, California 95054, Attn: Investor Relations, telephone number (408) 855-5735. Any stockholders who share the same address and currently receive...

  • Page 44
    ... does not presently intend to bring any other business before the meeting and, so far as is known to the board of directors, no matters are to be brought before the meeting except as specified in the notice of the meeting. As to any business that may arise and properly come before the meeting...

  • Page 45
    Chegg, Inc. 2013 Annual Report

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    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 47
    ... Commission file number 001-36180 (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) CHEGG, INC. 20-3237489 (I.R.S. employer identification no.) 3990 Freedom Circle Santa Clara, CA (Address of principal executive offices...

  • Page 48
    ... 100 100 100 "Chegg," "Chegg.com," "Chegg for Good," "CourseRank," "Cramster," "Zinch" and "#1 in Textbook Rentals" are some of our trademarks used in this Annual Report on Form 10-K. Solely for convenience, our trademarks, trade names and service marks referred to in this Annual Report on Form 10...

  • Page 49
    ... print textbook and eTextbook library available for rent and sale. Our Chegg Study service helps students solve problems and master challenging concepts on their own. We also offer free services to students, such as helping high school students find colleges and scholarship opportunities and helping...

  • Page 50
    ... content, products and services that help students save time, save money and get smarter. We designed the Student Hub to provide an unparalleled ability to serve students. It allows us to offer students a compelling and seamless user experience centered around them while offering them the most...

  • Page 51
    ... three business days. At the end of the academic term, students are able to return a rented textbook in this same box for free. We also offer "Instant Access" to eTextbooks, which is a one-week free trial of our eTextbook service, allowing the student to access the eTextbook while the print copy...

  • Page 52
    ... students during 2013. Using the information from the college-bound high school students who fill out a profile using our College Admissions and Scholarship Services, we provide colleges with qualified leads to potential candidates and help them shape their classes much more cost effectively...

  • Page 53
    ... information each time they engage with our platform. The Student Graph also includes information we access from public and private sources to integrate into our platform such as course catalogs, professors, required course materials, textbook information, information about colleges and scholarship...

  • Page 54
    ... benefit corporation, to engage in charitable and education-related activities. We intend to fund the Chegg Foundation with one percent of the net proceeds from our initial public offering (IPO) that was completed in November 2013. As part of our College Admissions and Scholarship Services marketing...

  • Page 55
    ...field sales people and inside client success managers and share operations and marketing support. Student Advocacy We are committed to providing a high level of customer service to our students. We trust our students, understand the critical role our products and services have in their education and...

  • Page 56
    ... our eTextbook Reader software, software documentation, marketing materials and website content that we develop. We own the registered U.S. trademarks "Chegg," "Chegg.com," "Chegg for Good," "CourseRank," "Cramster," "Zinch" and "#1 In Textbook Rentals," among others as well as a variety of service...

  • Page 57
    ... launched our online print textbook rental business in 2007. We hired our current Chief Executive Officer in 2010, who implemented our current business strategy to build the Student Hub and create the leading connected learning platform for students to help them save time, save money and get smarter...

  • Page 58
    ...of other companies, to include digital textbooks, or eTextbooks, supplemental materials in digital and print form, multiplatform eTextbook Reader software, Chegg Study, College Admissions and Scholarship Services, course selection tools, purchases of used textbooks, enrollment marketing services and...

  • Page 59
    ... in the future for a number of reasons, including slowing demand for print textbook rentals, slowing demand for our other products and services, increasing competition, particularly for the price of textbooks, decreased spending on education and other risks described in this Annual Report on Form 10...

  • Page 60
    ...the textbook distribution market, may result in increased competition and may require us to make significant changes to our business model. In recent years we have added and plan to continue to add new non-print products and digital services to our platform to diversify our sources of revenue, which...

  • Page 61
    ... print textbooks; the pricing of our textbooks for rental or sale in relation to other alternatives, including the textbook prices offered by publishers or by other competing textbook rental providers; the quality and prices of the non-print products and digital services that we offer to students...

  • Page 62
    ... to engage high school students with our College Admissions and Scholarship Services; changes in student spending levels; the effectiveness of our sales and marketing efforts; our ability to introduce new products and services that are favorably received by students; and the rate of adoption of...

  • Page 63
    ... a cost effective manner. Factors that could negatively affect our brand include: • • changes in student sentiment about the quality or usefulness of our products and services; concern from colleges about the ways students use our content offerings, such as our 24/7 Online Study Help service; 17

  • Page 64
    ... services fewer students may use our platform. If we are not able to manage the growth of our business both in terms of scale and complexity, our operating results and financial condition could be adversely affected. We have expanded rapidly since we launched our online print textbook rental service...

  • Page 65
    ... prior to and following the acquisition date. We settled this matter in June 2013. We also decided to discontinue the Student of Fortune business and shut down the website in August 2013. While these settlements have not had a material impact on our financial condition, we may be subject to similar...

  • Page 66
    ...their engagement with our platform, particularly at the beginning of each academic term; the rate of adoption of our non-print products and digital services; our ability to manage our fulfillment processes to handle significant increases in the number of students and student selections, both in peak...

  • Page 67
    ... and colleges to make our decisions. We also rely on students to return print textbooks to us in a timely manner and in good condition so that we can re-rent or sell those textbooks. If the information we receive from third parties is not accurate or reliable, if students fail to return books to...

  • Page 68
    ...cost of college as part of tuition and fees. Such strategic alliances may eliminate our ability to compete favorably with our print textbook rental business because of the added convenience they offer to students, which may result in reduced textbook rentals, loss of market share and reduced revenue...

  • Page 69
    ... in a loss of students, colleges or brands which could harm our business, results of operations and financial condition. We rely on third-party software and service providers, including Amazon Web Services, or AWS, to provide systems, storage and services for our website. Any failure or interruption...

  • Page 70
    ... our website unavailable or prevent us from efficiently fulfilling rental orders, which may reduce the volume of textbooks we are able to rent or sell and may also impact our ability to sell marketing services to colleges and brands. If our platform is unavailable when students attempt to access it...

  • Page 71
    ..., colleges and brands or loss of revenue any of which could adversely affect our business and financial results. Growing our student user base and their engagement with our platform through mobile devices depends upon the effective operation of our mobile applications with mobile operating systems...

  • Page 72
    ... and we may not realize the potential long-term benefits of a shift to digital distribution, including greater pricing flexibility, the ability to distribute a larger library of eTextbooks compared to print textbooks and lower cost of revenues. If publishers refuse to grant us distribution rights to...

  • Page 73
    ... our operating results in the short term. For example, we offer free services without advertising to students, such as our Courses service that require investment by us, in order to promote a more comprehensive solution. As part of our College Admissions and Scholarship Services marketing efforts...

  • Page 74
    ... Government regulation of education and student information is evolving, and unfavorable developments could have an adverse effect on our operating results. We are subject to regulations and laws specific to the education sector because we offer our products and services to students and collect data...

  • Page 75
    ... violate such laws, such laws may be modified and new laws may be enacted in the future. Any such developments could harm our business, operating results and financial condition. We may be subject to legal liability for our online services. We collect, process, store and use personal information and...

  • Page 76
    ... practices of a number of on-line, social media companies. Similar actions may also impact us directly, particularly because high school students who use our College Admissions and Scholarship Services are typically under the age of 18, which subjects our business to laws covering the protection...

  • Page 77
    ... that require changes to these practices, the design of our websites, mobile applications, products, features or our privacy policy. In particular, the success of our business has been, and we expect will continue to be, driven by our ability to responsibly use the data that students share with us...

  • Page 78
    ... our eTextbook Reader software, software documentation, marketing materials and website content that we develop. We own the registered U.S. trademarks "Chegg," "Chegg.com," "Chegg for Good," "CourseRank," "Cramster," "Zinch" and "#1 In Textbook Rentals," among others, as well as a variety of service...

  • Page 79
    ... publisher that provides access to textbook solutions content for our Chegg Study service over a five-year term, for which we paid an upfront license fee. In addition, we have agreements with certain eTextbook publishers under which we incur non-refundable fees at the time we provide students access...

  • Page 80
    ... any derivative works of the open source code on unfavorable terms or at no cost. Any requirement to disclose our proprietary source code or pay damages for breach of contract could have a material adverse effect on our business, financial condition and results of operations. Confidentiality...

  • Page 81
    ... in the future. We use a virtual reward currency system to run our 24/7 Online Study Help service. Students use points to ask questions and students that answer questions can earn points. A membership to our Chegg Study service includes 5,000 points a month. Earned points can be redeemed for rewards...

  • Page 82
    ... user base could slow, student engagement could decrease, and we could lose revenue. Any reduction in the number of students directed to our website would harm our business and operating results. In addition to our U.S. operations, we currently offer our college and university matching service...

  • Page 83
    ...Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the Securities and Exchange Commission, or SEC, following the later of the date we are deemed...

  • Page 84
    ... results or our announcement of revenue or earnings guidance that is higher or lower than expected, including as a result of difficulty forecasting seasonal variations in our financial condition and operating results or the revenue generated by our non-print products and digital services; 38

  • Page 85
    ... "lock-up" period ends; share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; lawsuits threatened or filed against us; regulatory developments in our target markets affecting us, students, colleges or brands, publishers or our competitors; terrorist...

  • Page 86
    ... stockholders to replace or remove our board of directors or management. If securities or industry analysts do not publish research reports about our business or publish inaccurate or unfavorable research about our business, our stock price could decline. The trading market for our common stock will...

  • Page 87
    ...staggered three-year terms and directors will only be able to be removed from office for cause and by the approval of the holders of at least two-thirds of our outstanding common stock; subject to certain limitations, our board of directors will have the sole right to set the number of directors and...

  • Page 88
    ... business, operating results, and/or financial condition. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock has been listed on the New York...

  • Page 89
    ...by reference into any filing of Chegg under the Securities Act or the Exchange Act. The following graph shows a comparison from November 13, 2013 (the date our common stock commenced trading on the New York Stock Exchange) through December 31, 2013 of the cumulative total return for our common stock...

  • Page 90
    ... with Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. Our historical...

  • Page 91
    ... print textbook and eTextbook library available for rent and sale. Our Chegg Study service helps students solve problems and master challenging concepts on their own. We also offer free services to students, such as helping high school students find colleges and scholarship opportunities and helping...

  • Page 92
    ... the reduced revenue growth rate during the year. At the same time, in order to continue to offer students a comprehensive textbook selection at a substantial savings compared to retail prices available from other vendors, we made print textbooks lacking sufficient demand to support the rental model...

  • Page 93
    ... brands. For non-print products and digital services, students typically pay to access eTextbooks for the academic term or subscribe for other services such as Chegg Study on a monthly or annual basis, while colleges subscribe to our enrollment marketing services and brands pay us depending on the...

  • Page 94
    ... Chegg Study service that we offer to students, enrollment marketing services that we offer to colleges and advertising services that we offer to brands. Non-print products and digital services are offered to students through monthly or annual subscriptions or memberships, and we recognize revenue...

  • Page 95
    ... content or services. In addition, cost of revenues includes allocated information technology and facilities costs. Changes in our cost of revenues related to non-print products and digital services may be disproportionate to changes in our revenue because the publisher fees for eTextbooks are...

  • Page 96
    ... costs related to operating as a public company including increased audit, legal, regulatory and other related fees. Loss (Gain) on Liquidation of Textbooks Loss (gain) on liquidation of textbooks consists of proceeds we receive from the sale of previously rented print textbooks, through our website...

  • Page 97
    ... of operations (in thousands): Year Ended December 31, 2013 2012 2011 Net revenues ...Cost of revenues(1) ...Gross profit ...Operating expenses(1): Technology and development ...Sales and marketing ...General and administrative ...Loss (gain) on liquidation of textbooks ...Total operating expenses...

  • Page 98
    ... products and digital services due to growth in new memberships for our Chegg Study service, growth in our enrollment marketing services as we reach more universities, and an increase in eTextbook volumes. Non-print products and digital services represented 21% of net revenues during 2013 and 13...

  • Page 99
    ...increase in our net revenues from higher margin non-print products and digital services. Operating Expenses The following table sets forth our operating expenses for the periods shown (dollars in thousands): Year Ended December 31, 2013 2012 2011 Change in 2013 $ % Change in 2012 $ % Technology and...

  • Page 100
    ... in growing our brand and enrollment marketing services capabilities. In addition, marketing activities increased by $6.2 million related to search advertising as a result of increased spending to reach more customers. Allocated information technology and facilities costs increased by $2.0 million...

  • Page 101
    ... depreciation expenses increased by $0.6 million. Outside accounting and professional fees increased $0.6 million due to valuation services and public company readiness initiatives, and bad debt expenses increased by $0.5 million. Loss (Gain) on Liquidation of Textbooks In 2013, we had a net gain on...

  • Page 102
    ... their useful life as cost of revenues. In 2013, 2012 and 2011, our investment in print textbooks, net of proceeds from textbook liquidations, was $84.3 million, $70.4 million and $43.2 million, respectively. To the extent our business continues to grow, or as new textbook versions are published, we...

  • Page 103
    ...level of investment in textbooks to support our print textbook business and our ability to recover our source costs through the rental of textbooks and as we liquidate textbooks at the end of their lifecycle, our rate of revenue growth, our sales and marketing activities and the timing and extent of...

  • Page 104
    ... acquisition becoming due within a year and an advanced payment related to eTextbook publisher fees, partially offset by a $5.6 million increase in deferred revenues from the growth of our print textbook, enrollment marketing services and Chegg Study businesses. Cash Flows from Investing Activities...

  • Page 105
    ... the term of the rental period, generally two to five months. Revenue from selling textbooks that we source on a just-in-time basis is recognized upon shipment. We do not hold an inventory of textbooks for sale. Our customers pay for the rental and sale of print textbooks on our website primarily...

  • Page 106
    ... we offer to students, enrollment marketing services that we offer to colleges and advertising services that we offer to brands. Non-print products and digital services are offered to students through monthly or annual subscriptions or memberships and we recognize revenue ratably or as earned over...

  • Page 107
    ... liquidated textbooks as a percentage of original sourcing costs, channel mix of liquidations and consideration of the estimated sales price, largely driven by the average market price data of used books and the projected values of a book in relation to the original source cost over time. Changes in...

  • Page 108
    ... related to the Notehall and Student of Fortune services into our connected learning platform. Our impairment analysis resulted in an impairment charge of $0.6 million, with $0.2 million recorded in technology and development and $0.4 million recorded in sales and marketing. As of December 31, 2013...

  • Page 109
    ... key assumptions used to determine the fair value of our stock options granted to employees, officers and directors: Year Ended December 31, 2013 2012 2011 Expected term (years) ...Expected volatility ...Dividend yield ...Risk-free interest rate ...Weighted-average grant-date fair value per share...

  • Page 110
    ...cash, money market funds, corporate securities and commercial paper. Our investment policy and strategy are focused on preservation of capital, supporting our liquidity requirements, and delivering competitive returns subject to prevailing market conditions. Changes in U.S. interest rates affect the...

  • Page 111
    ... AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ...Consolidated Statements of Operations ...Consolidated Statements of Comprehensive Loss ...Consolidated Statements of Convertible...

  • Page 112
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Chegg, Inc. We have audited the accompanying consolidated balance sheets of Chegg, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive loss, ...

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    CHEGG, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except for number of shares and par value) December 31, 2013 2012 Assets Current assets: Cash and cash equivalents ...Short-term investments ...Accounts receivable, net of allowance for doubtful accounts of $317 and $502 at December 31, 2013 ...

  • Page 114
    ..., except per share amounts) Years Ended December 31, 2013 2012 2011 Net revenues ...Cost of revenues ...Gross profit ...Operating expenses: Technology and development ...Sales and marketing ...General and administrative ...Loss (gain) on liquidation of textbooks ...Total operating expenses ...Loss...

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    CHEGG, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Years Ended December 31, 2013 2012 2011 Net loss ...$(55,850) $(49,043) $(37,601) Other comprehensive income (loss): Net change in unrealized loss on available for sale investments ...(18) - - Change in foreign currency ...

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    ... stock for settlement of restricted stock units (RSUs) ...- - 307 Shares withheld related to net share settlement of RSUs ...- - (115) Issuance of common stock, net... loss ...- - - Net loss ...- - - Balances at December 31, 2013 ...- $ - 81,708 See Notes to Consolidated Financial Statements. 70

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    ... stock warrants ...3,369 Payment of taxes related to the net settlement of RSUs ...(1,034) Proceeds from initial public offering, net of issuance costs ...162,883 Repurchase of common stock and vested stock options ...- Net cash provided by (used in) financing activities ...Net increase (decrease...

  • Page 118
    ... financial statements and related notes on a retroactive basis for all periods presented. In November 2013, we completed our initial public offering (IPO), whereby 14,400,000 share of common stock were sold to the public at a price of $12.50 per share. Note 2. Significant Accounting Policies Use...

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    ... all highly liquid investments with an original maturity date of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents, which consist of cash and money market accounts at financial institutions, are stated at cost, which approximates fair value. We classify...

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    ... no longer considered to be rentable, or when books are not returned to us after the rental period by our customers. We depreciate our textbooks, less an estimated salvage value, over an estimated useful life of three years using an accelerated method of depreciation, as we estimate this method most...

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    ... Useful Life Computers and equipment ...3 years Software ...2-3 years Furniture and fixtures ...5 years Leasehold improvements ...Shorter of the remaining lease term or the estimated useful life of 5 years Content ...5 years We capitalize costs related to the purchase or development of Chegg Study...

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    ... customers pay for the rental and sale of print textbooks on our website primarily by credit card, resulting in immediate settlement of our accounts receivable. We also generate revenue from non-print products and digital services that include eTextbooks, supplemental materials and our Chegg Study...

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    CHEGG, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Shipping costs charged to customers in the sale or rental of textbooks are recorded in revenue and the related expenses are recorded as cost of revenues. Some of our customer arrangements for enrollment marketing services include ...

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    ... asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and the tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are...

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    CHEGG, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table sets forth the computation of historical basic and diluted net loss per share attributable to common stockholders (in thousands, except per share amounts): Year Ended December 31, 2013 2012 2011 Numerator: Net ...

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    CHEGG, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Recent Accounting Pronouncements In July 2013, the Financial Accounting Standards Board (FASB) issued revised guidance with regards to the presentation of unrecognized tax benefits when a net operating loss carryforward or tax credit...

  • Page 127
    ... for other-than-temporary impairment, we review factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and our intent to sell, or whether it is more likely...

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    CHEGG, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Financial instruments measured and recorded at fair value on a recurring basis as of December 31, 2013 and 2012 are classified based on the valuation technique level in the tables below (in thousands): December 31, 2013 Quoted Prices...

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    ... 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. Note 5. Long-Lived Assets Textbook Library, Net Textbook library, net...

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    CHEGG, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, 2013 2012 Computer and equipment ...Software ...Furniture and fixtures ...Leasehold improvements ...Content ...Less ...

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    ... shares and voting interest of Student of Fortune, headquartered in Los Angeles, California. With the Student of Fortune acquisition, we aimed to expand our offering to students in order to include tools to provide the homework help they need and to allow other students to earn money tutoring...

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    ... in sales and marketing in our statement of operations. Notehall and Student of Fortune were not material to our results of operations. As of December 31, 2013, the estimated future amortization expense related to our intangible assets, subject to amortization, is as follows (in thousands): Years...

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    CHEGG, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 8. Balance Sheet Details Accrued liabilities consist of the following (in thousands): December 31, 2013 2012 Accrued book purchases ...Accrued shipping for cycle returns ...Chegg credit ...Other ...Accrued liabilities ...Other ...

  • Page 134
    ... exercise price of $5.16 per share. At the time of conversion, the common stock warrants were valued using the Black-Scholes Merton optionpricing valuation model using the following weighted average key assumptions: Expected term ...Expected volatility ...Dividend yield ...Risk-free interest rate...

  • Page 135
    ...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. Note 12...

  • Page 136
    ... 17,972 1,480 10,981 4,000 35,551 Stock Plans 2005 Stock Incentive Plan On August 22, 2005, the Board of Directors and our stockholders approved the 2005 Stock Incentive Plan, or the 2005 Plan. Under the 2005 Plan, the Company issued shares of common stock and options to purchase stock to employees...

  • Page 137
    ... price of stock options may not be less than the 100% of the fair market value of the common stock on the date of grant. Options granted pursuant to the 2013 Plan generally expire no later than ten years. 2013 Employee Stock Purchase Plan On June 6, 2013, our board of directors adopted our 2013...

  • Page 138
    ... key assumptions used to determine the fair value of our stock options granted to employees, officers, and directors: 2013 Year Ended December 31, 2012 2011 Expected term (years) ...Expected volatility ...Dividend yield ...Risk-free interest rate ...Weighted-average grant-date fair value per share...

  • Page 139
    ... Units In 2013, we granted 473,569 RSUs to certain advisory board members and officers and employees at a weighted-average grant-date fair value of $12.50 per share. RSUs granted before our IPO vest upon the satisfaction of both a time-based service component and a performance condition. We expect...

  • Page 140
    CHEGG, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Stock Option Activity Option activity under our option plans was as follows: Options Outstanding WeightedAverage Exercise Price per Share WeightedAverage Remaining Contractual Term in Years Number of Options Outstanding Aggregate ...

  • Page 141
    CHEGG, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Loss before provision (benefit) for income taxes consisted of (in thousands): Year Ended December 31, 2013 2012 2011 United States ...Foreign ... $(55,974) 766 $(55,208) $(49,701) 687 $(49,014) $(38,274) 473 $(37,801) The ...

  • Page 142
    ... million and $0.4 million, respectively. We file tax returns in U.S. federal, state, and certain foreign jurisdictions with varying statutes of limitations. Due to net operating loss and credit carryforwards, all of the years since inception through the 2013 tax year remain subject to examination by...

  • Page 143
    ...Information We derive our revenue from the rental or sale of print textbooks and from non-print products and digital services, net of refunds or charge backs from our payment processors. Non-print products and digital services primarily include the distribution of eTextbooks, Chegg Study, enrollment...

  • Page 144
    CHEGG, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 19. Selected Quarterly Financial Data (unaudited) Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Three Months Ended Dec. 31, Mar. 31, Jun. 30, 2012 2013 2013 (in thousands) Sep. 30, 2013 Dec. 31, 2013 Net revenues ...$ 48,533 $43,...

  • Page 145
    ... control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by the rules of the SEC for newly public companies. ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The...

  • Page 146
    ... site at investor.chegg.com under "Corporate Governance." We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics by posting such information on our website at the address and location...

  • Page 147
    ... accounts 2013 ...2012 ...2011 ... $502 $241 $- $- $- $241 $206 $502 $- $(391) $(241) $- $317 $502 $241 All other financial statement schedules are omitted because they are not applicable or the information is included in the Registrant's consolidated financial statements or related notes...

  • Page 148
    ... Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHEGG, INC. By: Date: March 6, 2014 /S/ DAN ROSENSWEIG Dan Rosensweig President, Chief Executive Officer and Chairman POWER OF ATTORNEY KNOW ALL PERSONS BY THESE...

  • Page 149
    ... directors and executive officers 2005 Stock Incentive Plan, as amended, and forms of agreement thereunder 2013 Equity Incentive Plan, and forms of agreement thereunder 2013 Employee Stock Purchase Plan Offer Letter between Dan Rosensweig and the Registrant, dated December 3, 2009 Amendment to Offer...

  • Page 150
    ... Industrial Partners, LLC and the Registrant, dated as of October 17, 2009 List of subsidiaries Consent of Independent Registered Public Accounting Firm Power of Attorney (included on signature page hereto) Certification of Dan Rosensweig, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14...

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