Chegg 2014 Annual Report Download

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2014 ANNUAL REPORT

Table of contents

  • Page 1
    201 4 ANNUAL RE P O RT

  • Page 2
    ... this dated and antiquated higher education system by putting students first and building an ecosystem of tools and services to empower students to improve their own outcomes. Through the Student Hub, students can research schools and get matched to scholarships and colleges online; attain...

  • Page 3
    ... our higher margin digital services while continuing to offer our highly valued textbook rental business, and receive all the benefits from being the textbook rental provider of choice to students. We believe these changes position Chegg to become a pure digital revenue business by the...

  • Page 4
    Chegg, Inc. 2015 Proxy Statement

  • Page 5
    ...' timely access to this important information. On April 24, 2015, we sent a Notice of Internet Availability of Proxy Materials (the "Notice") to our stockholders, which contains instructions on how to access our proxy statement for our 2015 Annual Meeting of Stockholders and annual report to...

  • Page 6
    ... Santa Clara, CA 95054 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Our Stockholders: NOTICE IS HEREBY GIVEN that the 2015 Annual Meeting of Stockholders of Chegg, Inc. will be held on Thursday, June 4, 2015, at 9:00 a.m. (Pacific Time) at our offices located at 3990 Freedom Circle, Santa Clara...

  • Page 7
    ...Non-Audit Services of Independent Registered Public Accounting Firm ...SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ...OUR MANAGEMENT ...EXECUTIVE COMPENSATION ...Executive Compensation Tables ...Termination and Change of Control Arrangements ...EQUITY COMPENSATION PLAN INFORMATION...

  • Page 8
    .... 3990 Freedom Circle Santa Clara, CA 95054 PROXY STATEMENT FOR THE 2015 ANNUAL MEETING OF STOCKHOLDERS April 24, 2015 Information About Solicitation and Voting The accompanying proxy is solicited on behalf of Chegg, Inc.'s board of directors for use at Chegg's 2015 Annual Meeting of Stockholders...

  • Page 9
    ...on at the Meeting The board of directors recommends that you vote FOR each of the Class II 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...

  • Page 10
    ... 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 8-K within four business days of the meeting. 7

  • Page 11
    ... on the Investor Relations section of our website, which is located at investor.chegg.com, under "Corporate Governance." The Corporate Governance Guidelines are reviewed at least annually by our nominating and corporate governance committee, and changes are recommended to our board of directors with...

  • Page 12
    ... with the independent registered public accounting firm, and reviews, with management and the independent registered public accounting firm, our interim and year-end operating results; develops procedures for employees to submit concerns anonymously about questionable accounting or audit matters...

  • Page 13
    ...and makes recommendations to our board of directors regarding incentive compensation and equity plans; and establishes and reviews general strategies relating to compensation and benefits of our employees. At least annually, our compensation committee reviews and approves our executive compensation...

  • Page 14
    ... apply to all of our board members, officers and employees. Our Code of Business Conduct and Ethics is posted on the investor relations section of our website located at investor.chegg.com, under "Corporate Governance." Any amendments or waivers of our Code of Business Conduct and Ethics pertaining...

  • Page 15
    ...criteria adopted by the board of directors regarding director candidate qualifications. In recommending candidates for nomination, the nominating and corporate governance committee considers candidates recommended by directors, officers, employees, stockholders and others, using the same criteria to...

  • Page 16
    ... of our nominating and corporate governance committee, our board of directors proposes that each of the two Class II nominees named below be elected as a Class II director for a three-year term expiring at the 2018 Annual Meeting of Stockholders and until such director's successor is duly elected...

  • Page 17
    ... Levine has served on our board of directors since May 2013. Since January 2015, Ms. Levine has served as the Chief Operating Officer of Instagram, a social media company. Previously, Ms. Levine served as Vice President, Global Public Policy for Facebook, a social media company, from June 2010 to...

  • Page 18
    ...Officer and a director of Shutterfly, a manufacturer and digital retailer of personalized products and services. From January 2002 to January 2005, Mr. Housenbold served as Vice President of Business Development and Internet Marketing at eBay, an online marketplace for the sale of goods and services...

  • Page 19
    ...-employee director equity compensation policy provides that upon initial appointment to the board of directors, a non-employee director will be granted a stock option having a fair market value on the grant date equal to $300,000 that vests in equal annual installments over three years from the date...

  • Page 20
    ... to consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. 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 of stock...

  • Page 21
    ... statements and review of our quarterly financial statements. In addition, this category also includes fees for services that were incurred in connection with our initial public offering completed in November 2013, and other statutory and regulatory filings or engagements. (2) "Audit related fees...

  • Page 22
    ... any other person. Unless otherwise indicated, the address of each of the individuals and entities named below is c/o Chegg, Inc., 3990 Freedom Circle, Santa Clara, California 95054. Name of Beneficial Owner Named Executive Officers and Directors: Dan Rosensweig(1) ...Andy Brown(2) ...Chuck Geiger...

  • Page 23
    ... business address for all entities and individuals affiliated with Kleiner Perkins Caufield & Byers is 2750 Sand Hill Road, Menlo Park, CA 94025. (6) Consists of (a) 2,000 shares held by Mr. York, (b) 94,695 shares subject to stock options held by Mr. York that are exercisable within 60 days...

  • Page 24
    ... Chou and Frederick Bolander are the managing partners of Gabriel Investment and share voting and investment power over the shares. The principal business address for all entities affiliated with Gabriel Venture Partners is 999 Baker Way, Suite 400, San Mateo, CA 94404. (12) Consists of (a) 51,611...

  • Page 25
    ...Trust 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...

  • Page 26
    ... Officer from May 2012 until June 2014, our Vice President of Content Management 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...

  • Page 27
    ...third of the shares on the one-year anniversary of the date of grant, and as to one-third of the shares each year over the following two years. Each of the PSU awards is earned only upon the company's achievement of total revenue, digital revenue and free cash flow performance targets by December 31...

  • Page 28
    ... Executive Officers. Option Awards Number of Securities Underlying Unexercised Options Name Grant Date(1) Exercisable (#) Unexercisable (#) Exercise Price ($) Expiration Date Stock Awards Number of Shares that Have Not Vested (#) Market Value of Shares that Have Not Vested ($) (2) Dan Rosensweig...

  • Page 29
    ... 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 or consulting services with another company...

  • Page 30
    ... our company, we will pay Mr. Rosensweig a lump sum payment equal to 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 or consulting services with another...

  • Page 31
    ... location more than 50 miles from our principal office in Santa Clara, California. For purposes of this section, "change of control" means (i) a merger, reorganization, consolidation or other acquisition (or series of related transactions of such nature) pursuant to which more than 50% of the voting...

  • Page 32
    ... 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 33
    ... our directors, executive officers or holders of more than 5% of our capital stock, or any immediate family member of or person sharing the household with any of these individuals, had or will have a direct or indirect material interest. Review, Approval or Ratification of Transactions with Related...

  • Page 34
    ... its independence from Chegg. Based on the review and discussions referred to above, the Audit Committee recommended to the board of directors that the audited consolidated financial statements be included in Chegg's annual report on Form 10-K for the year ended December 31, 2014 for filing with the...

  • Page 35
    ... be sent to: Investor Relations Chegg, Inc. 3990 Freedom Circle Santa Clara, California 95054 The Annual Report is also available at investor.chegg.com. "Householding" - Stockholders Sharing the Same Last Name and Address The SEC has adopted rules that permit companies and intermediaries (such...

  • Page 36
    ...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 37
    ... 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 38
    Chegg, Inc. 2014 Form 10-K

  • Page 39
    ... 30, 2014, the last business day of the Registrant's most recently completed second fiscal quarter, there were 83,644,883 shares of the Registrant's Common Stock outstanding, and the aggregate market value of such shares held by non-affiliates of the Registrant (based on the closing sale price of...

  • Page 40
    ...taken as a whole. "Chegg," "Chegg.com," "Chegg for Good," "CourseRank," "Cramster," "InstaEDU," "internships.com" "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...

  • Page 41
    ... products and services to help students save time, save money, and get smarter. We offer an extensive print textbook and eTextbook library for rent and sale, in part through our strategic partnership with Ingram Content Group (Ingram), which we originally announced in August 2014 and announced plans...

  • Page 42
    ... within three business days. We expect the expanded partnership with Ingram to allow us to shorten the average book delivery time for students. 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 with...

  • Page 43
    ... Study. Our Chegg Study service helps students master challenging concepts on their own. For high demand print and electronic textbooks, primarily in the sciences, technology, engineering, math statistics, business and economic subjects, we offer "Textbook Solutions," which are step-by-step answers...

  • Page 44
    ... price comparisons, Chegg Flashcards and Chegg Textbook Solutions. Open Platform. We have established a proprietary API layer that enables us to extend our product and service offerings to additional, relevant business partners. Internships.com, which we acquired in 2014, began offering its services...

  • Page 45
    ... websites to enable students to request information about colleges that may be of interest to them. Colleges and Brands We secure contracts with colleges and brands through direct sales by our field sales organization, which sells enrollment marketing services to college admissions offices and brand...

  • Page 46
    ... digital offerings, our competitors include companies that offer students study materials and educational content such as publishers, Web Assign and other tutorial services, job boards, and other online career guidance services. Enrollment Marketing Services. With respect to our enrollment marketing...

  • Page 47
    ... of Education and other laws and regulations relating to the recruitment of students to colleges and other institutions of higher learning. The Children's Online Privacy Protection Act, which imposes additional restrictions on the ability of online services to collect information from minors...

  • Page 48
    ... in digital and print form, multiplatform eTextbook Reader software, Chegg Study, on-line tutoring, College Admissions and Scholarship Services, purchases of used textbooks, internships, careers, college counseling, enrollment marketing services and brand advertising. Our newer products and services...

  • Page 49
    ...; attract and retain students and increase their engagement with our connected learning platform and our mobile applications; attract and retain colleges, universities and other academic institutions and brands to our marketing services; manage the growth of our business, including increasing or...

  • Page 50
    ... from the publisher or other retailers rather than use our print textbook or eTextbook services. In the short term, this would have a negative effect on our ability to generate revenue from our print textbook business and could result in our inability to achieve financial return targets expected to...

  • Page 51
    ... affected. The growth of our business depends on our ability to attract new students to use our products and services and to increase the level of engagement by existing students with our connected learning platform. The substantial majority of our revenue depends on small transactions made by...

  • Page 52
    ... offered by publishers or by other competing textbook rental providers; the quality and prices of the digital offerings that we offer to students compared to those of our competitors; our ability to engage high school students with our College Admissions and Scholarship Services; changes in student...

  • Page 53
    ... the content posted to our website by students is reliable and does not infringe on third-party copyrights or violate other applicable laws, our terms of use or the ethical codes of those students' colleges; adequately address students' concerns with our products and services; and convert and fully...

  • Page 54
    ... pricing strategies to compete against us. If we are unable to offer competitive prices for our products and 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...

  • Page 55
    ...over time; our ability to successfully utilize the Student Graph to target sales of complementary products and services; changes by our competitors to their product and service offerings; price competition and our ability to react appropriately to such competition; our ability to manage our textbook...

  • Page 56
    ... 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 57
    ... digital offerings, our competitors include companies that offer students study materials and educational content such as publishers, Web Assign and other tutorial services, job boards, and other online career guidance services. Enrollment Marketing Services. With respect to our enrollment marketing...

  • Page 58
    ... 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 (AWS), to provide systems, storage and services for our website. Any failure or interruption...

  • Page 59
    ... us or our partner 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 or it does not load...

  • Page 60
    ... for our products and services. If the transition from print to digital distribution does not proceed as we expect, our business and financial condition may be adversely affected. The textbook distribution market has begun shifting toward digital distribution. If demand for eTextbooks accelerates...

  • Page 61
    ... our operating results in the short term. For example, we offer free services without advertising to students that require investment by us, such as our Internships service, in order to promote a more comprehensive solution. As part of our College Admissions, and Scholarship Services marketing...

  • Page 62
    ... 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 63
    ... of operations and financial condition. Our business may also be subject to laws specific to students, such as the Family Educational Rights and Privacy Act, the Delaware Higher Education Privacy Act and a California statute which restricts the access by postsecondary educational institutions of...

  • Page 64
    ... 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, College Counseling and Scholarship Services are typically under the age of 18, which subjects our business to laws covering the...

  • Page 65
    ... 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," "InstaEDU," "Internships.com", "Zinch" and "#1 In Textbook Rentals," among others, as well as a variety of service...

  • Page 66
    ... 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 67
    ... may reduce the amount they spend on textbooks and other educational content, which could have a serious adverse impact on our business. In addition to decreased spending by students, the colleges and brands that use our marketing services have advertising budgets that are often constrained during...

  • Page 68
    ... of operations and financial condition. Colleges and certain governments may restrict access to the Internet or our website, which could lead to the loss of or slowing of growth in our student user base and their level of engagement with our platform. The growth of our business and our brand depends...

  • Page 69
    ... Sarbanes-Oxley Act in a timely manner, the market price of our stock could decline and we could be subject to sanctions or investigations by the New York Stock Exchange, the SEC or other regulatory authorities, which would require additional financial and management resources. Our compliance with...

  • Page 70
    ... or the anticipation of such sales; 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...

  • Page 71
    ... or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume...

  • Page 72
    ... Tax Authority issued a property tax assessment of approximately $1.0 million related to our textbook library located in our Kentucky warehouse for the 2009 and 2010 tax years under audit. In March 2011, we filed a protest with the Kentucky Board of Tax Appeals that was rejected in March 2012. In...

  • Page 73
    ... 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 74
    ... million to acquire Bookstep. Purchases of Equity Securities by the Registrant and Affiliated Purchasers During the fourth quarter ended December 31, 2014, we repurchased the following shares: Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs - - - Approximate Dollar...

  • Page 75
    ... 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, "Consolidated Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. Our...

  • Page 76
    ...of the cost of traditional marketing. Once in college, we provide a range of products and services to help students save time, save money, and get smarter. We offer an extensive print textbook and eTextbook library for rent and sale, in part through our strategic partnership with Ingram. In 2014, we...

  • Page 77
    ... and for free for students awaiting the arrival of their print textbook rental, online tutoring, our Chegg Study service, College Admissions, Scholarship Services, and internship services. Commissions earned through our Ingram partnership are also included within the digital offerings business. In...

  • Page 78
    ... eTextbooks, supplemental materials and our Chegg Study service that we offer to students, online tutoring, College Admissions, Scholarship Services, and internship services. We also offer enrollment marketing services to colleges and advertising services that we offer to brands. Digital learnings...

  • Page 79
    ..., sales and marketing, general and administrative and loss (gain) on liquidation of textbooks. One of the most significant components of our operating expenses is employee-related costs, which include share-based compensation expenses. We expect to continue to hire new employees in order to support...

  • Page 80
    ... accounting services, provision for doubtful accounts and allocated information technology and facilities costs. We expect to incur additional costs related to operating as a public company including increased audit, legal, regulatory and other related fees. Loss (Gain) on Liquidation of Textbooks...

  • Page 81
    ... of revenue): Year Ended December 31, 2014 2013 2012 Net revenues Rental ...$ Services ...Sales ...Total net revenues...Cost of revenues Rental ...Services ...Sales ...Total cost of revenues ...Gross profit ...Operating expenses(1): Technology and development ...Sales and marketing ...General...

  • Page 82
    ... digital offerings revenue was due primarily from growth in new memberships of our Chegg Study service, an increase in eTextbook volumes, growth in our enrollment marketing services, revenues from acquisitions completed in 2014, and our partnership with Ingram. The increase in print textbook revenue...

  • Page 83
    ... of search engine marketing to increase customer acquisition and online or social media marketing during the period compared to the year ended December 31, 2013. In addition, during the year ended December 31, 2014 our employee-related expenses and share-based compensation increased $9.2 million...

  • Page 84
    ...RSUs to officers and consultants, which resulted in share-based compensation expense upon the completion of our IPO. In addition, employee-related and benefit expenses increased by $1.5 million driven by the expansion of our capabilities in our organization to support public company readiness. These...

  • Page 85
    ... partnership with Ingram, we would continue to buy used books on Ingram's behalf including books through our buyback program, and invoice Ingram at cost. We would also provide Ingram with extended payment terms in 2015 and 2016 for the purchase of textbooks, before moving to normal payment terms...

  • Page 86
    ...contractual payment terms with our suppliers. As a result, changes in our operating accounts are generally a source of cash overall, although they can be a use of cash in the second and fourth quarters of each year as payables become due and new bookings are generally at their low point. In addition...

  • Page 87
    ...which expire at various dates through 2019. In addition, within 90 days following the voluntary or involuntary termination of employment of certain employees acquired in our 2010 acquisition of CourseRank, the employees have the option to sell any vested shares back to us at a fixed price of $11.94...

  • Page 88
    ... eTextbooks and supplemental materials, online tutoring, our Chegg Study service, College Admissions, Scholarship Services, internship services, and enrollment marketing services to colleges. Commissions earned through our Ingram partnership are included within the digital offering business. Revenue...

  • Page 89
    ... 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 90
    ...the services were removed from our website. The analysis indicated that the carrying amounts of the intangible assets acquired will not be fully recoverable, resulting in an impairment charge totaling $1.6 million, which is included in sales and marketing on our consolidated statements of operations...

  • Page 91
    ... beginning of each six-month offering period using the Black-Scholes-Merton option pricing model, which includes assumptions for the expected term, risk-free interest rate, expected volatility and expected dividends. We expense share-based compensation, using the straight-line method over the life...

  • Page 92
    ...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 93
    ... 31, 2014. Any realized gains or losses resulting from such interest rate changes would only occur if we sold the investments prior to maturity. We were not exposed to material risks due to changes in market interest rates given the liquidity of the cash and money market accounts and investments...

  • Page 94
    ... STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ...Consolidated Statement of Operations...Consolidated Statement of Comprehensive Loss ...Consolidated Statement of Convertible...

  • Page 95
    ...of Contents 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, 2014 and 2013, and the related consolidated statements of operations, comprehensive...

  • Page 96
    ... of Contents CHEGG, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except for number of shares and par value) December 31, 2014 December 31, 2013 Assets Current assets: Cash and cash equivalents ...Short-term investments ...Accounts receivable, net of allowance for doubtful accounts of $559...

  • Page 97
    ... per share amounts) Year Ended December 31, 2014 2013 2012 Net revenues Rental ...Services ...Sales ...Total net revenues ...Cost of revenues Rental ...Services ...Sales ...Total cost of revenues ...Gross profit ...Operating expenses: Technology and development...Sales and marketing ...General...

  • Page 98
    Table of Contents CHEGG, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Year Ended December 31, 2014 2013 2012 Net loss...$ Other comprehensive (loss) income: Net change in unrealized gain (loss) on available for sale investments...Change in foreign currency translation ...

  • Page 99
    ...settlement of restricted stock units (RSUs). Shares withheld related to net share settlement of RSUs...Issuance of common stock...acquisition ...Repurchase of common stock ...Share-based compensation expense ...Other comprehensive loss ...Net loss...Balances at December 31, 2014...59,692 3,123 62,815 ...

  • Page 100
    ... of common stock under employee stock plans and preferred stock warrants. Payment of taxes related to the net share settlement of RSUs ...Proceeds from initial public offering, net of issuance costs ...Repurchase of common stock and vested stock options ...Net cash (used in) provided by financing...

  • Page 101
    ... 2014, we have presented revenue and cost of revenues separately for rental, service and sale. Rental revenue includes the rental of print textbooks; service revenue includes Chegg Study, brand advertising, eTextbooks, tutoring, enrollment marketing, and commerce; sale revenue includes just-in-time...

  • Page 102
    ... 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...

  • Page 103
    ... held and rented before liquidation. In accordance with our policy, we review the estimated useful lives of our textbook library on an ongoing basis. Depreciation expense and write-offs of textbooks are recorded in cost of revenues in our consolidated statements of operations. During 2014, 2013 and...

  • Page 104
    ... depreciation and amortization are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in loss from operations. Software Development Costs We capitalize costs related to software developed or obtained for internal use when certain criteria have been met...

  • Page 105
    ... textbooks. We also generate revenue from digital offerings that include eTextbooks, supplemental materials and our Chegg Study service that we offer to students, enrollment marketing services that we offer to colleges and advertising services that we offer to brands. Digital offerings are offered...

  • Page 106
    ... of the assets, resulting in higher costs earlier in the textbook lifecycle. Cost of revenues related to digital offerings, in which we also group eTextbooks, consist primarily of the depreciation of our eTextbook Reader software, publisher content fees for eTextbooks, content amortization expense...

  • Page 107
    ...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...per share attributable to common stockholders (in thousands, except per share amounts): Year Ended December 31, 2014 ...

  • Page 108
    ...) in the consolidated statements of operations and were not material during 2014, 2013 or 2012. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-9, Revenue from Contracts with Customers (ASU 2014-9). This standard outlines...

  • Page 109
    ... 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...

  • Page 110
    ... available-for-sale securities as having Level 2 inputs. The valuation techniques used to measure the fair value of our financial instruments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar...

  • Page 111
    ... 31, 2014, we did not have observable inputs for the valuation of our put option liability, which relates to a previous acquisition, and provides certain employees of the acquired company the right to require us to acquire vested common shares at a stated contractual price. As shares associated with...

  • Page 112
    ... On June 5, 2014, we acquired 100% of the outstanding shares and voting interest of InstaEDU, Inc. (InstaEDU), headquartered in San Francisco, California. With this acquisition, we aimed to expand our digital offerings to help students excel in school by including real time tutoring services. We see...

  • Page 113
    ... assets acquired in the year ended December 31, 2014 (in thousands): 2014 Cash ...$ Other acquired assets ...Acquired intangible assets: Developed technology ...Customer list ...Trade name...Non-compete agreements...Corporate partnerships ...Master services agreement...Total acquired intangible...

  • Page 114
    ...31, 2014 WeightedAverage Amortization Period (in months) Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount Developed technology ...Customer list ...Trade name...Non-compete agreements...Master service agreement ...Corporate partnerships ...Indefinite-lived trade name...

  • Page 115
    ...(in thousands): December 31, 2014 2013 Accrued book purchases ...$ Accrued shipping for cycle returns...Chegg credit ...Refund reserve ...Taxes ... expense, non-cash share-based compensation expense and costs and expenses not to exceed $2.0 million in closing fees related to the revolving credit...

  • Page 116
    ... leases, which expire at various dates through 2019. Our primary operating lease commitments at December 31, 2014, related to our headquarters in Santa Clara, California and our warehouse in Shepardsville, Kentucky. We recognize rent expense on a straight-line basis over the lease period. Where...

  • Page 117
    ..., 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...

  • Page 118
    ... maximum term of five years from the date of grant. The Board of Directors determined that no further grants of awards under the 2005 Plan would be made effective as of November 10, 2013. Designated IPO Equity Incentive Program On February 15, 2012, the Board of Directors approved the Designated IPO...

  • Page 119
    ... of our options. The following table summarizes the key assumptions used to determine the fair value of our stock options granted to employees, officers, and directors: Year Ended December 31, 2014 2013 2012 Expected term (years) ...6.07 5.08-6.63 5.09-6.08 Expected volatility ...55.91%-56.83% 55...

  • Page 120
    ... converted into shares of Chegg common stock upon vesting on a one-for-one basis. Vesting of restricted stock units is subject to the employee's continuing service to the Company. The compensation expense related to these awards is determined using the fair value of our common stock on the date of...

  • Page 121
    ...PSUs will vest annually over a three year period, with the first year vesting in February 2015. In June 2014, we granted PSUs under the 2013 Plan to the employees of InstaEDU, which are based on achieving certain revenue targets in years 2014 and 2015. The target number of shares underlying the PSUs...

  • Page 122
    ... of operations and the income tax expense computed at the federal statutory rate consists of the items shown in the following table as a percentage of pretax loss (in thousands): Year Ended December 31, 2014 2013 2012 Tax at U.S. statutory rate ...State, net of federal benefit ...Share-based...

  • Page 123
    ... to substantial annual limitations due to ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such annual limitations could result in the expiration of the net operating losses and tax credit carryforwards before utilization. As of December 31, 2014 and...

  • Page 124
    ...million of products and services from Jive Software. One of our directors is also a member of the Board of Directors of Jive Software. The terms of our contracts with the above related parties are consistent with our contracts with other independent parties. Note 17. Employee Benefit Plan We sponsor...

  • Page 125
    ... tutoring, our Chegg Study service, College Admissions, Scholarship Services, and internship services. Commissions earned through our Ingram partnership are included within the digital offering business. Revenue by product line as follows (in thousands): December 31, 2014 2013 2012 Print textbooks...

  • Page 126
    ... Note 19. Selected Quarterly Financial Data (unaudited) Three Months Ended March 31, 2014 June 30, 2014 September 30, 2014 December 31, 2014 Net revenues ...$ 74,393 $ 64,492 $ Gross profit...8,908 25,896 Net (loss) income ...$ (25,759) $ (8,246) $ Weighted average shares used to compute net (loss...

  • Page 127
    ... systems are subject to inherent limitations. Our management has concluded that, as of December 31, 2014, our internal control over financial reporting is effective based on these criteria. This Annual Report on Form 10-K does not include an attestation report of our registered public accounting...

  • Page 128
    ...which applies to all employees, including our principal executive officer, our principal financial officer, and all other executive officers, and our board of directors. The Code of Business Conduct and Ethics is available on our Web site at investor.chegg.com under "Corporate Governance." We intend...

  • Page 129
    ...STATEMENT SCHEDULES We have filed the following documents as part of this Annual Report on Form 10-K: 1. Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheet ...Consolidated Statement of Operations ...Consolidated Statement of...

  • Page 130
    ... Date /S/ DAN ROSENSWEIG Dan Rosensweig /S/ ANDREW BROWN Andrew Brown /S/ ROBIN TOMASELLO Robin Tomasello President, Chief Executive Officer and Chairman (Principal Executive Officer) Chief Financial Officer (Principal Financial Officer) Vice President, Corporate Controller (Principal Accounting...

  • Page 131
    ... 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 132
    ... 101.LAB 101.PRE 101.DEF †* ** Certification of Dan Rosensweig, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to ... this exhibit by the SEC. Indicates a management contract or compensatory plan. This certification is deemed not filed for purposes of section 18...

  • Page 133
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