Chegg 2015 Annual Report Download

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2015 ANNUAL REPORT

Table of contents

  • Page 1
    20 1 5 A N N UA L R E P ORT

  • Page 2
    ‡ƒÂ"Š‡‰‰Â-Â'Â...ŠÂ'Ž†‡Â"Ç£  ʹͲͳͷƒÂ"‡†Â'Â-Â"•‡Â...Â'†ˆÂ-ÂŽÂŽ›‡ƒÂ"ĥƒÂ'Â-„Ž‹Â...Â...Â'Â'ƒ›ƒ†™‡Â...Â'Â-‹Â-‡†Â-Â'ƒ‡‡šÂ...‡ŽŽ‡Â-Â'Â"Â'‰Â"॥ ...

  • Page 3
    ...The presentationofthisnonǦGAAPfinancialmeasureisnotintendedtobeconsideredinisolationfrom,asa substitutefor,orsuperiorto,thefinancialinformationpreparedandpresentedinaccordancewith GAAP,andmaybedifferentfromnonǦGAAPfinancialmeasuresusedbyothercompanies

  • Page 4
    ...amortization EBITDA Textbook library depreciation expense Share-based compensation expense Other (expense) income, net Restructuring charges Transitional logistic charges Acquisition related compensation costs Impairment of intangible assets Adjusted EBITDA Three Months Ended December 31, 2015 2014...

  • Page 5
    Chegg, Inc. 2016 Proxy Statement

  • Page 6
    ... of annual meeting of the stockholders 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 via the Internet or request, sign and return...

  • Page 7
    ... 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 22, 2016 Whether or not you...

  • Page 8
    ... 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 ...TRANSACTIONS WITH RELATED...

  • Page 9
    ... Circle Santa Clara, CA 95054 PROXY STATEMENT FOR THE 2016 ANNUAL MEETING OF STOCKHOLDERS April 22, 2016 Information About Solicitation and Voting The accompanying proxy is solicited on behalf of the board of directors of Chegg, Inc. ("Chegg," "we," or "our") for use at Chegg's 2016 Annual Meeting...

  • Page 10
    ... 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 of directors stated above. If you received a Notice...

  • Page 11
    ... 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 12
    ... Relations section of our website, which is located at http://investor.chegg.com, under "Corporate Governance." The Corporate Governance Guidelines are reviewed at least annually by our nominating and corporate governance committee, and any warranted changes are recommended to our board of directors...

  • Page 13
    ... standards, our board of directors annually reviews the independence of our directors, taking into account all relevant facts and circumstances. In its most recent review, the board considered, among other things, the relationships that each non-employee director has with our company and all other...

  • Page 14
    ... officer compensation and non-employee director compensation for 2015. Frederic W. Cook provided our compensation committee with market data and analyses from a peer group of similarlysized technology companies with similar business and financial characteristics. Other than the services described...

  • Page 15
    ... committee during 2015. Board and Committee Meetings and Attendance Our board of directors is responsible for the management and direction of Chegg and for establishing broad corporate policies. The board of directors meets periodically during our fiscal year to review significant developments...

  • Page 16
    ... relations section of our website located at http:// investor.chegg.com, under "Corporate Governance." To satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendments or waivers of our Code of Business Conduct and Ethics pertaining to a member of our board of directors...

  • Page 17
    ...criteria adopted by our 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 18
    ... and digital retailer of personalized products and services from January 2005 to February 2016. From January 2002 to January 2005, Mr. Housenbold served as Vice President of Business Development and Internet Marketing at eBay Inc., an online marketplace for the sale of goods and services. Prior...

  • Page 19
    ... at Symantec Corporation, a provider of Internet security technology and business management technology solutions, including as Vice President of Enterprise Products. Mr. Schlein currently serves on the boards of directors of Jive Software, Inc. and a number of privately held companies. Mr. Schlein...

  • Page 20
    ... from Harvard Business School. We believe that Mr. Sarnoff should continue to serve on our board of directors due to his extensive experience serving in senior leadership roles, including chief financial officer, and on the boards of directors of media and digital technology companies. There are...

  • Page 21
    ...closing share price of our common stock on the date of grant. For information on other valuation assumptions with respect to stock awards, refer to note 14 of the notes to consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. There...

  • Page 22
    Our non-employee directors held the following number of stock options and unvested RSU awards as of December 31, 2015. Name Reneé Budig...Jeffrey Housenbold ...Marne Levine ...Barry McCarthy ...Richard Sarnoff ...Ted Schlein...John York...Option Awards 88,445 116,917 116,917 181,962 ...

  • Page 23
    ...public accounting firm. These services and fees are also reviewed with our audit committee annually. In accordance with standard policy, Ernst & Young LLP periodically rotates the individuals who are responsible for Chegg's audit. In addition to performing the audit of Chegg's consolidated financial...

  • Page 24
    ..., Santa Clara, California 95054. Number of Shares Beneficially Owned 3,725,607 1,132,058 1,197,347 14,740 116,917 116,917 194,671 8,488,141 117,065 17,453,575 11,497,990 7,451,067 8,355,135 8,200,000 7,358,364 6,071,880 Name of Beneficial Owner Named Executive Officers and Directors: Dan Rosensweig...

  • Page 25
    ... within 60 days of April 4, 2016, each of which are held by our directors and officers as a group. Based on information provided by PRIMECAP Management Company on Schedule 13G/A filed with the SEC on February 12, 2016. Of the shares beneficially owned, PRIMECAP Management Company reported that it...

  • Page 26
    ... 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) Based on information provided by Sylebra HK Company Limited on Schedule 13G filed with the SEC on February 16, 2016...

  • Page 27
    ..., Mr. Brown served as the Chief Financial Officer of Pillar Data Systems, Legato Systems and ADPT Corporation (formerly Adaptec). Mr. Brown also serves on the business school advisory board at Eastern Illinois University. Mr. Brown holds a B.S. in accounting from Eastern Illinois University. Robert...

  • Page 28
    ... of the 2015 fiscal year. The targets for each of these performance measures for 2015 was $143.6 million for digital revenue, $135.9 million for digital revenue net the commission earned from Ingram and $26 million for free cash flow. All or any portion of the remaining 50% of the shares subject to...

  • Page 29
    ... 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, 2015 of $6.73. (3) Includes 68,251 shares subject to stock options transferred as a gift to Daniel Lee Rosensweig and Linda...

  • Page 30
    ... as described in"-Termination and Change in Control Arrangements" below. (16) The shares subject to the PSU award are earned upon achievement by December 31, 2015 of the company performance metrics consisting of digital revenue, digital revenue without Ingram and free cash flow measurements by...

  • Page 31
    ... 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 32
    ... of then-current annual base compensation (other than a similar reduction that applies to our other senior executives), or (iii) relocation to a primary work location more than 50 miles from our principal office in Santa Clara, California. For purposes of this section, "change of control" means...

  • Page 33
    ... of shares determined by our board of directors. Pursuant to the terms of our 2013 Plan and 2013 ESPP, an additional 4,404,999 shares and 880,999 shares were added to the number of shares reserved for issuance under the each plan, respectively, effective January 1, 2016. (4) Excludes information for...

  • Page 34
    ... facts as (i) the impact on a director's independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated; (ii) the terms of the transaction; and (iii) any other relevant information and considerations with respect to...

  • Page 35
    ... 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, 2015 for filing with the Securities and...

  • Page 36
    ... sent to: Investor Relations Chegg, Inc. 3990 Freedom Circle Santa Clara, California 95054 The Annual Report is also available at http://investor.chegg.com. "Householding" - Stockholders Sharing the Same Last Name and Address The SEC has adopted rules that permit companies and intermediaries (such...

  • Page 37
    ...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 38
    ... does not presently intend to bring any other business before the meeting and, so far as is known to our 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 39
    Chegg, Inc. 2015 Form 10-K

  • Page 40
    ..., 2015, the last business day of the registrant's most recently completed second fiscal quarter, based upon the closing price of such stock on such date as reported by the New York Stock Exchange on such date, was approximately $610,176,271. Shares of Common Stock held by each executive officer and...

  • Page 41
    ...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 42
    ..."Risk Factors" in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to...

  • Page 43
    ... textbooks and eTextbooks, and over 1.4 million students subscribed to our digital services, such as our Chegg Study service, which provides step-by-step Textbook Solutions and Expert Answers, helping students with their course work. When students are really stuck, they can reach a live tutor online...

  • Page 44
    ...new or used book. Orders are shipped to students in a distinctive orange Chegg box that typically arrives within three business days. We expect our 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...

  • Page 45
    ...a free Chegg Study offer where we have Textbook Solutions for that textbook. We also provide personalized search results based on information in the Student Graph. Data Sourcing and Graph Technology. Not all information relevant to students on our platform is made available by service, product, list...

  • Page 46
    ... 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. We have enhanced our technology to enable Chegg student experiences to be consumed on other websites or...

  • Page 47
    ... Chegg Services, our competitors include companies that offer students study materials and educational content such as publishers, online instructional systems such as Web Assign and other tutorial services, job boards, and other online career guidance services. Enrollment Marketing Services. With...

  • Page 48
    Table of Contents Brands. With respect to brands, we compete with online and offline outlets that generate revenues from advertisers and marketers, especially those that target high school and college students. In this area, we seek to partner with brands that have offerings that will interest or ...

  • Page 49
    ... July 2005. We 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 create the leading connected learning platform for students to help them save time, save money and get smarter. Beginning...

  • Page 50
    ... eTextbook Reader software, Chegg Study, Chegg Tutors, Chegg Test Prep, College Admissions and Scholarship Services, purchases of used textbooks, internships, careers, college counseling, enrollment marketing services and brand advertising. Our newer products and services, or any other products...

  • Page 51
    ... peak periods prior to each academic term; maintain and manage relationships with strategic partners, including Ingram and other distributors, publishers, wholesalers, colleges and brands; develop a profitable business model and pricing strategy; compete with companies that offer similar services or...

  • Page 52
    ...our offerings does not develop as we expect, or if we fail to address the needs of this market, our business will be harmed. We may not be successful in executing on our evolving business model, and if we cannot provide an increasing number of products and services that students, colleges and brands...

  • Page 53
    ... our partnership with Ingram may have an adverse effect on our business and results of operations. We rely on Ingram to make new investments in the textbook library and fulfill our print textbook rentals and sales orders. We purchase used books on Ingram's behalf, including books through our buyback...

  • Page 54
    ... textbook rental providers; the quality and prices of our offerings compared to those of our competitors; the rate of adoption of eTextbooks and our ability to capture a significant share of that market; our ability to engage high school students with our College Admissions and Scholarship Services...

  • Page 55
    ... and increase their engagement with our connected learning platform depends on our ability to connect them with the product, person or service they need to save time, save money, and get smarter. Part of our strategy is to offer students new products and services in an increasingly relevant and...

  • Page 56
    ...our operating results and financial condition could be adversely affected. We have expanded rapidly since we launched our online print textbook rental service in 2007. We anticipate further expanding our operations to offer additional products, services and content to help grow our student user base...

  • Page 57
    .... We also rely on students to return print textbooks to Ingram 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 or return damaged books, or if we for...

  • Page 58
    ... Service (UPS) to deliver textbooks from its textbook warehouse and to return textbooks to Ingram from our students. To a lesser extent Ingram relies on FedEx for delivery of print textbook rentals and on publishers, distributors and wholesalers to fulfill a certain portion of textbook sales orders...

  • Page 59
    ... Materials product line because of the added convenience they offer to students, which may result in reduced textbook rentals, loss of market share and reduced revenues. In addition, our competitors also may form or extend strategic alliances with publishers that could adversely affect Ingram...

  • Page 60
    ...or prevent Ingram 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 connected learning platform is unavailable when students attempt to access it or...

  • Page 61
    ... with mobile operating systems, networks and standards that we do not control. There is no guarantee that students will use our mobile applications, such as the mobile version of our website, m.chegg.com, Chegg Flashcards and Chegg Textbook Solutions, rather than competing products. We are...

  • Page 62
    ... 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 63
    ... 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 64
    ...the use of the Internet particularly for educational services, including laws limiting the content that we can offer, and the audiences that we can offer that content to, may decrease demand for our service offerings and increase our cost of doing business. Future regulations, or changes in laws and...

  • Page 65
    ... security practices of a number of online, 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...

  • Page 66
    ... manner, and may limit our ability to develop new products and services that make use of the data that we collect about our student users. Our reputation and relationships with students would be harmed if our student users' data, particularly billing data, were to be accessed by unauthorized persons...

  • Page 67
    ... 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 68
    ... or brand, our business and our competitive position may be affected adversely and we may be subject to an injunction or be required to pay or incur substantial damages and/or fees. In addition, we use open source software in connection with certain of our products and services. Companies that...

  • Page 69
    ... of growth in our student user base and their level of engagement with our platform. The growth of our business and our brand depends on the ability of students to access the Internet and the products and services available on our website. Colleges that provide students with access to the Internet...

  • Page 70
    ... would lose revenues. 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 in China. The Chinese government may seek to restrict access to the...

  • Page 71
    ...we file sales tax returns in a number of states within the United States as required by law and collect and remit sales tax for some content owners. We do not collect sales or other similar taxes in some U.S. and foreign jurisdictions, with respect to some of our sale, rental or service transactions...

  • Page 72
    ... forecasting seasonal variations in our financial condition and operating results or the revenues generated by our offerings; issuance of new or updated research or reports by securities analysts, including the publication of unfavorable reports or change in recommendation or downgrading of...

  • Page 73
    ... may be a less active trading market for our common stock and our stock price may be more volatile. Under the JOBS Act, "emerging growth companies" can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to...

  • Page 74
    ..., 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. 35

  • Page 75
    Table of Contents ITEM 4. MINE SAFETY DISCLOSURES Not Applicable. 36

  • Page 76
    ... OF EQUITY SECURITIES Market Information Our common stock has been listed on the New York Stock Exchange under the symbol "CHGG" since November 13, 2013. The following table sets forth for the indicated periods the high and low closing sales prices of our common stock as reported by the New York...

  • Page 77
    ... 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 78
    Table of Contents Year Ended December 31, 2015 2014 2013 (in thousands) 2012 2011 Consolidated Balance Sheet Data: Total assets...$ 291,356 Deferred revenue ...14,971 Debt obligations, current and non-current ...- Convertible preferred stock ...- Common stock and additional paid-in capital ...560,...

  • Page 79
    ...below. We also offer eTextbooks for rent and sale. Students can subscribe to our digital services, such as Chegg Study, which provides step-by-step Textbook Solutions and Expert Answers, helping students with their course work. We also have live tutors available to students online, anytime, anywhere...

  • Page 80
    ...Chegg Services for students include our connected learning platform, or the Student Hub, our test preparation service currently covering the ACT and SAT exams, online tutoring, our Chegg Study service, College Admissions, Scholarship Services and Internship Services. In addition, we offer enrollment...

  • Page 81
    ... growth in our Chegg Services. Similar to the revenue recognition from print textbooks rentals, revenues from eTextbooks is recognized ratably over the contractual period, generally two to five months or at time of the sale, and our customers pay for these services through payment processors...

  • Page 82
    ... tutoring, College Admissions, Scholarship Services, and Internship Services. We also offer enrollment marketing services to colleges and advertising services that we offer to brands. Chegg Services are offered to students through weekly, monthly or annual subscriptions, and we recognize revenues...

  • Page 83
    ...a number of targeted online marketing channels, sponsored search, display advertising, email marketing campaigns and other initiatives. We incur salaries, benefits and share-based compensation expenses for our employees engaged in marketing, business development and sales and sales support functions...

  • Page 84
    ... of revenues): Year Ended December 31, 2015 2014 2013 Net revenues: Rental ...$ 120,365 Services ...131,996 Sales ...49,012 Total net revenues ...301,373 Cost of revenues(1): Rental ...98,162 Services ...43,794 Sales ...47,893 Total cost of revenues...189,849 Gross profit...111,524 Operating...

  • Page 85
    ... rental revenues from transactions using our print textbooks. The increase in services and sales revenues during the years ended December 31, 2015 and 2014 was driven primarily from growth across our other offerings for students which included increased revenues from Chegg Study, eTextbooks...

  • Page 86
    ... million. These decreases resulted from Ingram's fulfillment of more print textbook rental orders and the closure of our warehouse in Kentucky. These savings were partially offset by higher cost related to sales of print textbooks of $15.5 million and the cost of digital content of $1.6 million. As...

  • Page 87
    ... 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 88
    ...result of our strategic partnership with Ingram, we have successfully exited our warehouse facilities in the year ended December 31, 2015. Costs incurred to date related to employee termination benefits are expected to be paid within the next three months. Costs incurred to date related to the lease...

  • Page 89
    ...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 orders are generally at their low point. In addition, we have significant non-cash operating expenses such as print textbook...

  • Page 90
    ... investments in our print textbook inventory yet continue to buy books on Ingram's behalf, while providing them with extended payment terms. The effects of these two items were the primary reasons we had net cash used in operating activities for the year ended December 31, 2015. Net cash provided...

  • Page 91
    ... 8, "Consolidated Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. Revenue Recognition and Deferred Revenue We evaluate whether we are acting as a principal or an agent, and therefore whether we would record the gross sales amount and related costs as revenues or the...

  • Page 92
    ...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 the estimated salvage...

  • Page 93
    ...our employee stock purchase plan (ESPP) based on estimated fair values. The fair value of stock options and shares to be purchased under our ESPP is estimated at the date of grant using the Black-Scholes-Merton option pricing model which includes assumptions for the expected term, risk-free interest...

  • Page 94
    ... management's judgment. If factors change and different assumptions are used, our share-based compensation expense could be materially different in the future. The assumptions required are estimated as follows: Expected term. The expected term for options granted to employees, officers and directors...

  • Page 95
    ...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 96
    ... of Contents ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS 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...

  • Page 97
    ...of Contents Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Chegg, Inc. We have audited the accompanying consolidated balance sheets of Chegg, Inc. as of December 31, 2015 and December 31, 2014, and the related consolidated statements of operations...

  • Page 98
    Table of Contents CHEGG, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except for number of shares and par value) December 31, 2015 December 31, 2014 Assets Current assets Cash and cash equivalents ...Short-term investments ...Accounts receivable, net of allowance for doubtful accounts of $378 ...

  • Page 99
    ... per share amounts) Year Ended December 31, 2015 2014 2013 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 100
    Table of Contents CHEGG, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Year Ended December 31, 2015 2014 2013 Net loss ...$ Other comprehensive loss: Change in unrealized (loss) gain on available for sale investments...Change in foreign currency translation adjustments, net of ...

  • Page 101
    ......Shares withheld related to net share ...connection with acquisition ...Repurchase of common stock ...Stock-based compensation expense ...Other comprehensive loss...Net loss ...Balance at December 31, 2015 62,815 - 5 (62,820 Amount 207,201 - 37 (207,238 Shares...Financial Statements. 62

  • Page 102
    ...Accounts payable...Deferred revenue ...Accrued liabilities ...Other liabilities ...Net cash (used in) provided by operating activities ...Cash flows from investing activities Purchases of textbooks ...Proceeds from liquidations of textbooks...Purchases of marketable securities ...Proceeds from sale...

  • Page 103
    ...-first connected learning platform, empowering students to take control of their education to save time, save money, and get smarter. We help students study more effectively for college admissions exams, accomplish their goals, get better grades and test scores while in school and find internships...

  • Page 104
    ... revenues in 2015, 2014 or 2013 Textbook We consider our print textbook library to be a long-term productive asset and, as such, classify it as a non-current asset in our consolidated balance sheets. Cash outflows for the acquisition of our print textbook library, net of changes in related accounts...

  • Page 105
    ...useful life of 5 years 5 years We capitalize costs related to the purchase or development of Chegg Study and Test Prep content and amortize these costs over a period of five years. Depreciation and amortization expense are generally classified within the corresponding cost of revenues and operating...

  • Page 106
    ... ratably over the term of the rental period, generally two to five months. Revenues from selling textbooks on a just-in-time basis are 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 by...

  • Page 107
    ...; service revenue includes Chegg Study, brand advertising, eTextbooks, tutoring, enrollment marketing, and commissions we earn from Ingram and other e-commerce partners; sale revenue includes just-in-time sale of print textbooks and the sale of other required materials. Cost of Our cost of revenues...

  • Page 108
    ... measured based on the closing fair market value of the Company's common stock on the date of grant. We recognize compensation cost for all employee share-based compensation awards that are expected to vest on a straight-line basis over the requisite service period of the awards, which is generally...

  • Page 109
    ...loss per share attributable to common stockholders because including them would have been anti-dilutive (in thousands): Year Ended December 31, 2015 2014 2013... are translated using the historical rate. Revenues and expenses are translated at average exchange rates during the period. Foreign currency...

  • Page 110
    ... date by one year. The FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date (ASU 2015-14) which defers the effective date to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application...

  • Page 111
    ... Unrealized Gain/(Loss) Cost Fair Value Cost Fair Value Cash and cash equivalents: Cash ...$ Money market funds ...Commercial paper ...Corporate securities ...Agency bond ...Total cash and cash equivalents ...$ Short-term investments: Commercial paper ...$ Corporate securities ...Certificate of...

  • Page 112
    ... 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 113
    ... 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 114
    ... for the valuation of our put option liability, which relates to a previous acquisition, and provided 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 these put options vested, the liability was...

  • Page 115
    ...), 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 the acquisition of InstaEDU as a method to connect the textbook offering and service offerings of Chegg...

  • Page 116
    ... net identifiable assets acquired in the year ended December 31, 2014 (in thousands): 2014 Cash Other acquired assets Acquired intangible assets: Developed technology Customer lists Trade names Non-compete agreements Corporate partnerships Master services agreements Total acquired intangible assets...

  • Page 117
    ... WeightedAverage Amortization Period (in months) Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount Developed technologies ...Customer lists ...Trade names ...Non-compete agreements...Master service agreements...Corporate partnerships ...Indefinite-lived trade name...

  • Page 118
    ... consolidated outstanding debt balance to consolidated EBITDA for the period of the four fiscal quarters most recently ended. As of December 31, 2015, we were in compliance with these financial covenants. Note 10. Stock Warrants In connection with our IPO in November 2013, our previously outstanding...

  • Page 119
    ... 2021. Our primary operating lease commitments at December 31, 2015 related to our headquarters in Santa Clara, California, our office in San Francisco, California, and our warehouse in Shepherdsville, Kentucky. We recognize rent expense on a straight-line basis over the lease period. Where leases...

  • Page 120
    ..., 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 121
    ... forfeited or repurchased at their original issue price and (iii) shares subject to awards under the 2005 Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award. As of December 31, 2015 there were 8,111,562 available for...

  • Page 122
    ...-based compensation expense recorded for employees and non-employees, is as follows (in thousands): Year Ended December 31, 2015 2014 2013 Cost of revenues...$ Technology and development ...Sales and marketing ...General and administrative ...Total share-based compensation expense ...$ Fair Value...

  • Page 123
    ... used to determine the fair value of our stock options granted to employees, officers and directors: Year Ended December 31, 2015 2014 2013 Expected term (years) ...5.50-6.00 6.07 5.08-6.63 Expected volatility ...50.68%-51.69% 55.91%-56.83% 55.72%-73.18% Dividend yield Risk-free interest rate...

  • Page 124
    ...of Contents Stock Option Activity Stock option activity under our equity incentive plans was as follows: Options Outstanding WeightedAverage Exercise Price per Share WeightedAverage Remaining Contractual Term in Years Number of Options Outstanding Aggregate Intrinsic Value Balance at December 31...

  • Page 125
    ... of the Board of Directors. These PSUs will vest annually over a one or three year period depending on the employee, with the initial vesting in February 2016. The target number of shares underlying the PSUs that were granted to certain key employees during the year ended December 31, 2015 totaled...

  • Page 126
    ... table as a percentage of pretax loss (in percentages): Year Ended December 31, 2015 2014 2013 Tax at U.S. statutory rate...State, net of federal benefit ...Share-based compensation ...Non-deductible expenses ...Other ...Change in valuation allowance ...Total ...A summary of our deferred tax...

  • Page 127
    ... the US and our Indian subsidiary. Additionally, during the year ended December 31, 2015 we were informed that we would be under examination by the tax authorities in India for the fiscal filing period 2011/12 relating to our transfer pricing between the United States and our Indian subsidiary. This...

  • Page 128
    .... The charges include one-time employee termination benefits for 71 employees of $1.9 million during the year ended December 31, 2015 and lease termination and other costs of $3.0 million for the year ended December 31, 2015. As a result of our strategic partnership with Ingram, we have successfully...

  • Page 129
    ...operating decision-maker is our Chief Executive Officer who makes resource allocation decisions and reviews financial information presented on a consolidated basis. Accordingly, we have determined that we have a single operating and reporting segment and operating unit structure. Product Information...

  • Page 130
    ... our connected learning platform, our test preparation service currently covering the ACT and SAT exams, online tutoring, our Chegg Study service, College Admissions, Scholarship Services, Internship Services, Enrollment Marketing Services and our Brand Partnership services. Revenues by product line...

  • Page 131
    ... Note 20. Selected Quarterly Financial Data (unaudited) Three Months Ended March 31, 2015 June 30, 2015 September 30, 2015 December 31, 2015 Total net revenues ...$ Gross profit ...$ Net (loss) income...$ Weighted average shares used to compute net (loss) income per share attributable to common...

  • Page 132
    ... the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. (b) Management's Annual Report...

  • Page 133
    ...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 134
    ... 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 135
    ... of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHEGG, INC. March 4, 2016 By: /S/ DAN ROSENSWEIG Dan Rosensweig President, Chief Executive Officer and Chairman 96

  • Page 136
    ...or her name, place and stead, in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents...

  • Page 137
    ...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... of Chegg, Inc. Lease between Silicon Valley CA-I, LLC...

  • Page 138
    ... 2015, by and among Ingram Hosting Holdings Inc., the Company and Ingram Book Group Inc. Third Amendment to Credit Agreement, dated August 3, 2015, by and among Bank of America, N.A. and the domestic subsidiaries of Chegg, Inc. List of subsidiaries Consent of Independent Registered Public Accounting...

  • Page 139
    ... A L CO U NSE L Fe nw i c k & We st LLP © 2 0 1 6 C h e gg, Inc . Al l ri ghts re se r ve d . The Chegg name and logo, Chegg.com, Chegg for Good, InstaEDU, internships.com, Zinch and #1 in Textbook Rentals are trademarks of Chegg, Inc. Other trademarks are the property of their respective owners.