Chegg 2015 Annual Report Download - page 83

Table of Contents
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contain information technology expenses and facilities expenses such as webhosting, depreciation on our infrastructure
systems, our headquarters lease expense and the employee-related costs for information technology support staff. We allocate
these costs to each expense category, including cost of revenues, technology and development, sales and marketing and general
and administrative. The allocation is primarily based on the headcount in each group at the end of a period. As our business
grows, our operating expenses may increase over time to expand capacity and sustain our workforce.
Technology and Development
Our technology and development expenses consist of salaries, benefits and share-based compensation expense for
employees in our product and web design, engineering and technical teams who are responsible for maintaining our website,
developing new products and improving existing products. Technology and development costs also include amortization of
acquired intangible assets, webhosting costs, third-party development costs and allocated information technology and facilities
expenses. We expense substantially all of our technology and development expenses as they are incurred. In the past three
years, our expenses have increased to support new products and services as well as to expand our infrastructure capabilities to
support back-end processes associated with our revenue transactions and internal systems used to manage our print textbook
library. We intend to continue making significant investments in developing new products and services and enhancing the
functionality of existing products and services.
Sales and Marketing
Our sales and marketing expenses consist of user and advertiser-facing marketing and promotional expenditures through
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 required for enrollment marketing services and amortization of
acquired intangible assets and allocated information technology and facilities costs. Our marketing expenses are largely
variable; and we tend to incur these in the first and third quarters of the year due to our efforts to target students at the
beginning of academic terms. To the extent there is increased or decreased competition for these traffic sources, or to the extent
our mix of these channels shifts, we would expect to see a corresponding change in our marketing expense. Sales and
marketing expenses also include lead generation services and sales commissions for our enrollment marketing services and
brand advertising.
General and Administrative
Our general and administrative expenses consist of salaries, benefits and share-based compensation expense for certain
executives as well as our finance, legal, human resources and other administrative employees. In addition, general and
administrative expenses include outside consulting, legal and accounting services, provision for doubtful accounts and
allocated information technology and facilities costs. We expect to incur additional costs when we transition from an “emerging
growth company” including increased audit, legal, regulatory and other related fees.
Restructuring Charges
Restructuring charges are primarily comprised of severance costs, contract and program termination costs, asset
impairments and costs of facility consolidation and closure. Restructuring charges are recorded upon approval of a formal
management plan and are included in the operating results of the period in which such plan is approved and the expense
becomes estimable.
Gain on Liquidation of Textbooks
Gain on liquidation of textbooks consists of proceeds we receive from the sale of previously rented print textbooks,
through our website or to wholesalers and other channels, offset by the net book value of such textbooks. Our gain on
liquidation of textbooks is driven by several factors including age of the books liquidated, the volume of books liquidated at a
given point in time and the channel through which we liquidate. When the proceeds received exceed the net book value of the
textbooks liquidated, we record a gain on liquidation of textbooks.
Interest and Other Expense, Net
Interest and other expense, net consists primarily of interest expense on our debt obligations, changes in the fair value of
our preferred stock warrants and interest income on our cash and cash equivalents and investment balances.