Greetings, and welcome to Chegg, Inc.'s Q1 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Tracey Ford, Vice President of Investor Relations at Chegg. Please go ahead. Good afternoon. Thank you for joining Chegg's first quarter 2022 conference call. On today's call are Dan Rosensweig, Co-Chairperson and CEO, and Andy Brown, Chief Financial Officer. A copy of our earnings press release, along with our investor presentation, is available on our investor relations website, investor.chegg.com. A replay of this call will also be available on our website. We routinely post information on our website and intend to make important announcements on our Media Center website at chegg.com/mediacenter. We encourage you to make use of these resources. Before we begin, I would like to point out that during the course of this call, we will make forward-looking statements regarding future events, including the future financial and operating performance of the company. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important factors that could cause actual results to differ materially from those in the forward-looking statements. In particular, we refer you to the cautionary language included in today's earnings release and the risk factors described in Chegg's annual report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2022, as well as our other filings with the SEC. Any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. Our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release in the investor slide deck on our IR website, investor.chegg.com. We also recommend you review the investor data sheet, which is also posted on our IR website. Now, I will turn the call over to Dan. Thank you, Tracy, and welcome everyone to our Q1 2022 earnings call. We started the year with a solid quarter. Chegg Services grew 14% year-over-year with 5.4 million subscribers. In addition, we are announcing a new partnership with an independent book reseller, enabling us to continue to offer print and e-textbooks to students while our partner handles inventory and fulfillment. We expect this deal to improve our margins and growth rates over time. As noted in our fourth quarter call, we entered the year with momentum. However, this trend has not continued at the level we expected. The issues of enrollment, the economy, and now inflation have all impacted our industry. Students continue to take fewer classes, and those they do take are often less rigorous with fewer or more limited assignments. With higher wages and increased cost of living, more people are shifting their priorities towards earning over learning, resulting in lower course load or delaying enrollment in schools at this time. In the U.S. alone, we have seen approximately 1 million students forego or postpone higher education over the last two years. The impact of these factors is evident in the reduced traffic to higher education support services. This has made forecasting at this time challenging. While we expect many of these trends to be temporary, we are reducing our guidance to better reflect the current market conditions, which Andy will walk you through. That being said, we are executing well against these current conditions, and indications are that we are outperforming our sector. With approximately 50% of the world's population under the age of 30 and technology impacting what we learn, how we learn, where we learn, and when we learn, the global need for affordable, high quality, dependable academic support and skills-based learning will only grow. Our goal during this time is to gain greater market share and invest in future growth. Students who are using paid support services this semester are overwhelmingly choosing Chegg. We are experiencing strong engagement, our highest take rate for the Chegg Study Pack and outstanding retention rates. Along with the increased take rate for the Chegg Study Pack, our continued efforts in the expansion, quality, discoverability, and personalization of our content drove strong retention, which increased the ARPU of our business. These are powerful endorsements of the critical role Chegg plays in the lives of students. We remain bullish on the post-pandemic era, so we are staying focused on investments in our future, specifically international expansion, language learning, skills training, and supplemental support services like soft skills and financial literacy. Outreach is expanding globally, and we are improving both our content library and technology platform to increase students' ability to discover our more than 100 million pieces of learning material, thereby improving student outcomes. Domestically, we continue to be focused on our key priorities, including the student-facing launch of University this fall, which will increase the breadth and quality of our content, deepen our relationships with academic institutions, and expand the number of students who can learn from Chegg. To date, professors have uploaded over 140,000 approved pieces of instructional content, and University will soon be rolling out to faculty in the U.K. and Canada. Our international expansion continues to perform well, led by the adoption of Chegg Study and Chegg Study Pack, and accelerated by the addition of Busuu. We continue to grow our subscribers and take market share, and we are now offering local content and user experiences in key markets. We are currently accepting local currencies in five countries and expect to expand to at least three new markets by the end of the year. In addition, we are price testing in eight countries to determine the optimal price-to-value equation, and we are excited to have recently launched our first fully localized app in Turkey. Our next localized app will be in Spanish, and that will increase our TAM in both the U.S. and other key countries like Mexico, as well as emerging Latin America markets. We are also building new B2B channels for both our skills and language services and are pleased with their early success. Busuu has direct relationships with over 500 companies, and our skills distribution partner, Guild, now reaches over 4 million frontline workers, which is an important channel for Chegg. We are proud to have graduated our first Guild cohorts from our new programs in technology fundamentals and advanced programs like cybersecurity. With recent research showing that 82% of global workers polled plan to train in new digital skills in the next 5 years, we believe these kinds of programs represent a major opportunity for Chegg. Beyond the academic and professional needs of students, there is an enormous opportunity to improve student lives beyond the classroom. 83% of U.S. students feel they need to learn more about money and finances, and half are struggling with their mental health. Chegg is investing in serving these vital student needs and will continually work to support them beyond academics and skills. Given the current environment, we are very proud of how the Chegg team continues to execute. We will manage through the volatility and expect to return to higher and more predictable growth over time. Through all this, we will never lose sight of our mission to put students first around the world. With that, I will turn it over to Andy. Thanks, Dan, and good afternoon, everyone. Q1 was a solid quarter for Chegg, with revenues coming in within the guidance range while adjusted EBITDA continued to be strong and ahead of our expectations, despite the volatility from the pandemic and unfavorable education industry trends. These conditions have made forecasting more challenging in the near term, and as a result, we are reducing our full year expectations. I will walk you through our updated guidance shortly, along with the changes to required materials from our new partnership. With that backdrop, let me walk you through the Q1 results. For Q1, total revenue grew to $202 million. This was driven by Chegg Services growth of 14% to $185 million, as subscribers grew to 5.4 million during the quarter, which included approximately 600,000 subscribers from our newly acquired Busuu service. Gross margin came in slightly higher than expected as we continue to get benefits as we scale. All of this resulted in adjusted EBITDA margin of 31% or $62 million, exceeding our initial estimates, even as we made significant investments for future growth. Looking at the balance sheet, we ended the quarter with $1.6 billion of cash and investments. During the quarter, we used $422 million to purchase Busuu and $300 million for our accelerated share repurchase, which was completed in April. We continue to believe the combination of our operating model, balance sheet, and cash flows are among the strongest in the education industry and puts us in an ideal position to grow organically and should opportunities become available through acquisition. In early April, we entered into an agreement to sell our remaining textbook library and to offer both physical and digital textbooks through a partner, where we will receive a single-digit% commission. Being student first, we have continued to offer textbooks even as it stopped contributing positively to our financials. This new relationship gives us the opportunity to continue to serve students and ultimately grow faster with higher margins. We have provided details in our earnings deck on the investor relations website regarding the transition, including the impact to both revenues and costs. Starting in 2023, we expect this partnership will contribute approximately $7 million-$10 million in annual revenue, which, given its size, will be consolidated into Chegg Services revenue. As such, we will only report a single revenue line. Moving on to guidance. As we continue to navigate the evolving impacts of the economy and the pandemic, the historical patterns of our business, including seasonality and the intra-semester student behavior, have changed. While these factors have made forecasting more complicated, we believe over time it will return to greater predictability. As a result, for 2022, we now expect total revenue to be between $740 and $770 million, with Chegg Services revenue between $710 and $740 million, gross margin between 73% and 74%, and adjusted EBITDA between $220 and $235 million, or 30% adjusted EBITDA margin. For Q2, we now expect total revenue to be between $188 and $192 million, with Chegg Services revenue between $183 and $187 million, gross margin between 76% and 77% and adjusted EBITDA between $66 and $68 million. In closing, despite the turbulence in the industry, we continue to invest prudently in growth such as international expansion, university, personalization, expanding our non-academic and skills offerings, and language learning with Busuu, all while delivering best in class margins and generating significant cash flows. Along with the strength of our balance sheet, we believe this puts us in pole position when these industry headwinds subside. With that, I'll turn the call over to the operator for your questions. Thank you very much. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we poll for questions. We have our first question from the line of Doug Anmuth with J.P. Morgan. Please go ahead. Hey, it's Brian Smilek on for Doug. Thank you for taking my questions. Just two here. How do you think about business-specific levers that Chegg can pull to help fasten the pace of recovery? How does this slowdown compare to trends Chegg has seen during times of economic slowdown and inflation in the past? Just finally, is the slowdown more broad-based across U.S. and international or is it outsized domestically? Thank you. Yeah, this is Dan. There have been challenges sort of globally for different reasons. Obviously, the war has affected parts of Europe and COVID, believe it or not, has affected parts of Asia. There are different variables there. There's just a lot of variables out of the control of companies right now. From the U.S. perspective, the best thing to do inside the U.S. is to gain market share, which we believe we're doing, to grow the international business faster, which we are investing in the acceleration of our skills business. We're investing in a lot of smart things that we think will return the company to much more significant growth as early as next year. We just have to fight through the realities of all the variables that are affecting ours and other businesses. In higher education, historically, I mean, look, we haven't seen this kind of inflation in a long time. It's hard to measure it versus anything that's happened in the past. With wage inflation and people paying a lot for people to switch jobs quickly or to work more hours versus going to school, you just see a lot of that portion of higher education leave, and they will come back. They generally education goes up during recessions, and it goes down during strong economic markets. This is a temporary situation in the U.S. We just have to fight through it. We're extraordinarily proud of the fact that we still expect to grow this year on the top line. We're profitable. We produce free cash flow. Our guidance, we just thought it was prudent to adjust it by 7%. We just think that's a smarter decision at this point in time, given the fact that every time we turn around there's a new variable out of our control. The overall core business is growing. It's profitable. It produces free cash flow. We see great growth coming from outside the US in the future. The addition of Busuu we're super excited about. Our skills business is beginning to gain real traction with our partnership with Guild. We have a lot to look forward to. Just got to get through this moment in time. Thanks for taking my questions. Yep. Thank you. We have next question from the line of Jeff Silber with BMO Capital Markets. Please go ahead. Thanks so much. Forgive me. I'm just trying to get a better understanding of what's going on. If I remember correctly, on your October call, you talked about the issue of fewer students and less rigorous students. On the call in February, most of that, at least the less rigorous parts, seem to be behind you. Here we are two months later, and that's back. What's changed to make this so volatile over the past six months or so, and why do you think this i s just a transitory issue? Well, you know, nobody wants to say transitory now that we've understood the way, you know, the Fed talked about inflation. Look, what's changed is the things that we put in the prepared remarks, which is inflation has really roared at the same time that salary inflation has happened, which has taken a lot of people from the four-year schools, which people are not likely to graduate from anyway and are taking classes, and community college students to choose to shift even more aggressively towards earning right now. You really shouldn't blame them, right? It's a smart, prudent business decision for them at this moment, which is if their salaries are doubled and tripled, why not take that money and give more hours and take fewer classes or no classes? That is absolutely representative in every data point that you can find in the higher education market and the ones that we shared today as examples. You can look at all the higher education sites that students go to normally for help. We're actually gaining market share against them, but they're all down. These are sort of macro situations. What's changed is we did see a significant comeback as we got towards midterms and finals. As we said in the prepared remarks, it didn't sustain itself. Meaning when we came back from the new year, it originally started off very strong, and then you saw inflation come in. And then you saw wages even go up further, and you saw the demand of people trying to solve the supply chain issues. That's a large portion of Chegg's audience. It's not all of our audience, obviously. We're still growing. I mean, we did grow 14% in the first quarter of the year, so all is not lost. This is simply a moment in time that it's just some of the variables are out of our control and very volatile. Every industry has something, whether it's China or supply chain or some other variable. These are ours. Okay. That was really helpful. I really do appreciate that, Dan. Yeah. As my follow-up question, if I look at your subscriber numbers, so if we take out the Busuu numbers, it looks like subscribers were flat on a year-over-year basis. Can we bifurcate that between the U.S. and international? I'm assuming international is growing and the U.S. is falling. Is that correct and is that something we should expect to continue? When do you think U.S. subscriber growth will start again? Thanks. Yeah, I'll start it and let Andy finish, which is we sort of looked at it the other way, which is actually subscriber growth in Q1 is up over subscriber growth for Q4, not including Busuu. We see ourselves, rather than, at the moment, looking at the year-to-year comparisons because of both the COVID era as well as these other variables that we're talking about. What we're trying to do is figure out where that momentum returns at a significant inflection point. We're pleased that Q1 has higher subscribers than Q4. Of course, you add on Busuu, and Busuu is growing. At the moment, if you look at it year-over-year, the U.S. market is the one that declined the most because that's where the 1 million-plus students left the market. Chegg, you know, we have very good penetration, so that's, you know, hundreds and hundreds and hundreds of thousands of subscribers that we otherwise would have gotten had they been participating in higher education market. So at the moment, we're just looking at Q1 grew more than Q4, then you add on Busuu. Now, as to when we expect it, look, clearly forecasting is not something that is easy to do right now, and that's why, you know, 2 of the last 3 quarters, you know, we're having these conversations. But, you know, our expectation is given when you lap COVID and lap all these things, that 2023 will be a much better year. But I'll let Andy talk through that. No, I think you got it, Dan. To Dan's point, you know, we were somewhat north of 100,000 more subscribers in Q1 than we were in Q4. We look at that as good news. To Dan's point, I think we're, you know, I think hopefully by the time we get to 2023, there's more predictability, and, you know, and higher growth. We're just at a point in time, as Dan mentioned. Okay, great. Thanks so much. Thank you. We have next question from the line of Stephen Sheldon with William Blair. Please go ahead. Hey, thanks. Can you just talk some about the competitive environment? I guess, have you seen anything change there as you look back over the last few quarters for your core solutions? How confident are you that the slowdown you're seeing is due to industry headwinds versus either, you know, or just competitors gaining traction with higher education students? Yeah, look, we're in a unique position, which is despite all this tumult, we're still the only company in our sector that is profitable and has cash and produces free cash flow and frankly grew 14% in the first quarter. We sit at a position that allows us to see a lot of the industry in ways that others can't. We also, as you can imagine, there's lots of folks in our industry who are struggling. You can see that in a few public companies, but we get a chance to get inside the companies of a lot of private companies for reasons that you can imagine as we survey the landscape. There is no competitor that we have seen, and we have seen most of them, that is gaining any traction on us. This is not Chegg losing share. We believe actually Chegg is gaining share. The simplest statistic that you can all look at is just looking at, and it'll be on our website, the traffic site that shows what our traffic has been during this period to what others have been. You can see that the others have declined significantly more. No, I don't think it's a competitive issue. Of course, it's the first thing we check. We look at our own execution. We look at our own operations. It's a top of the funnel issue in the U.S., and it's a pricing opportunity outside the U.S., all things that we're working on. You know, we wish we weren't in this situation. We didn't cause this situation. We have to deal with this situation, and we are. Again, the company grew 14%. On top of that, we continue to produce profits and profitability and get stronger as an entity, and we'll emerge from this even stronger because we have greater resources than any of our competitors do. We have the opportunity to continue to invest in future growth like skills, like the international business. You know, again, not a place that we enjoy being, but we're gonna leverage the advantages we have, and continue to distance ourselves from our competitors, not the other way around. Great. Thank you. Yep. Thank you. We have next question from the line of Ryan MacDonald from Needham. Please go ahead. All right, thanks for taking my question. Dan, sorry to keep harping on the subscriber counts. As you look at fourth quarter to first quarter, you were up, minus Busuu, about, I think, 132,000 subscribers sequentially. As we think about domestic versus international, you showed pretty strong growth internationally. Is it safe to say that those rates kept up in first quarter over fourth quarter, and that the majority of those losses were domestically? Just curious if you can give us any more color on that sequential increase, what the moving parts were there. Yeah. Look, I think we're not gonna give out the specific numbers for obvious reasons, but what I would say is that the U.S. market is challenged more than the international market. The international markets you continue to see really strong growth. The U.S. markets are seeing headwinds as it relates to subscriber growth, but positive growth in terms of revenue and ARPU, which is something that we talked a lot about, which is the acceleration of our audiences taking Chegg Study Pack over Chegg. In the short term, we're focused on increasing the revenue and the ARPU of the U.S. market until it comes back. Outside the U.S., we're focused on growth, subscriber growth. I would look at it in all the different angles, including subscriber growth. For us, it's revenue and ARPU growth in the U.S. is our focus in the short term, while it's subscriber market share growth outside the U.S. Hopefully that clarifies. Yeah. Great. Thanks for the color there. Shifting to Busuu, obviously great to see the business sort of fully integrated now and that sort of now starting to contribute to the subscriber side of things. As you look at the, you know, the integrating those businesses from a go-to-market perspective or marketing to that existing base, are you changing thoughts at all about how you're focused on, you know, sort of increasing sort of Busuu's brand presence or awareness within the core Chegg subscriber base? Thanks. Yes. We're accelerating our efforts. Look, Busuu is a very good company, and it's growing at a very good rate. It's got a very good management team, and our vision always was to continue to invest in it outside the U.S. and continue on its growth path, which has been very strong, but bring it into the U.S. and bring it into the U.S. through our audience initially. We know that 55% of our U.S. audience wants or needs to take a language. We also know that they don't know the name of Busuu, it's like 3%. We have very aggressive ambitions for the rest of this year to get the name recognition up because, you know, everybody knows the other language companies, which are good companies, but our audience should know Busuu, and therefore should buy Busuu. Interestingly enough, when our audience is surveyed, the number one thing that they wanted was actually to speak to local language speakers, and that's the one thing that Busuu has that the other competitors don't have. We're gonna be obviously advocating for Busuu to our audience and the differentiation. We're seeing early signs of success. You know, we only closed January thirteenth. It's very early, but we bought it, we believe, for the right reasons, and we think we're gonna continue to see really good growth in that company and then profitability from that company next year. Chegg's gonna be even more profitable next year than this year, simply through the investments we're making. I'm pretty excited about that. Thanks very much. Thank you. We have next question from the line of Brent Thill with Jefferies. Please go ahead. Good afternoon. Dan, I wanna see if we could compare and contrast the fall to the spring. I think in the fall you had a late start, but it kinda came through. In the spring, did you? It's kind of, you know, midterms and finals is now settled in. Did you? I just wanna compare, if you can, and paint a picture what you've seen, what the main differences that happened, you know, spring versus fall. Well, we actually had a very good first quarter. What we're really talking about here is our outlook for the rest of the year. You know, overall, we're really pleased with the first quarter, and it was pretty close to our expectations, $2 million off maybe on the Chegg Services side, and some of that was not the subscriber businesses, some of that was the ad business and some of the other smaller pieces of it. The subscriber business actually really did well in the first quarter. It's really just the play through expectations of continuing to see muted attendance at college and muted focus on academic rigor right now. You know, we're just trying to be more prudent about the second half of the year based on new information we see, which is the whole purpose of these earnings calls, which is to share the changes we see in the market. I would say that we saw a really good end of Q4 that rolled over really strongly into Q1, which is when we gave our report in February. Now, as we look out and we add things like inflation and then wage inflation, we just think the second half of the year, we just wanna be more prudent. It's a 7% change, it's not a 25% change. It is. We think we're in the ballpark of the things that make sense at this point in time. We're preparing ourselves to you know go back to high growth or much higher growth when the market opportunity presents itself, and we'll even be more profitable as a company then. I think we're doing the right things at the right time. We just cannot change the macro condition right now in higher education. If you look what's going on with all the conversations about all the different variables in government, all these things, it's a complicated time for higher education. We're there to support the students, and the students that are in the system love us and are using us, and are using us at extraordinarily high rates, high retention, low cancel, high engagement, higher take rate for Chegg Study Pack, great renewals. I mean, all the things in our control are doing really well. We need the top of the funnel in the U.S. to come back a little bit, and it will. Outside the U.S., we're seeing great growth. I think that's maybe what investors are trying to grapple with right now. Are you seeing churn rates go higher, or are you just making the assumption that the macro is getting harder, you haven't seen it yet, and you're just implying in the guide a tougher macro, but you haven't seen it? That's what I think everyone's trying to understand. Yeah, no. Look, I understand that question. It's fair. You know, we try to approach these things with all the facts that we have on the day we need to report, and we think it's the number 2, not number 1. The core strength of what we do. Churn has not gone higher? Absolutely not. No. Absolutely not. In fact, the other way around. Absolutely not. Agree. It's gone the other way around. Retention is near record rates. The reduction of cancels is near record rates. Like I said, the things in our control are performing extraordinarily well. Once you're in the funnel, conversions, all of those things, really strong. This is a return. We need a return to the top of the funnel, not what happens in the funnel. Once students come onto Chegg, they stay on the Chegg, they stay the length of time they've been staying. Again, if you want the single best example of that, it's the take rates of Chegg Study Pack being so far ahead of what we ever imagined, that we're in a situation where that just shows the power and the importance of Chegg to the student. They actually want more of us. Just need more U.S. students in while the international business continues to grow. Does that answer it clearly? That was clear. Thanks. Okay. Thank you for asking the question that way. I appreciate it. Thank you. We have next question from the line of Josh Baer with Morgan Stanley. Please go ahead. Thanks for the question. Most of mine were already asked. Just wanted to clarify a few things that you're saying, hopefully get a little more context. On the Chegg Study Pack take rates being you know well above expectations, any context that you can provide as far as where they are today and you know where you'd expect them to go? Yeah. The take rate for Chegg Study since we launched it has doubled. We don't wanna give away the exact percentages because things can fluctuate in a given quarter. As we grow countries internationally, the overall number may change a little bit, and seems like every little number that is slightly off from what we thought affects things. It is twice what we thought it would be, and it is holding up at those rates, and it's renewing at really high rates, and it is both U.S. and international. That is why you're seeing really great increase in ARPU each quarter for Chegg Study. Okay, great. On Busuu, just wanted to check in on how it actually performed, so far, the contribution from Busuu in the quarter and what you were thinking for the year. Josh, good question. Busuu is performing exactly as we would or at least within the range of what we thought at the beginning of the year. Doing really well. As you know, their business is a combination of both B2C and B2B. The B2B is clearly growing faster, and we knew that going in. It's performing as we'd expected in Q1. Came in right in line with what we expected post the close on January thirteenth. Okay. Got it. Thank you. Thank you. We have next question from the line of Jason Celino with KeyBanc Capital Markets. Please go ahead. Great. Thanks for taking my questions. I did wanna ask about international. In the prepared remarks, you mentioned that you're currently offering localized content, user experiences in several countries. Any other details on what those countries are and maybe did those launches coincide with the start of those school years? Well, no. I mean, some of them did not coincide with the start of their school year, so, they will be more effective over time. That's an excellent point. The countries that we have local pricing in now, for example, are Canada, Australia, U.K., Turkey, Mexico, and so forth. We're testing pricing in 8 countries right now. In those countries, they're a combination of what you'd imagine, which is ones that are very focused on tech, and STEM, like Hong Kong, and really huge countries in terms of population, where we're seeing very high top of the funnel, but not really good conversion because of the pricing. Those countries include obvious places, India, Indonesia, Mexico, and places like Philippines and Malaysia, South Africa. These are places where we seem to be attracting a lot of audience, and the conversion isn't what we would want it for yet. That is for obvious reasons, which is charging U.S. prices in those countries is not gonna yield a great result. We've known that, but now we have the technological capability to change it. We have price testing in those eight countries. As an example, also in the prepared remarks, it may have been missed, which was, we have our first fully localized app, which is in Turkey. Turkey's been a really great contributor for us, and they've wanted a local app and a local language, and the next one will be in Spanish, which will be relevant in Mexico, Latin America, and believe it or not, the U.S. Those are all really exciting opportunities for us. We're investing in it now. Okay, perfect. No, that's a very helpful color. Thanks, Dan. Andy, one quick one on the EBITDA margin guidance. By kind of exiting the textbook business, I would have thought the margin would have gotten a little bit better. Is it just timing related from when related to that or I guess other investments you're making? No, it's timing. I think you'll see the full power of us getting out of textbook starting in next year. I think you'll see the overall revenue growth rates increase and the EBITDA margins increase over time. We're kind of in a transitional period right now, as you can see. In fact, if you need any more details on what's involved, I think it's slide 12 on the investor relations website for those chiming in, so you know where to find it. But yeah, it. Over time, clearly, we'll see higher margins as a result of the exit of textbooks, not the exit of textbooks, but moving to this model on textbooks. Okay. Perfect. Thank you. I also think it's just important to note that, if you remember that we said when we acquired Busuu, that Busuu was gonna lose about $18 million this year, and be approaching break-even next year. And our skills business is moving increasingly faster and faster towards profitability. Our margins will continue to improve over the next couple of years and add that to textbooks. We're really excited about that. We just have great leverage in the model. Thank you. We have next question from the line of Alex Fuhrman with Craig-Hallum Capital Group. Please go ahead. Great. Thanks very much for taking my question. You know, I wanted to ask a little bit about how inflation is impacting your business. Seems to make a lot of sense that, you know, if wages are going up, that impacts the learn versus earn equation. Not, you know, perhaps surprising that more of your students are spending more time in the workforce and not taking as many classes or perhaps not taking any classes. I'm curious if you're seeing any impact from inflation as it relates to just students' budgets and price sensitivity. Has there been any sensitivity to price? I'm curious if perhaps you've seen any of your users maybe trading back down from the Chegg Study Pack to just the regular Chegg Study membership. Weirdly enough, look, it's a very fair question. You know, we are a must-have for students that are taking their academics seriously. You would imagine that that would be a scenario, and we looked at that scenario, but frankly, it's gone the other way, which is an increasing percentage of people are taking the Chegg Study Pack, so they're actually paying $19.95 versus $14.95. Of those that are focusing on their academics this semester, they overwhelmingly, as a paid service, use Chegg. Of those that are doing it, we're seeing extraordinarily high take rates that seem to be sustaining themselves over the period of time. I think what's happening is the first part of your description is what we see, choices to take fewer classes or wait to take classes. That is seen significantly at both community colleges and online schools. There are four-year schools where students take courses but aren't on a path to graduate in four years, but they're on a path to graduate. Those are the kinds of folks that are making those choices. Within the spending, you know, I do imagine they're making other choices with their money, but they're not cutting Chegg because of that. Okay. That's really helpful. Thank you. Yep. Thank you. We have next question from the line of Brian Peterson with Raymond James. Please go ahead. Hi, this is Jessica on for Brian. I just had a quick question about the progress with University. You've been talking about how it's been doing really great with faculty. I'm just curious about how the product's been on this rollout with the student side of the two-sided market. Then also a quick follow-up, what kind of feedback have you been receiving from content creators and other early users? Thanks. Yeah, no, fair question. You're just a little bit early on the timing because we are still acquiring the content now. We've not rolled it out to the students in a full manner yet, or actually in a manner at all, except for testing. We are way ahead in terms of the amount of content that professors are offering, way ahead. So there seems to be an incredible desire for professors to support Chegg in helping students learn better through the higher quality content. From a professor standpoint, it's been phenomenal. The expectation is that we will be rolling out the user-facing later on this year. In between those periods of time, what we're doing with students is we're testing the quality of the content from a 0 to 5 scale. You know, we chose the words carefully there to say that this was the approved content from approved professors. On average, those are scoring between 4.6 and 4.7 out of 5. There seems to be real noticeable quality in the minds of the students that are part of the test groups. The actual second side of the marketplace hasn't rolled out yet. Okay. Thank you. Yep. Thank you. We have next question from the line of Arvind Ramnani with Piper Sandler. Please go ahead. Hi. Thanks for my question. You know, I just wanted to go back to a comment you made earlier that, you know, kind of, basically visibility is kind of, you know, not very good and it's difficult to kind of forecast. You know, I just wanna clarify, you know, if that's what you meant, because if it's difficult to forecast for you guys, then how do we forecast sort of sitting externally? Maybe that's not what you meant when you said it. I'm not sure what I might not understand the question. Well, let me tell you what we said. No, I mean. Maybe this will clarify. In one of the earlier Q&A sessions you said, you know, kind of basically forecasting is, you know, it's kind of difficult to forecast at these, you know, with kind of top of the funnel movement. I just wanted to kind of double-click on what do you mean by that? Like is forecasting really difficult in this just with the top of the funnel movement? Yeah. Look, inside the funnel, we are seeing near record numbers, if not record numbers for all the things that once a student is in. That's easy to forecast. What's hard to forecast is, particularly in the U.S., and then when COVID closes down places in Asia, and other things like that, it's hard to know those things. As Andy mentioned in his prepared remarks, the inter-quarter behavior of when schools start and when they offer midterms and when they're doing finals, all those variables are affected by a whole host of things that really have not affected higher education until COVID. Now we're sort of working through what those changes are. It changes a little bit of the timing of when people come in, and some quarters are coming in earlier than we thought, which is good news, and other quarters are coming in later than we thought. These are just all variables that affect our ability to forecast. You know, we wanted to give a 2022 guidance, and we did. We just wanted to put it more in line with things that we're concerned with but have yet to happen in the second half of the year. Okay. That was the question that was asked earlier, which is, are we seeing it? The answer is we're not seeing any erosion in any of the things that we can control. We're seeing really great results from those. We're just imagining the second half of the year, given every one of these variables, and then the election is coming up. There's just so many things going on that may affect the day-to-day lives of students and the choices they made that are just not in Chegg's control at the moment. That's all. Great. That's helpful. Thanks for clarifying that. Just very quickly on the free cash flow guide. I know you had provided free cash flow guide when you- Mm-hmm. When you provided guidance. How should we think of free cash flow guidance just given the revised numbers? Yeah. Well, we haven't changed our free cash flow guide, and we've said for many years, quite frankly, it's in that 50%-60% range. We were a little higher than that last year for a variety of reasons. Yeah, we would expect to be in that range. Okay. Terrific. Thank you. Thank you. We have next question from the line of Alexander Paris with Barrington Research. Please go ahead. Hi, guys. Thanks for taking my question. Most have been asked and answered, but I'm looking at slide 12 for the required materials transition. Just so I understand it, and then looking at the guidance and the implied guidance. Required materials produce revenue of a little over $17 million in the first quarter. Looks like midpoint of guidance suggests $5 million in the second quarter and less than $8 million in the second half, so a total of $30 million for the full year. BNED has taken over text-print textbook first, but e-textbook not till later this year. What is the $5 million in revenue? Is that single digit commission percentage in the second quarter? Well, it's a couple of things, and it is a little crazy or wackadoodle, as I will call it, with respect to required materials this year. It's a combination of things. We still have some of the deferred revenue from the e-textbooks that rolled through into Q2. We do get a small amount of commission because as you know, Alex, textbooks aren't very large in Q2. Then as we roll into the second half of the year, actually, all of our physical textbooks are now on that percentage. Then towards the end, latter part of the year, the e-textbooks will. It is a little, like I said, it's a little wackadoodle. Once we get through to 2023, we expect it to be—it'll be 100% that way, and it'll be in that, call it $7-$10 million range, depending upon the, you know, the volumes of textbooks. All right. My follow-up would be for the full year $30 million in revenue. Yeah. Down from the previous implied guidance of $60 million, but the transition is here. Next year, $7-10 million of high-margin revenue as a result of the transition. Yeah, it's very high margin. I mean, if you go to this once again to the Slide 10, it's a very different construct from when we had the last commission business with Ingram, right? We were doing a ton more things during that. We were, you know, setting the catalog. We're doing the pricing. We're doing the marketing. We are doing the customer support. We're doing none of that this time, right? That's all being done by our partners. It's really kind of like an affiliate fee. Yeah. High margin. High growth margin to your point. Yeah. From a model perspective, we wanna offer textbook rentals to students because had Chegg not invented it, publishers would still be taking advantage of students in a very significant way. 25% of tuition when we first started was the cost of textbooks, which is ridiculous and unfair. We invented that model, and we said way back then that we were gonna convert the company from a textbook rental company to a pure digital company being a series of support services for students on a global basis, and that's what we've done. You know, as we think back through this, when we went public eight years ago, we had about $20 million in digital revenue. Now we're talking about three-quarters of a billion dollars in these businesses over the last eight years. We're very excited about what we're doing. The textbook business, we wanna continue to make it available to students as a service to them, not as something that represents any real value to us as a company anymore in terms of either revenue or profits. It will be higher margin business and none of the issues that we had to deal with in the past. This is sort of our exit strategy from a business that has been declining for the last couple of years. Once it's done, it becomes a fixed number, small percentage of our overall revenue. Our growth rates go higher, and we're excited about entering that next phase. Great. Well, thank you both. I appreciate that additional color. Yeah. Thanks for the question. Thank you. Ladies and gentlemen, we have reached the end of the question and answer session, and I'd like to turn the call back to Dan Rosensweig, Chairman and CEO, for closing remarks. Over to you, sir. Thanks, everybody. It's been a complicated year for people to run companies, for you guys to forecast companies. We appreciate how hard you've been working along with us to figure these things out. The good news about Chegg is the upside is still quite significant. The international growth, the skills growth, the movement from Chegg Study to Chegg Study Pack, an increase in ARPU, that we have a lot of growth vectors ahead of us. This is gonna be a difficult transition year versus, you know, what we'd all would have hoped. The good news is our adjustment is simply the macro conditions, not anything that we're seeing at the moment. It's only a small change in the guidance, and it's us just trying to be prudent with what we see and what we feel going on in the current market. The future at Chegg is gonna be huge, and we're excited, and we just appreciate you all joining us. Thank you. Oh, I wanna congratulate Andy, who became a grandfather this morning. One more future Chegg customer to put into the subscriber base. Thanks, everybody. Talk to you soon. Thank you very much. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.