Ladies and gentlemen, greetings, and welcome to the Chegg, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tracey Ford, Vice President of Investor Relations. Thank you. Please go ahead.

Good afternoon. Thank you for joining Chegg's Third Quarter 2025 Conference Call. On today's call are Dan Rosensweig, President and CEO; and David Longo, 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 for the year ended December 31, 2024, filed with the Securities and Exchange Commission on February 24, 2025, 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 and on the investor slide deck found 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, Tracey. Hello, and thank you, everyone, for joining Chegg's Third Quarter 2025 Earnings Call. Despite our current challenges, I'm honored to return as the CEO and Executive Chairman of Chegg. The Board and I believe the company is undervalued and see a significant opportunity to rebuild and reinvent Chegg and return it to a growing company with strong adjusted EBITDA margins and cash flow. We split the company into 2 units: Our growth business, Chegg Skilling, which we expect to have sustainable double-digit growth and our legacy academic services, which will focus on generating cash. This new structure gives us the cash and the assets we need to rebuild, and I firmly believe we will create significant long-term value for our shareholders. It's clear that the rise of AI and the subsequent negative impact on traditional sources of traffic have disrupted almost every direct-to-consumer industry. We are dealing with these realities head on. Two weeks ago, we took decisive action restructuring the company to enable our academic services to operate more efficiently and generate significantly more cash flow while repositioning Chegg Skilling to become a larger, more profitable B2B SaaS business. This was hard because of the impact on a large number of employees, but it was necessary and a positive decision for the future of Chegg. Our clarity of purpose and lower cost structure is energizing and gives us the ability to invest in our skilling business, which is experiencing tailwinds and already generating double-digit growth. We're now in the right categories with the right business model and are beginning to see momentum from our efforts. The impact of AI has resulted in a large number of companies needing to reskill their employees, especially around AI. The skilling market is already large, more than $40 billion today…

Thank you, Dan, and good afternoon. Today, I will be presenting our financial performance for the third quarter of 2025, along with the company's outlook for the fourth quarter. We delivered a good third quarter, surpassing our revenue expectations and outperforming our adjusted EBITDA guidance by $5 million as a direct result of our cost cutting and restructurings. With our strategic shift toward the large and growing skilling market, we are now well positioned to enter the next phase of our growth. In the third quarter, total revenue was $78 million, a decrease of 42% year-over-year. Reduced traffic impacted our business in 2 key ways: First, it led to fewer subscribers and less subscription revenue; and second, within our skills and other, it led to fewer sessions, which significantly reduced advertising revenue. As Dan mentioned earlier, going forward, we will break out our skilling business, which only includes Busuu and Chegg Skills so you can track our progress. Moving on to expenses. Non-GAAP operating expenses were $49 million in the quarter, a reduction of approximately $41 million or 46% year-over-year, driven by the execution of our restructurings. Our third quarter adjusted EBITDA was $13 million, representing a margin of 17%. To position ourselves for future growth, we overhauled our cost structure to be more efficient and allow us to invest in future growth. To put this in context, in 2024, our total non-GAAP expenses were $536 million and we are on track to reduce them to under $250 million by 2026. Our investments in AI have enabled us to continue to reduce our CapEx, which was $6 million in Q3, down 63% year-over-year. We anticipate full year 2025 CapEx of approximately $27 million with a targeted further reduction of approximately 60% in 2026, while still delivering a high-quality experience that…

[Operator Instructions] Our first question comes from the line of Eric Sheridan with Goldman Sachs.

Maybe 2 quick ones, if I could. In terms of skilling, can you talk through a little bit of what you see as the strategic product priorities to execute on the skilling side to capture the market opportunity? And across the legacy business and skilling, how should we think about the mix of resource allocation across those efforts looking forward?

I was on mute. So I apologize for that because I haven't been on the call for a while. So I appreciate the question. And very simply, all of our growth resources are going to go into the skilling business. So we -- when we made the decision to restructure the company, so this is not a layoff. This is a complete restructure. We essentially put the company into 2 businesses or 2 units. One is the legacy business, which historically had been the majority of the company, and that was Chegg Study. Given the realities of AI and given the realities of the Google traffic situation, we've turned our attention to the bigger and growing market and more sustainable market for us, which is the skilling market, which is made up of B2B now versus B2C. When we originally had the businesses, they were B2C. So we've made that transformation. And they're growing, as you saw, released as we said, about 14% year-over-year in Q4. That's our expectation. So we're excited about the fact that they're already growing. Those businesses are going to focus on frontline workers, which is the deal that we already have with Guild. They're going to focus on language learning, which is what Busuu traditionally has done. Believe it or not, even though AI is going to affect translation and instant translation and those things, corporations still want their people to learn how to actually speak the languages. And so we are seeing really great progress in our B2B side of the Busuu business. And then job-related skills mostly around AI today, which are extraordinarily popular. So our resources -- we have the necessary resources because we have the necessary cash now by removing almost 400 people from the company. And our expectation is that our capital investments will be used to grow the growth businesses and come at the expense of what traditionally was Chegg.

Our next question comes from Devin Au with KeyBanc Capital.

Just first one, just a follow-up from the last set of questions. On the legacy academic business, what kind of support or like services are you going to continue providing for that unit? And I have a follow-up.

Yes. So that business, it's very interesting because as we invested early in AI because of what we saw the situation was becoming and also because the technology allows us to do things more efficiently. We built an incredible service, which we believe is the #1 service. The issue for us is that our Google traffic dropped by 50%. And so we weren't seeing the necessary traffic to come in. And as you know, we've launched a lawsuit against them for that. But the quality of the product is unquestioned. So believe it or not, 90% of all the questions that we get are already in Chegg's database. So we're able to make this transition on the resources and still have the quality product that we had before. So we're actually fine in that context. So we expect that business to generate cash for hopefully several years. Most companies -- most businesses have tails longer than we expect. I mean I just -- I marveled at the fact that AOL just sold for $1.4 billion to Bending Spoons based on its historical model and no one's heard of it in 10 years. So our desire is to run that business as long as we can. We have the necessary resources on it. But the resources are mostly the database, the technology and the network that we built over the years. We still have over 130 million questions that are already in the database. So it's really in a good position to generate cash, but our expectation is of future growth, they just -- we cannot compete with the situation that Google has caused and the fact that OpenAI is what it is. So we put the business into a bigger $40 billion growing market and transition that business over the last 2 years from what was historically a B2C business or a D2C business, I should say, to now almost exclusively B2B, which is a better business, a more stable business, more secure business, less likely to be impacted negatively by the trends in the market. And already seeing some success on that by being able to acknowledge that we're going to grow more than double digits in the quarter and then expectedly for next year. So things -- this has been a long process. It's been a painful process. It's affected a lot of people negatively. It's obviously affected our shareholders. But we finally feel like we've hit the bottom because we have a business that's growing that is $70 million. Our expectation is for 2025, and we expect it to grow double digits next year, and we're rebuilding the company with those resources.

Understood. I appreciate the context there, Dan. Maybe just a quick follow-up. I know you touched on this a little bit. It seems like the Busuu business, the B2B side is doing well. Maybe if you could just kind of give us a little bit more color on the initiatives you're looking to make, some of the near-term product road map or milestones you're looking to reach in that business and kind of what's giving you the confidence that you can grow that business sustainably double digit?

Yes. It's a great question. And part of the reason I was willing to come back is because I feel confident in that. So Busuu, for those who just haven't had a chance to know much about the business, is predominantly in Europe. And we'll also be moving into Latin America. So one of the initiatives will be Latin America as an example. The big initiative over the last 2 years was repackaging our learning mechanisms, not for the D2C, but for the B2B, what do businesses want. And then, of course, leveraging AI. But in our case, the #1 thing that people want is conversation. They want a conversational way to be able to learn the language and discuss it and be gated on it. AI actually, with voice, it's scary, but it gives us a heck of a chance to be able to do that. So what we'll be looking at is a number of businesses that sign up, number of seats that we have, but engagement with those that choose to use it inside the companies because the more they engage, the more seats we'll have at those companies. So it won't be -- the things we'll be looking at over the next year, 2 years, 3 years will not be surprising. It will be the number of businesses that we sign up, the number of seats in those businesses, the retention that we have within those businesses, and that gives us the confidence to keep moving forward. So Busuu has been around for 15 years. This is a very significant change for it. It started originally trying to compete in a world of Duolingo. And we made the decision that, that was not a market that we should compete in, and we went B2B, and it's actually now working in our favor. It's exciting. But the milestones on the product will be how does AI help you develop the language skills better your pronunciation better, feel like that you're actually working with a human being on the other side. Those are the things that people seem to use when they learn best when they need to learn the language as opposed to just want to get a couple of phrases.

Our next question comes from the line of Ryan MacDonald with Needham & Company.

Dan, welcome back. Maybe on the skilling business, can you talk about -- you mentioned Guild already is obviously that's been a good channel for that business as you look to grow it. Can you talk about other sort of investments or other potential channels you're kind of looking at or evaluating as you sort of build the go-to-market motion here? And how much do you think is going to be sort of direct sales versus sort of additional channels? And where does sort of internal sales capacity stand at right now for those initiatives?

Yes, a great question, and it's early on in that question. So here's where we are in our current thinking, which is we launched through Guild, and that has been incredibly successful, and we're grateful for that partnership. But obviously, nobody wants to be dependent on a singular channel. And so we are working very hard to be able to offer noncompetitive products to Guild in other channels. And I think as you track that part of the business, you'll probably hear over the course of the year, new partnerships. So think of it as all new distribution channels where they have the customer, we have the content and there are marketplaces for that and there are channels for that. And those channels are in the U.S. and they're in Europe. So we think that's where we're starting, which is what we know, which is how to put great content in places where people want that content. The second thing is we are building slowly a B2B sales force. And that B2B sales force is focusing on opening more of those channels. But also one of the unfortunate realities of Chegg's existence was universities did not historically want to work with Chegg because of Chegg. Now that, that part of the business is going away, there's a lot of people who understand the quality of our content, the quality of the way we execute, the value that it has for the students. And so we will be building new channels eventually direct to institutions. It's just going to start slow. So I don't want you to think in '26, we're going to announce a lot of universities because we're not. We are going to start with the other distribution channels similar to Guild that already have built-in audiences inside of corporations. But we have been contacted by a number of universities who now -- who know the quality of our work. If you actually look at the success that we've had inside of Guild, I think we have amongst the highest retention rate and completion rate. And those things are examples of just how good our quality is. So those are the things that we are working on, but we're going to take it slow because we want to grow the business at double-digit growth. We want the businesses to become profitable. We want them to have sustainable growth. And we have a road map over the course of '26 that we're really excited about by adding more content, adding more channels and starting with new partnerships.

Helpful there. And then maybe just as a follow-up. So I think you mentioned -- I think it was in David's sort of prepared remarks that you saw a little bit slower than -- or lower-than-expected advertising revenue within the sort of Skills and Other segment as a result of the reduced traffic. I guess, how should we think about how much of a headwind traffic can be in the skilling business moving forward? And maybe some of the initiatives you're undertaking to whether it's investing in new marketing channels to sort of drive that top of the funnel in the business to sort of offset some of the declines from just core Google, if you will?

Yes. So actually, it's a really great question, and I'm glad you asked it because we should clarify this absolutely, which is Skilling and other, it's not that we're removing the other from Skilling. So the other were things like advertising. And those ads didn't appear in the Skills. Those ads appeared in Chegg Study, they appeared in Chegg Math and Chegg Writing. And that's where the traffic has declined, and that's where the ad sessions have gone away. You will see no headwinds in skilling other than things that we don't expect or might pop up. But those businesses are about growth now. So -- and those businesses -- the headwind that they have faced is over the last couple of years is a lack of investment because of what we were dealing with on the core side of the business. And it's not easy to reposition a business at all ever, but in the public markets, it's even more difficult. And so we've had to balance our debt, our cash, our initiatives and reposition those businesses to B2B, and we now feel like they're in a position to do that, and we're actually pretty excited about it.

Ladies and gentlemen, at this time, there are no further questions. The conference of Chegg, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines. Thank you.

Thanks, everybody.