Chegg, Inc. (CHGG) Earnings Call Transcript & Summary

Good morning. My name is Jeff Silber. I'm the education analyst with BMO Capital Markets. And I'm thrilled to be hosting this fireside chat with the management of Chegg. CHGG is the ticker. We're joined by Andy Brown, who's the CFO of the company; and Tracey Ford, who heads Investor Relations. And I'd like to thank you both for joining me today. Before we start, just some logistics. I've got a set of preprepared questions to go through. We also want to take questions from the audience. You can either submit them 2 ways. You'll see on the screen the instructions how to submit them on the chat. Or you can send me an e-mail at jeff, J-E-F-F, .silber, S an in Sam, I-L, B as in boy, E-R, [email protected]. I'd be happy to ask those on your behalf.

So let's start off maybe with just a big picture introductory question. Hopefully, most of the folks on the call are familiar with the company. But for those that are not, Andy, if you can just give us a little bit of a brief overview of what Chegg is all about.

Yes. So that could last a long time, but I'll try and keep it short. Good morning, good afternoon, everybody, wherever you are in the world. It's morning here in California. Yes. So Jeff, you've been around the company a long time since before the IPO. And we started -- we -- I look at the company in 2 ways: we had the original founders; and then we had the refounders. The original founders, the premise was, textbooks were expensive, can we create a Netflix-type rental -- Netflix, when Netflix was doing DVDs, I might add, rental model and make it affordable. And so instead of spending $200 on a textbook, can I rent one for $50? That was the original premise, real simple premise. And the original founders created a platform and the start of a brand that way. But if you're investing in Chegg today, you're really investing in what I call the refounding of Chegg. And that happened when our current CEO, Dan Rosensweig, came on board about 10.5 years ago now. And Dan's vision was to take the original concept of Chegg to make education affordable but to basically make it all online, on demand and then obviously affordable and create a platform that could deliver almost any educational service that way and then direct to the student. Now at the time, we didn't know whether or not we'd be going direct to the student or we go B2B. And if you go back in our history, we had some B2B offerings even as far -- just 6 or 7 years ago when we went IPO with our admissions business. But what we have evolved into is a platform that is, once again, it's online, on demand and affordable but direct to the student. And so that's what we are. And so when you think about that, we've got several offerings that we offer to students today, ranging from $9.99 for a subscription all the way up to $19.99 per subscription, which is the bundle. I think that's something you may ask about later. But the flagship product that we have today is called Chegg Study. And Chegg Study on U.S.-based college campuses has basically become ubiquitous. Some kids pay for the subscription, and some don't. That's another discussion point probably. But we had 4 million subscribers last year. We had almost 4 million subscribers just in the last quarter, 3.7 million. And so we've essentially developed an online platform. We've developed a very, very large brand in the mind of students. And whether it's Chegg Study, whether it's Chegg Writing, which is our writing tools product, whether it's Chegg Math, whether it's Mathway, we've got a suite of online, affordable, on-demand subscriptions that our students can take. And if I could add one other thing. And it's now increasingly, over the last 18 months, becoming not just U.S.-based. We've expanded internationally, which has had a significant impact on the size of our TAM and the runway that we have ahead of us.

All right. Great. Andy, I think you got all my talking points out in 5 minutes, so we'll try to elongate this a little bit more. I hate to call any company a winner during this crisis, but if it can be applied to any company, it can certainly be applied to yours. What has changed over the past 6 months or so to drive such accelerated growth?

Yes. It's one of those things that it's been a terrible 6 months or so for the company and for the world, not just the country. Millions of people are out of work, and it's just changed the way people do a lot of things. And what we've seen in our business is that it's -- what we -- we've often talked in the past about the inevitable. And the inevitable is that more and more educational services are going to be online and on demand and more affordable, just what I said earlier. And what we saw at the onset of the COVID pandemic, and that's really started in the middle of March, kind of middle third and fourth week of March, as kids were sent home from school, we saw an acceleration of paid subscriptions. And I'm going to use the word paid subscriptions because we believe the acceleration is one of -- is really a couple of things particularly in the U.S. The first thing is the obvious thing that most people would realize. And that is if you're not on-campus and you use on-campus help like writing labs or the TAs or the math labs and all of those types of things and they're not available on-campus, the first place you go to is online to take a look at -- find online solutions. And Chegg becomes typically the #1 and #2 online search. And that's how -- so they've had to go there. So that's accelerated them going online for their help. The second one, and I'm certain you're going to ask about this, is -- because we talked about it a lot, and that is we believe as kids went off-campus, the ability to share their subscription diminished. And we've known that we've had account-sharing issues for many years. And what we believe going off-campus revealed to us was that inability to do what we call proximity sharing, right? If you're on-campus, you say, "Oh, can I use your Chegg subscription for 1 hour or 2?" Things like that, and you give the password away and so forth. And we believe that, that was one of the other things that allowed us to accelerate our new customer acquisitions. And what it's also done for us, truth be told, is it's also accelerated developing an actual technical solution around account sharing, right? Just so everybody is aware, up until last week, if you got a subscription to Chegg, you could access it as many devices as you want. It could be -- most people have 2 devices, but we had subscriptions where we have 10 or 15 devices accessing the subscription in a week or a month. And we have no technical solution to solve for that. We could do -- we did a lot of manual things like we'd have them reset their password, so it made it more difficult and things like that. But up until last week, when we actually started to roll out our device management technology into our subscriptions, we didn't have that. And what -- as a result of COVID and the acceleration of subscriptions that we saw, we did accelerate our development of that device management technology that we would have brought out into our subscriptions in 2021, we accelerated into this year. And like I said, last week is when we started to roll that out to Chegg Study subscribers specifically.

Okay. That's actually really helpful. Why don't we drill down a bit into the different services within Chegg Services? And you mentioned Chegg Study, so we'll start with that one. We've seen a number of competitors raise funds trying to replicate the kind of success that you guys have had within that product line. Can you tell us a little bit more about this product line and what does make it unique?

Well Chegg Study, and it really is the flagship service that we have, it's the service that we've had the longest. I equate Chegg Study a lot to like Amazon Prime. And if you recall when Amazon Prime came out, it was a very simple service. It really did one thing, right? It was 2-day shipping. And at the time, that was just great because you could order something online, get it in 2 days, very quickly. And if you think about Amazon Prime today, it's much more than 2-day shipping, right? It's 2-day shipping, you've got Amazon Music, Amazon -- you've got the Prime Video, you've got the Prime Shopping, all of those things. So when you think about Chegg Study, think about it kind of like Amazon Prime. When Chegg Study first came out, it was just -- it was textbook solutions, right? We offered the ability to get step-by-step solutions for problems that are in the back of the textbook. And when we introduced it originally, it was like only like 600 of the most popular textbooks. Today, it's over 35,000 for the most popular textbooks. And why was that important to students? It was important to students because what they wanted to do is understand the concept, right? You would read the chapter. And at the end of every chapter, there were a problem set to see if you understood the concepts of the chapter. And we provided that step-by-step solution, not just the answer, because if you wanted the answer, just Google it, you can get it for free. That's -- but that doesn't help you understand the concept. And that's how Chegg Study started out, and we charged $14.95 for the subscription. So when you kind of fast forward to what is Chegg Study today, Chegg Study is much more than that. So Chegg Study 5 years ago, we introduced Expert Q&A. So if you had a question that was not related to the textbook or not even related to the subject matter you subscribed to Chegg Study for, you can ask a question, and you'll get an expert answer in less than 4 hours. And often, it's within an hour. And often, it's almost immediate because now we've got over 40 million questions asked and archived and answered, all of that stuff onto our platform. So that was 5 years ago. Well 2 years ago now, and if you keep remembering, it's been a while. 2 years ago, we started to introduce videos. And the concept behind videos, and we've got over 30,000 videos on our platform today, is recognizing that not everybody learns the same way, right? Some people can read a textbook and learn it right away, and that's the way they learn. And then there's other people that are more visual. So the -- as far as understanding or -- and so we started introducing video learning. And more recently, one of the things we've started to introduce onto our platform, for example, is practice tests and assessments because kids always would like to do -- see where they are within their course work and do practice tests so they can practice in advance of the test. So what we've done is we've evolved Chegg Study. Now we haven't changed the price, it's still $14.95, but we've added more and more and more capability to Chegg Study. And you would expect us to do that over time. So that's Chegg Study.

Yes, go ahead. You're probably -- you're segueing into my next question.

So let me go through...

I wanted to talk -- go ahead.

Okay. So let me go through the other 2 key subscriptions. One is -- the next one is -- and I'm doing these in the size -- in the order of size, both from a subscriber and a revenue standpoint, Chegg Writing. Chegg Writing is simple. You upload your paper onto our platform. We provide citations and bibliography for free. But if you -- and because we read the paper, and -- but it also reads if there's any grammar issues, sentence structure issue, plagiarism issues. And if you want help with those things, then you can upgrade to a subscription for $9.95. We have about 30 million students on that platform. Most of them are free because they just want citations and the bibliographies. And then we've got several hundred thousand that upgrade to the premium product. And the second -- and the third subscription, this will kind of get me to the fourth thing, which is the bundle, is our math subscription. And once again, $19.95 (sic) [ $9.95 ], it's a math -- it's an equation solver effectively. We doubled down on math just about a month ago when we bought a company called Mathway, and that's priced similarly at $9.95 a month. But that -- once again, that's a -- and so what you've got today, the core subscriptions for Chegg are Chegg Study, Chegg Math and Chegg -- Chegg Writing and Chegg Math. And then what we also offer is what we call Chegg Study Pack, which is bundling them all together. So we bundle all of those together, which is about a $35 value, and offer what we call Chegg Study Pack for $19.95, and that was introduced in January of this year. So that's kind of the suite of products that we have. And we still -- by the way, we still have the legacy textbooks. But the core of our company are those 3 products plus the Chegg Study bundle, which is the Chegg Study Pack.

That is great. So let's continue on Chegg Study Pack. You mentioned you started rolling it out earlier this year. How has that roll out been going? What are the future plans here? And what impact do you think that will have on your financials?

Yes. So Chegg Study Pack started to roll out to new subscribers only in January, so fairly limited rollout as it were. We'll see a more significant impact from Chegg Study this fall, basically starting right now, because you get many, many more new subscribers and re-subscribers in the fall than you do in the spring. But as far as Chegg Study -- the Chegg Study Pack, or I'll call it the bundle or the premium version of Chegg Study, we believe that over time, it will evolve, right? I mean the version we have today is you get 2 options: you got a $14.95 option; you get a $19.95 option. It's more likely than not we'll start testing other options and features over time, could be as early as the second half of this year but certainly into 2021, where we may offer a different form of the bundle, right? You can imagine having a $19.95 -- a $14.95 option, which is the base case Chegg Study, and the $19.95 like we have today, and then an even more premium bundle, whether it be $29.95, whatever the number happens to be. But we do anticipate that there will be multiple bundles, multiple different types of bundling offerings over time. And our belief is that over time -- and once again, it's not necessarily all immediate. But over time, the goal here is to see an increase in our ARPU without actually increasing prices, right? We always -- we used to get the question why don't you increase the price of Chegg Study. Well our increase of price of Chegg Study is really going to the -- it's going to premium offerings versus we're still keeping the base case Chegg Study affordable.

You had mentioned earlier on about expanding internationally. And I know you've gotten some momentum recently. I know there's not "one international market." Can you talk about where you're focused outside the United States, what's been happening today and what your plans are for the future?

Well truth be told, it's changed since the beginning of the year. We started focusing on international last year, and we talked about the English-speaking countries, right, Canada, U.K., Australia. But what COVID has revealed to us is that there is significant demand beyond those countries and into non-English-speaking countries. And so what it has done for us is accelerated some of our spending, some of our developments, some of our content, the way we view content. We've accelerated some of those investments as a result of what it has revealed to us. So there are -- Tracey and I, about a month ago, in advance of the earnings call, we sat down with our international -- the lady that leads our international efforts. And it was stunning to me the types of volumes of subscribers we're getting in countries like Turkey, South Korea. And so it's become much more expansive, and it's revealed itself to us that it's a market that's available to us much sooner than we thought it was going to be. And as a result, we're leaning into that by increasing our investments and taking advantage of what's available to us.

So just to clarify, you mentioned Turkey. Are these folks in Turkey going to school in the U.S. or going online? Or are these folks learning at their local campuses?

Yes. These are local -- that's the cool thing, right? So yes, it wouldn't be additive if they were staying home and learning on a U.S. campus. And we know about 10% of all students in the U.S. campuses are international. No, these are students that are learning in their own country, right? They're going to English learning schools, and there's a lot of them outside the U.S. And so that's the thing that's encouraging to us, is it's not those kids that are -- that would have come to U.S. campuses that are learning online from their local country, it's kids that are on-campus in their own country that are -- and you know, Jeff, it's real simple. If you don't have availability of services on-campus, whether or not you're in the U.S. or whether or not you're in Turkey, you're just going to go online, right? And there's not a lot of online education services that go direct to the student. And when you think about Chegg, to a great extent, we're fairly unique that we go direct to the student. We created a large brand. There's not a lot of them out there. Most educational services -- not all, but most educational services actually go through the institution. We're one of the few. I mean there's others out there like a Quizlet, Course Hero and some of those -- some other companies. But the vast majority of ed tech companies actually go through the institution, not direct to the student. And so as students go off-campus and go to the Internet, and they need to get that help, they're finding Chegg, whether or not they're in the U.S., Canada, Turkey, Arab Emirates. So yes, so we've definitely seen an acceleration outside of what we -- where we were making our initial investment, which is that English-speaking countries.

And before we go off international, have you sized how large that component is of your current subscriber base?

Well we have, but we haven't disclosed this. So we know.

I know you know.

We definitely know. We know it by country. We have -- we're driven by data at our country -- company. And so like I said, Tracey and I sat down, and it's not just like this is international, it's country by country. But at some point, I mean, at some point, international is going to become big enough where we're likely to start disclosing some of the impact -- once it becomes over 10% of our corporate net revenues, we have to disclose it per the SEC. But that's something that I think at some point, we're likely to be disclosing just how big and how fast international is, in fact, growing for us.

That would be great to see. All right. You talked earlier about the password-sharing issue, what you've been doing to try to mitigate that. But again, I know you know this, but can you tell us or give us some indication how large is that market? How many students do you think are actually accessing your services without paying for it?

So the answer on this one is we don't know precisely. I will tell you that. We don't know precisely. There's been several surveys that are being done out there by certain analysts. But it's -- I will call -- we use the term inside our company, is it big enough to matter? It's big enough to matter. We think -- we believe it's not hundreds of thousands of students. It's probably millions. So we -- I always like to say we had 4 million students -- 4 million subscribers last year. We may have had 6 million or 7 million or 8 million. I don't know -- we don't know the precise number of students that actually used our subscriptions. And so our goal is to rein that in. We've known about it for years. We -- and 4 or 5 years ago, we knew about it back then. But part of what we wanted to do back then was to make sure Chegg Study became ubiquitous on campus. And so there's always that trade-off, right? But starting last year, we started to really pay attention to it. We -- up until really last week when we did the device management technology into the subscription, we kind of, for the last 1.5 years or maybe 12 months or so, have done kind of a manual thing where we saw people that we thought were abusing it. They had -- they accessed -- I'll give you an example where a subscription had 5 different devices [ accessing ] from 3 different countries. You kind of go, probably -- and so what we would do is we'd ask for a manual reset. We just push out a manual reset and hope that they didn't push it out and sell it to those others again. But yes, it's millions. We do have a technical solution that we started to roll out last Monday, the 17th, and should get completely rolled out later in the quarter.

Okay. That's great. Why don't we move on to Thinkful. This was an acquisition you made a little less than a year ago, if I remember, entering the boot camp market. I know the stock market was not that enamored. Initially, your stock went down, but obviously, it's been a great acquisition for you, especially post-COVID. Just stepping back, why this area, why this company, and what do you expect in the future from what you're calling the skills component of your services?

Well it's become clear to us over time -- over many years that what employers are looking for is specific skills. And truth be told, I think the traditional educational routes will become less relevant because what -- like I said, what employers are looking for are specific skills. And so it's a market that we've been tracking for several years. The players in the market, there's a lot of kind of off-line players. I call them off-line players, the General Assemblies of the world, and there's a whole bunch. But we had decided we wanted to get into this market. It wasn't 100% clear how we would do it. Thinkful became available, what was attractive to us, and we've been tracking Thinkful for some time. What's attractive to Thinkful for us that it -- that once again, a lot of the skills-based, the larger ones today are primarily either they're really B2B. And so what attracted us to Thinkful was it was much more like Chegg, which was B2C, and it was all online. Like for example, General Assembly isn't an online. It's -- they have physical campuses. And so once again, we are looking for online direct to student, and Thinkful became -- was that. And we thought the way they -- the content they have, the way they taught the class and the way they just ran their business. Because it wasn't just about teaching the skill with Thinkful, and it was about teaching the skill in a specific kind of region and then being connected to employees in the region and making sure those kids or at least a significant number of those kids get employed within 6 months of graduation. And if you look at Thinkful, I think the statistic, at the time, it's kind of mid-80s, 83%, 85% of the kids, within 6 months, get a job within the discipline that they got trained for. And if you look at any other boot camp out there, 85% is off the charts. I mean, I'll just tell you, it's off the charts. And so we wanted to go direct to the student. We wanted to show significant success. And so that was why we chose Thinkful. And truth be told, we thought that once we acquired the company, understood what was happening, the data analytics behind it, we thought there was a great opportunity to reduce the cost and, therefore, reduce the price to the students. And that's one of the things that we talked about a couple of earnings calls ago about reducing the price, and we did that in June for the self-paced classes, and so by -- if you added the subscriptions, it's about -- by about 50%. So we believe that more and more education is going to be skills-based, and this is our first foray into that.

All right. That makes a lot of sense. So we've talked about a lot of the different components of Chegg. Can we put this all together? What is the total addressable market for this company right now? And what kind of share do you think you have of that?

Yes. So I break it up into 2, right? I think you've got the skills-based market, which, right now, is still evolving pretty rapidly, and that's a multi-trillion-dollar market. When you look at the academic space, we believe that right now, there's something slightly north of 100 million students that are applicable to the services that we offer in the academic side. Last year, we had 4 million. So I'd say there's a lot of runway of that, and that's globally. What I do think you'll see as more -- and you've seen this on pretty much every industry that has been disrupted by technology. The actual dollar TAM goes down, right, because things become more affordable. And so it's easy to say, well, the education market is a $5 trillion, a $10 trillion market. But as things move more online, that's actually going to shrink, right, because things become more affordable. And so we look at it more as to how many students are -- what's the addressable market of students. And like I said, we know it's north of $100 million. We believe we're just in the early innings of capturing a portion of that demand. Like I said, we had 4 million students last year. As you know, we had 3.7 million just in Q3. So we've got -- we actually believe we have a lot of runway both in the U.S., quite frankly, and international.

Okay. Great. We've got a lot of questions coming in from the chat. I'm going to ask one more before I turn it over to the audience. Again, just stepping back with all this, what do you see as the long-term growth rates for the company? And what are your long-term margin goals?

Okay. So I figured you'd ask that question. So we haven't gone beyond 2020. I'll leave it at that. And -- but it's important to understand the reason why. And like I said, you've been around us a while, and you know we put out some -- shortly after the IPO, we put out some revenue growth, gross margin targets and EBITDA margin targets that we wanted to achieve by 2016, if you recall. And that -- and it was important for us to do that, so investors knew what we could expect. And so when I look beyond where we are today, what would a steady-state EBITDA margin look like? I don't know what steady state is yet. I don't know when we get to steady state. What I do know, however, is that the leverage that we've seen over the last several years on -- particularly on our EBITDA margin because that's really the core, right? I mean gross margins may vary plus or minus. But it's the EBITDA margins that we've grown from that 25% to over 30%, I believe there's more growth in those -- in that margin. Does it hit 40%? Does it hit -- don't know what steady state looks like yet. We're a long way from being steady state. But what we do know, given the dynamics of our incremental margins on our subscriptions, which you know are high, we do believe that we see continued EBITDA margin growth now for the foreseeable future, for sure.

Okay. That's great. Let me turn it back to the audience here. And we got a bunch of questions. I'm going to try to combine some of them to make it a little bit more efficient. So we've got a few questions on the Study Pack.

Yes.

Can you ask about what trends they are seeing post the introduction in terms of churn, engagement, underlying ARPU trends, et cetera?

Yes. So what we've seen on the Study Pack is simply this. We went through 18 months of testing, and we figured, okay, we know exactly what the take rate. So we look at the take rate and the renewal rates. Churn's the opposite side of that. But the take rate on the bundle is being better than we thought. We test -- and it's -- and actually much better than we thought, I think, is the best way of putting it. It is -- we're seeing an interesting dynamic, however, where we're seeing a -- while it's better in the U.S. than we thought, it's actually the international subscribers are taking it more often than the U.S. I don't know why at this point, but that is the fact. And so as far as -- so the take rate's better. The renewal rates are really not materially different than it is for the baseline Chegg Study. As you can imagine, because Chegg Study is the bigger -- there's more data and information in Chegg Study. So we do -- because we can identify, when you get the Chegg Study Pack, what of those -- even though -- what of those subscriptions you access the most, Chegg Study still is -- you still get more usage in Chegg Study. But yes, it's just doing better than we thought.

All right. The next question is on ARPU. ARPU, I guess, had been flat to slightly down recently, but that was because of product mix. Where do you think ARPU will be by the end of this year? And what should we expect afterwards?

Well I look at -- I think ARPU is going to increase, and I'm not going to predict what it's going to be at the end of this year. I think the way I look at ARPU is over the next several years, 2 to 3 years, let's call it, if the Study Pack or a premium version of our offerings -- and I used to use that because there are likely going to be differing options -- our ARPU should increase. That is success for us, right? The reason we're doing the Study Pack is to increase the average amount that a student pays for us. And so yes, over the next 2 to 3 years, particularly probably starting next year, because you've got to understand we're only offering it right now to new subscribers. So -- and as you know, in a subscription business, in any week, month or quarter, the vast majority of your users are actually renewals, right? And so really, this semester that we're starting right now is the first semester where we'll start to see a more significant number of premium subscribers because it's being offered to new and re-subscribers. And so yes, we would certainly anticipate increased ARPU, like I said, for the next few years.

All right. Fair enough. Another question from the chat. Do you expect video to become a more meaningful aspect of the Study Pack? And does the content creation pathway differ from Expert Q&A?

Yes. So the videos are -- they're not movies. They're not Spielberg movies. They're little, call it, 6 or 8 to 12-minute vignettes that sometimes are done by some of our expert answers. So -- and what it is, it's -- sometimes, it's related to some textbook solutions, and sometimes it's based on concepts. But it's become a bigger part of our portfolio just in the last 2 years. 2 years ago, we didn't have video-based content. And now we have over 30,000 videos, and we continue to do that. Yes, we do believe video will become a bigger part of our offering, and we continue to see increased uses of video on our platform. But it's still early in video just because Chegg Study is 10-plus years old, and the video component of that is relatively new.

Okay. I'm going to combine a few questions here. You've been recently pretty active in the capital markets. Can you tell us why? What are the use of proceeds? And what's the minimum amount of cash you need to run the company?

Yes. So that's several questions there. So yes, we have been active. And for those of you who didn't know, last week, last Tuesday I guess it was -- just the days seem to mash in together when I'm at home, so bear with me here. Every Wednesday is my -- as Dan says, every day is Wednesday, it feels that way. But it is Thursday today, right? But yes, we were active. We went out and did a 0 coupon convertible debt offering at very favorable terms. Well, 0 coupon is very favorable terms. And there's a couple of reasons. First thing is, for those of you who don't know, we have 2 other convertible bond offerings that are currently outstanding, what we call the 2023 bonds and the 2025 bonds. The 2023 bonds, in particular, are deep in the money. And one of the purposes of the raise was to use some of those proceeds to buy back some of those deep in the money bonds and basically the cost of the dilution. The second part and the reason why we went so heavily was -- the reason we raised so much was because of the pricing, which was very favorable, but it also allows us to prefund potentially buying back some of the remaining part of those bonds because they become callable in May of next year. And if they continue to stay deep in the money, it's likely we would call them. And it also allows us to prefund if the 2025s become more deep in the money, once again, to prefund that at favorable rates. As far as the minimum cash needed in the company, I'd say if you have to do bare minimum. I would say, and I say bare minimum, probably $250 million to $500 million. But I want a little bit more capital on the balance sheet than that, which is why we didn't just use the existing cash on the balance sheet to do the repurchase that we did of the 2023 bonds. And that is we want to be in a position where if acquisition -- larger acquisitions become available to us, we have as much flexibility as we can to use, whether it be cash or whether it be stock. Now having said that, you've been with us a long time, the largest acquisition we made is just a little north of $100 million. And that just gets down to real simple that -- and it's not that we haven't looked at larger acquisitions, and there's been a couple of trades here in the last, what, 18 months. Trilogy would be a good example of that. That went to 2U in structure. But -- and we took a quick look at both of those. For a variety of reasons, they didn't make sense. And -- but we want to be in a position where if assets become available, we get a look, and we just want to have the capital in place to do that. Yes, nothing more than that.

All right. That's great. And that's actually a good segue into the next question on acquisitions. What's missing from your product line? What would you be looking to acquire?

Well there's nothing missing, right? There's nothing we need to have to continue to grow and be very profitable for the next several years. There's nothing we need. Are there assets that would be desirable at the right price? Potentially, yes. The -- and I use the word at the right price. And there's a lot of things we -- that we look at when we evaluate assets. I mean, and -- but there's nothing we need. And that's the beauty of where we find ourselves. I'm not trying to be arrogant about this. I'm really not. It's that our destiny is in our own future, right -- it's in our own hands, excuse me. And so -- but if we could add to that, if we can add a capability, if we could have some content types, for example, into Chegg Study, we would do that at the right price. What we find, however, when we look at acquisitions, is that if they're VC-backed, they're generally too expensive because they want this oversized return. And we have become -- we're the poster child for valuations, right? And everybody is trying to get a valuation like us. And if you're a private company, no, that's not -- it's not -- that doesn't work for us. And when you look at the -- we've done 3 kind of reasonably sized acquisitions, and it's no coincidence that 2 of the 3 were from -- we bought companies that weren't VC-backed, right? They were owned by 2 individuals each, which is our Writing Tools product and the most recent one, Mathway, where they weren't looking for crazy VC-type valuations. What they were looking for was an ability to come onto a platform where they could actually take advantage of a platform and drive their business to greater heights. And we've certainly seen that with the -- with our Writing Tools product, and we believe we'll see that with Mathway. Mathway is obviously very early. We've only owned it for about a month or so -- no, it's a couple of months. But yes, we're always looking at the landscape in ed tech. And if there's assets that become available, that leverage our brand, our data, our user base and are affordable, we've got the capital to make an acquisition.

All right. Great. Again, going to the chat. There've been a lot of surveys about expected declines in college enrollment this fall. What are you seeing?

Yes. It's interesting, right? I think what we're seeing, and it's -- we will only know in the next few weeks. But I think what we're seeing is this, and we look at this quite a lot, is that I think you're going to see declines particularly in the 4-year residential schools. I think you'll see declines in enrollment. Don't know what that will be, call it, 5% to 10%. But what I -- we think we'll see is that you're going to see an increase in online schools, and you're going to see an increase in community colleges because what you're going to see, we believe, is there's going to be less students, particularly incoming freshmen, that will either take a gap year or they'll decide to just stay at home and take classes from home for that first year. And I've got a sample size of one on that, by the way. A good example of this one is Nathan Schultz, who runs our learning services, Chegg Study. And all of the stuff that we've just been talking about, his son, [ Tyler ], was supposed to head to an East Coast school, and I forget which school it was. And he decided he didn't want to be traveling, didn't want to be on campus. And he just signed up to do some of his early college work with SNHU, Southern New Hampshire University, which is the largest or maybe the -- probably the largest -- almost either first or second-largest institution in the nation, right? And so what -- he's done that. So we think -- we believe there's going to be a surge to those online schools, the SNHUs, the Western Governors and community colleges because kids don't want to be on-campus. And so when you net it all out, my guess is, our guess is that it's -- when I say 5% to 10% on the 4-year residential schools, when you add in the online and you added community colleges, we may see enrollments down, call it, 5% or so. That would be our assessment at this point. And that's what we're pointing to.

In terms of that mix shift -- yes, I'm sorry. That mix shift on your business is really -- doesn't really make a difference?

It doesn't make a big difference for us, right? It's -- the kids still go online to get help in their -- during their education. So yes, we're -- it's less relevant to us as it were. Now if there's less kids on-campus, it's a little bit more relevant to us because they can't access online campus help. But in general, our plan right now, as we gave our guidance for the second half of the year, was 5% to 10% down on enrollments in the U.S. I'm talking specifically in the U.S. And that probably the vast majority of students are in a hybrid model or an online-only model. And I think you're seeing at this point is that it's significantly a hybrid model. And...

Yes. My son is, right now, in the next room on a Zoom class. So again, my data point of one. So there we go.

Exactly.

I think we're going to have to end this here. Andy and Tracey, really appreciate it. It's been really insightful. And again, everybody that dialed in, appreciate your help as well. And anything else you need, just type in, feel free to follow up with me. Thanks so much.

Okay. Thank you, everybody.