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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________             
Commission file number 001-36180
chgg-20210930_g1.jpg
CHEGG, INC.
(Exact name of registrant as specified in its charter)

Delaware 20-3237489
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
3990 Freedom Circle
Santa Clara, CA, 95054
(Address of principal executive offices)
(408) 855-5700
(Registrant’s telephone number, including area code)

Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.001 par value per shareCHGGThe New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer
Non-accelerated filer
 (Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x
As of October 25, 2021, the Registrant had 144,947,411 outstanding shares of Common Stock.





TABLE OF CONTENTS
     Page
   
   
    
   
   
  

Unless the context requires otherwise, the words “we,” “us,” “our,” “Company,” and “Chegg” refer to Chegg, Inc. and its subsidiaries taken as a whole.

Chegg, Chegg.com, Chegg Study, internships.com, Research Ready, EasyBib, the Chegg “C” logo, and Thinkful, are some of our trademarks that may be used in this Quarterly Report on Form 10-Q. Solely for convenience, our trademarks, trade names, and service marks that may be referred to in this Quarterly Report on Form 10-Q appear without the ®, ™ and SM symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names. Other trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

2


NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, our objectives for future operations, and the impact of the ongoing coronavirus (COVID-19) pandemic on our financial condition and results of operations are forward-looking statements. The words “believe,” “may,” “will,” “would,” “could,” “estimate,” “continue,” “anticipate,” “intend,” “project,” “endeavor,” “expect,” “plans to,” “if,” “future,” “likely,” “potentially,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Moreover, we operate in a very competitive and rapidly changing environment where new risks emerge from time to time, such as the COVID-19 pandemic. Many of the risks and uncertainties are currently elevated by, and may or will continue to be elevated by, the current COVID-19 pandemic. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

Our forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update or revise publicly these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
3

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CHEGG, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for number of shares and par value)
(unaudited)
 September 30,
2021
December 31,
2020
Assets
Current assets  
Cash and cash equivalents$713,837 $479,853 
Short-term investments1,038,345 665,567 
Accounts receivable, net of allowance of $111 and $153 at September 30, 2021 and December 31, 2020, respectively
9,302 12,913 
Prepaid expenses35,164 12,776 
Other current assets29,316 11,846 
Total current assets1,825,964 1,182,955 
Long-term investments813,500 523,628 
Textbook library, net15,834 34,149 
Property and equipment, net156,121 125,807 
Goodwill290,499 285,214 
Intangible assets, net43,573 51,249 
Right of use assets19,520 24,226 
Other assets22,484 24,030 
Total assets$3,187,495 $2,251,258 
Liabilities and stockholders' equity  
Current liabilities  
Accounts payable$10,518 $8,547 
Deferred revenue49,983 32,620 
Accrued liabilities73,320 68,565 
Total current liabilities133,821 109,732 
Long-term liabilities  
Convertible senior notes, net1,676,749 1,506,922 
Long-term operating lease liabilities14,137 19,264 
Other long-term liabilities8,271 5,705 
Total long-term liabilities1,699,157 1,531,891 
Total liabilities1,832,978 1,641,623 
Commitments and contingencies
Stockholders' equity:  
Preferred stock, $0.001 par value per share, 10,000,000 shares authorized, no shares issued and outstanding
  
Common stock, $0.001 par value per share: 400,000,000 shares authorized; 144,901,435 and 129,343,524 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
145 129 
Additional paid-in capital1,717,421 1,030,577 
Accumulated other comprehensive (loss) income(1,552)1,530 
Accumulated deficit(361,497)(422,601)
Total stockholders' equity1,354,517 609,635 
Total liabilities and stockholders' equity$3,187,495 $2,251,258 
See Notes to Condensed Consolidated Financial Statements.
4

CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Net revenues$171,942 $154,018 $568,798 $438,617 
Cost of revenues67,102 62,370 199,194 148,284 
Gross profit104,840 91,648 369,604 290,333 
Operating expenses:
Research and development43,269 44,041 130,995 123,956 
Sales and marketing27,239 24,625 75,139 60,621 
General and administrative33,971 40,784 111,560 98,221 
Total operating expenses104,479 109,450 317,694 282,798 
Income (loss) from operations361 (17,802)51,910 7,535 
Interest expense, net and other income (expense), net:
Interest expense, net(1,633)(17,468)(5,263)(44,320)
Other income (expense), net8,670 (804)(66,618)7,396 
Total interest expense, net and other income (expense), net7,037 (18,272)(71,881)(36,924)
Income (loss) before provision for income taxes7,398 (36,074)(19,971)(29,389)
Provision for income taxes747 1,066 5,793 2,875 
Net income (loss)$6,651 $(37,140)$(25,764)$(32,264)
Net income (loss) per share
Basic$0.05 $(0.29)$(0.18)$(0.26)
Diluted$0.05 $(0.29)$(0.18)$(0.26)
Weighted average shares used to compute net income (loss) per share
Basic144,746 126,194 140,775 124,162 
Diluted146,699 126,194 140,775 124,162 
See Notes to Condensed Consolidated Financial Statements.

5

CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Net income (loss)$6,651 $(37,140)$(25,764)$(32,264)
Other comprehensive (loss) income
Change in net unrealized (loss) gain on investments, net of tax(455)(1,642)(1,974)1,922 
Change in foreign currency translation adjustments, net of tax(127)1,125 (1,108)507 
Other comprehensive (loss) income(582)(517)(3,082)2,429 
Total comprehensive income (loss)$6,069 $(37,657)$(28,846)$(29,835)
See Notes to Condensed Consolidated Financial Statements.

6

CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
Three Months Ended September 30, 2021
Common Stock 
SharesPar 
Value
Additional Paid-In
Capital
 Accumulated Other Comprehensive (Loss) Income Accumulated
Deficit
 Total Stockholders’ Equity
Balances at June 30, 2021
144,621 $145 $1,706,855 $(970)$(368,148)$1,337,882 
Issuance of common stock upon exercise of stock options and ESPP14 — 106 — — 106 
Net share settlement of equity awards266 — (14,697)— — (14,697)
Share-based compensation expense— — 25,157 — — 25,157 
Other comprehensive loss— — — (582)— (582)
Net income— — — — 6,651 6,651 
Balances at September 30, 2021
144,901 $145 $1,717,421 $(1,552)$(361,497)$1,354,517 

Three Months Ended September 30, 2020
Common Stock 
SharesPar 
Value
Additional Paid-In
Capital
 Accumulated Other Comprehensive (Loss) Income Accumulated
Deficit
 Total Stockholders’ Equity
Balances at June 30, 2020
124,123 $124 $907,908 $1,850 $(411,504)$498,378 
Equity component of 2026 convertible senior notes, net of issuance costs— — 237,462 — — 237,462 
Purchase of 2026 convertible senior notes capped call— — (103,400)(103,400)
Equity component related to conversions of 2023 convertible senior notes— — (345,552)— — (345,552)
Issuance of common stock upon conversion of 2023 convertible senior notes4,182 4 327,137 — — 327,141 
Proceeds from capped call related to conversions of 2023 convertible senior notes— — 57,414 — — 57,414 
Issuance of common stock upon exercise of stock options and ESPP106 1 1,196 — — 1,197 
Net share settlement of equity awards243 — (11,120)— — (11,120)
Share-based compensation expense— — 21,529 — — 21,529 
Other comprehensive loss— — — (517)— (517)
Net loss— — — — (37,140)(37,140)
Balances at September 30, 2020
128,654 $129 $1,092,574 $1,333 $(448,644)$645,392 


7

Nine Months Ended September 30, 2021
Common Stock 
SharesPar 
Value
Additional Paid-In
Capital
 Accumulated Other Comprehensive (Loss) Income Accumulated
Deficit
 Total Stockholders’ Equity
Balances at December 31, 2020
129,344 $129 $1,030,577 $1,530 $(422,601)$609,635 
Cumulative-effect adjustment related to adoption of ASU 2020-06— — (465,006)— 86,868 (378,138)
Issuance of common stock in connection with equity offering, net of offering costs10,975 11 1,091,455 — — 1,091,466 
Equity component on conversions of 2023 notes and 2025 notes— — (236,920)— — (236,920)
Issuance of common stock upon conversion of 2023 notes2,983 3 235,518 — — 235,521 
Net proceeds from capped call related to conversions and extinguishments of 2023 notes and 2025 notes— — 67,769 — — 67,769 
Issuance of common stock upon exercise of stock options and ESPP178 — 5,371 — — 5,371 
Net share settlement of equity awards1,421 2 (89,339)— — (89,337)
Share-based compensation expense— — 77,996 — — 77,996 
Other comprehensive loss— — — (3,082)— (3,082)
Net loss— — — — (25,764)(25,764)
Balances at September 30, 2021
144,901 $145 $1,717,421 $(1,552)$(361,497)$1,354,517 

Nine Months Ended September 30, 2020
Common Stock 
SharesPar 
Value
Additional Paid-In
Capital
 Accumulated Other Comprehensive (Loss) Income Accumulated
Deficit
 Total Stockholders’ Equity
Balances at December 31, 2019
121,584 $122 $916,095 $(1,096)$(416,292)$498,829 
Cumulative-effect adjustment related to adoption of ASU 2016-13— — — — (88)(88)
Equity component of 2026 convertible senior notes, net of issuance costs— — 237,462 — — 237,462 
Purchase of 2026 convertible senior notes capped call— — (103,400)— — (103,400)
Equity component related to conversions of 2023 convertible senior notes— — (345,552)— — (345,552)
Issuance of common stock upon conversion of 2023 convertible senior notes4,182 4 327,137 — — 327,141 
Proceeds from capped call related to conversions of 2023 convertible senior notes— — 57,414 — — 57,414 
Issuance of common stock upon exercise of stock options and ESPP778 1 9,233 — — 9,234 
Net share settlement of equity awards2,110 2 (65,224)— — (65,222)
Share-based compensation expense— — 59,409 — — 59,409 
Other comprehensive income— — — 2,429 — 2,429 
Net loss— — — — (32,264)(32,264)
Balances at September 30, 2020
128,654 $129 $1,092,574 $1,333 $(448,644)$645,392 
See Notes to Condensed Consolidated Financial Statements.
8

CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Nine Months Ended
September 30,
 20212020
Operating activities 
Net loss$(25,764)$(32,264)
Adjustments to reconcile net loss to net cash provided by operating activities:
Print textbook depreciation expense9,024 10,699 
Other depreciation and amortization expense46,273 33,088 
Share-based compensation expense76,157 59,409 
Amortization of debt discount and issuance costs4,509 42,910 
Repayment of convertible senior notes attributable to debt discount (14,912)
Loss on early extinguishment of debt78,152 3,315 
Loss on change in fair value of derivative instruments, net7,148  
Loss from write-off of property and equipment1,857 1,057 
Loss from impairment of strategic equity investment 10,000 
Gain on sale of strategic equity investments(12,496) 
Loss (gain) on textbook library, net8,765 (2,028)
Operating lease expense, net of accretion4,527 3,400 
Restructuring charges1,851  
Other non-cash items498 (102)
Change in assets and liabilities, net of effect of acquisition of businesses:  
Accounts receivable3,593 106 
Prepaid expenses and other current assets(31,070)(6,178)
Other assets9,472 (2,638)
Accounts payable1,820 (1,634)
Deferred revenue17,363 32,239 
Accrued liabilities10,552 34,276 
Other liabilities(4,108)(2,088)
Net cash provided by operating activities208,123 168,655 
Investing activities  
Purchases of property and equipment(67,126)(57,457)
Purchases of textbooks(10,666)(49,641)
Proceeds from disposition of textbooks7,815 7,012 
Purchases of investments(1,574,060)(968,106)
Maturities of investments893,315 412,046 
Purchase of strategic equity investment (2,000)
Proceeds from sale of strategic equity investments16,076  
Acquisition of businesses, net of cash acquired(7,891)(92,796)
Net cash used in investing activities(742,537)(750,942)
Financing activities  
Proceeds from common stock issued under stock plans, net5,373 9,236 
Payment of taxes related to the net share settlement of equity awards(89,339)(65,224)
Proceeds from issuance of convertible senior notes, net of issuance costs 984,096 
Purchase of convertible senior notes capped call (103,400)
Proceeds from equity offering, net of offering costs1,091,466  
Repayment of convertible senior notes(300,755)(159,677)
Proceeds from exercise of convertible senior notes capped call69,005 57,414 
Payment of escrow related to acquisition(7,451) 
Net cash provided by financing activities768,299 722,445 
Net increase in cash, cash equivalents and restricted cash233,885 140,158 
Cash, cash equivalents and restricted cash, beginning of period481,715 389,432 
Cash, cash equivalents and restricted cash, end of period$715,600 $529,590 
    
 Nine Months Ended
September 30,
 20212020
Supplemental cash flow data:
Cash paid during the period for:  
Interest$1,053 $1,546 
Income taxes, net of refunds$5,610 $2,450 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$5,934 $5,174 
Right of use assets obtained in exchange for lease obligations:
Operating leases$ $1,713 
Non-cash investing and financing activities:  
Accrued purchases of long-lived assets$1,837 $6,102 
Accrued escrow related to acquisition$ $7,451 
Issuance of common stock related to repayment of convertible senior notes$235,521 $327,141 

September 30,
20212020
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$713,837 $527,541 
Restricted cash included in other current assets 313 
Restricted cash included in other assets1,763 1,736 
Total cash, cash equivalents and restricted cash$715,600 $529,590 
See Notes to Condensed Consolidated Financial Statements.
9

CHEGG, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Background and Basis of Presentation

Company and Background

Chegg, Inc. (Chegg, the Company, we, us, or our), headquartered in Santa Clara, California, was incorporated as a Delaware corporation in July 2005. Millions of people Learn with Chegg. We strive to improve educational outcomes by putting the student first. We support students on their journey from high school to college and into their career with tools designed to help them learn their course materials, succeed in their classes, save money on required materials, and learn the most in-demand skills. Our services are available online, anytime and anywhere.

Basis of Presentation

The accompanying condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive income (loss), and the condensed consolidated statements of stockholders' equity for the three and nine months ended September 30, 2021 and 2020, the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020, and the related footnote disclosures are unaudited. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, including normal recurring adjustments, necessary to present fairly our financial position as of September 30, 2021, our results of operations, results of comprehensive income (loss), and stockholders' equity for the three and nine months ended September 30, 2021 and 2020, and cash flows for the nine months ended September 30, 2021 and 2020. Our results of operations, results of comprehensive income (loss), stockholders' equity, and cash flows for the nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year.

We operate in a single segment. Our fiscal year ends on December 31 and in this report we refer to the year ended December 31, 2020 as 2020.

The condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the Annual Report on Form 10-K) filed with the U.S. Securities and Exchange Commission (SEC).

Except for our policies on convertible senior notes, net, share-based compensation expense, and net income (loss) per share, there have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report on Form 10-K. Our policies on convertible senior notes, net and net income (loss) per share were updated as a result of our adoption of Accounting Standards Update (ASU) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity on January 1, 2021 under the modified retrospective method. For further information on ASU 2020-06, see the section below titled “Recent Accounting Pronouncements” of this Note 1, “Background and Basis of Presentation.”

Convertible Senior Notes, net

In August 2020, we issued $1.0 billion in aggregate principal amount of 0% convertible senior notes due in 2026 (2026 notes). In March 2019, we issued $700 million in aggregate principal amount of 0.125% convertible senior notes due in 2025 (2025 notes) and in April 2019, the initial purchasers fully exercised their option to purchase $100 million of additional 2025 notes for aggregate total gross proceeds of $800 million. In April 2018, we issued $345 million in aggregate principal amount of 0.25% convertible senior notes due in 2023 (2023 notes). Collectively, the 2026 notes, 2025 notes, and the 2023 notes are referred to as the “notes.” The notes, including the embedded conversion features, are accounted for under the traditional convertible debt accounting model entirely as a liability net of unamortized issuance costs. The carrying amount of the liability is classified as a current liability if we have committed to settle with current assets; otherwise, we classify it as a long-term liability as we retain the election to settle conversion requests in shares of our common stock. The embedded conversion features are not remeasured as long as they do not meet the separation requirement of a derivative; otherwise, they are classified as derivative instruments and recorded at fair value with changes in fair value recorded in other income (expense), net on our condensed consolidated statements of operations. The fair value of any derivative instruments related to the notes are determined utilizing Level 2 inputs. Issuance costs are amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the term of the notes. In accounting for conversions of the notes, the carrying amount of the converted notes is reduced by the total consideration paid or issued for the respective converted notes and the
10

difference is recorded to additional paid-in capital on our condensed consolidated balance sheets. In accounting for extinguishments of the notes, the reacquisition price of the extinguished notes is compared to the carrying amount of the respective extinguished notes and a gain or loss is recorded in other income (expense), net on our condensed consolidated statements of operations.

Share-based Compensation Expense

Share-based compensation expense for restricted stock units (RSUs), performance-based restricted stock units (PSUs) with either a market-based condition or financial performance targets, and the employee stock purchase plan (ESPP) is accounted for under the fair value method based on the grant-date fair value of the award. Share-based compensation expense for RSUs and PSUs with financial performance targets is measured based on the closing fair market value of the Company’s common stock, PSUs with a market-based condition is estimated using a Monte Carlo simulation model, and the ESPP is estimated using the Black-Scholes-Merton option pricing model. We recognize share-based compensation expense, subject to continuing service over the requisite service period, which is generally the vesting period, on a straight-line basis for RSUs and the ESPP and on a graded basis for PSUs. Share-based compensation expense for PSUs with a market-based condition is recognized regardless of whether the market condition is satisfied whereas share-based compensation expense for PSUs with financial performance targets is recognized upon estimated or actual achievement of such targets. These amounts are reduced by estimated forfeitures, which are estimated at the time of the grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by adjusting net income (loss) for all related interest expense and gains and losses recognized during the period, net of tax, and giving effect to all potential shares of common stock, including stock options, PSUs, RSUs, and shares related to convertible senior notes, to the extent dilutive. This assumes that all stock options and dilutive convertible shares were exercised or converted and is computed by applying the treasury stock method for outstanding stock options, PSUs, and RSUs, and the if-converted method for outstanding convertible senior notes. Under the treasury stock method, options, PSUs, and RSUs are assumed to be exercised or vested at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible senior notes are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities; the disclosure of contingent liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience, knowledge of current business conditions, and various other factors we believe to be reasonable under the circumstances. These estimates are based on management’s knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ from these estimates, and such differences could be material to our financial position and results of operations. Except for estimates related to the grant-date fair value of PSUs with a market-based condition, there have been no material changes in our use of estimates during the nine months ended September 30, 2021 as compared to the use of estimates disclosed in Part II, Item 8 “Consolidated Financial Statements and Supplementary Data” contained in our Annual Report on Form 10-K for the year ended December 31, 2020.

Reclassification of Prior Period Presentation

In order to conform with current period presentation, $6.6 million of current operating lease liabilities have been reclassified to accrued liabilities on our condensed consolidated balance sheet as of December 31, 2020. This change in presentation does not affect previously reported results.

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Condensed Consolidated Statements of Operations Details

Other income (expense), net consists of the following (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Loss on early extinguishment of debt(1)
$ $(3,315)$(78,152)$(3,315)
Loss on change in fair value of derivative instruments, net(1)
  (7,148) 
Gain on sale of strategic equity investments(2)
7,158  12,496  
Interest income1,485 2,539 5,385 10,588 
Other27 (28)801 123 
Total other income (expense), net
$8,670 $(804)$(66,618)$7,396 
(1) For further information, see Note 7, “Convertible Senior Notes.”
(2) For further information, see Note 4, “Cash and Cash Equivalents, and Investments.”

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

In May 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 aims to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange based on the economic substance of the modification or exchange. Early adoption is permitted and the guidance must be applied prospectively to all modifications or exchanges that occur on or after the date of adoption. The guidance is effective for annual periods beginning after December 15, 2021, and we are currently in the process of evaluating the impact of this guidance.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. ASU 2020-06 simplifies the guidance in Accounting Standards Codification (ASC) 470-20, Debt - Debt with Conversion and Other Options. Under ASU 2020-06, convertible instruments with embedded conversion features, that are not required to be accounted for as a derivative or that do not result in a substantial premium, are no longer required to be separated from the host contract thereby eliminating the cash conversion feature model. Instead, these convertible debt instruments will be accounted for as a single liability measured at amortized cost under the traditional convertible debt accounting model. ASU 2020-06 also requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share.

We adopted ASU 2020-06 on January 1, 2021 under the modified retrospective method applied to convertible senior notes outstanding as of January 1, 2021 and have not changed previously disclosed amounts or provided additional disclosures for comparative periods. Adoption of ASU 2020-06 resulted in an increase to convertible senior notes of $378.1 million and a decrease to additional paid-in capital of $465.0 million due to the application of the traditional convertible debt model and no longer separating the embedded conversion feature. Accumulated deficit also decreased by $86.9 million due to the reduction in non-cash interest expense related to the debt discount and we expect interest expense to decrease in future periods. Refer to Note 7, “Convertible Senior Notes” for more information.

Note 2. Revenues

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The majority of our revenues are recognized over time as services are performed, with certain revenues being recognized at a point in time.

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The following tables set forth our total net revenues for the periods shown disaggregated for our Chegg Services and Required Materials product lines (in thousands, except percentages):
 Three Months Ended
September 30,
Change
 20212020$%
Chegg Services$146,790 $118,895 $27,895 23 %
Required Materials25,152 35,123 (9,971)(28)
Total net revenues$171,942 $154,018 $17,924 12 

 Nine Months Ended
September 30,
Change
 20212020$%
Chegg Services$482,654 $345,258 $137,396 40 %
Required Materials86,144 93,359 (7,215)(8)
Total net revenues$568,798 $438,617 $130,181 30 

During the three and nine months ended September 30, 2021, we recognized $31.3 million and $32.6 million, respectively, of revenues that were included in our deferred revenue balance at the beginning of each reporting period. During the three and nine months ended September 30, 2020, we recognized $25.4 million and $18.0 million, respectively, of revenues that were included in our deferred revenue balance at the beginning of each reporting period. During the three and nine months ended September 30, 2021, we recognized a reduction of revenues of an immaterial amount and $3.4 million, respectively, from performance obligations satisfied in previous periods primarily due to a change in the estimated variable consideration ascribed to Thinkful. During the three and nine months ended September 30, 2020, we recognized an immaterial amount of previously deferred revenues recognized from performance obligations satisfied in previous periods. During the three and nine months ended September 30, 2021, we recognized $6.2 million and $26.9 million, respectively, of operating lease income from print textbook rentals that we own. During the three and nine months ended September 30, 2020, we recognized $12.0 million and $35.4 million, respectively, of operating lease income from print textbook rentals that we own.

Contract Balances

The following table presents our accounts receivable, net, deferred revenue, and contract assets balances (in thousands, except percentages):
 Change
 September 30,
2021
December 31, 2020$%
Accounts receivable, net$9,302 $12,913 $(3,611)(28)%
Deferred revenue49,983 32,620 17,363 53 
Contract assets16,358 13,243 3,115 24 

During the nine months ended September 30, 2021, our accounts receivable, net balance decreased by $3.6 million, or 28%, primarily due to timing of billings and seasonality of our business. During the nine months ended September 30, 2021, our deferred revenue balance increased by $17.4 million, or 53%, primarily due to increased bookings and seasonality of our business. During the nine months ended September 30, 2021, our contract assets balance increased by $3.1 million, or 24%, primarily due to our Thinkful service.

Note 3. Net Income (Loss) Per Share

Adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity

We adopted ASU 2020-06 on January 1, 2021 under the modified retrospective method applied to convertible senior notes outstanding as of January 1, 2021 and have not changed previously disclosed amounts or provided additional disclosures for comparative periods. ASU 2020-06 requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share. Under the if-converted method, outstanding convertible senior notes are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).

13

The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021
2020(1)
2021
2020(1)
Basic
Numerator:
Net income (loss)
$6,651 $(37,140)$(25,764)$(32,264)
Denominator:
Weighted average shares used to compute net income (loss) per share, basic
144,746 126,194 140,775 124,162 
Net income (loss) per share, basic
$0.05 $(0.29)$(0.18)$(0.26)
Diluted
Numerator:
Net income (loss), diluted
$6,651 $(37,140)$(25,764)$(32,264)
Denominator:
Weighted average shares used to compute net income (loss) per share, basic
144,746 126,194 140,775 124,162 
Options to purchase common stock485    
PSUs and RSUs1,462    
Employee stock purchase plan6    
Weighted average shares used to compute net income (loss) per share, diluted
146,699 126,194 140,775 124,162 
Net income (loss) per share, diluted
$0.05 $(0.29)$(0.18)$(0.26)
(1) As noted above, prior period amounts have not been adjusted due to the adoption of ASU 2020-06 under the modified retrospective method.

The following potential weighted-average shares of common stock outstanding were excluded from the computation of diluted net income (loss) per share because including them would have been anti-dilutive (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Options to purchase common stock 865 515 977 
PSUs and RSUs849 3,394 2,210 3,425 
Shares related to convertible senior notes22,875 8,721 23,876 4,422 
Employee stock purchase plan  9 2 4 
Total common stock equivalents